2022 (1) TMI 782 - AT - Income Tax

Revision u/s 263 by CIT - AO has failed to add the difference between the declared sale consideration and stamp duty value under section 56(2)(vii)(b)(ii) - HELD THAT - The value adopted by PCIT is not backed by any evidence. Secondly, while adopting his own value learned PCIT has completely ignored the Government approved valuer s report furnished by the assessee. Thirdly, he has not considered various submissions of the assessee regarding non-applicability of section 56(2)(vii)(b)(ii) of the Act. Once learned PCIT held that the assessing officer has failed to enquire into the applicability of section 56(2)(vii)(b)(ii), he should have left the issue at that and no further. Whether section 56(2)(vii)(b)(ii) would be applicable to the transaction or not should have been left to the result of enquiry to be conducted by the assessing officer and his decision after proper application of mind. However learned PCIT himself has assumed the role of, both, the assessing officer as well as DVO. This, in our view, is impermissible. Applicability of section 56(2)(vii)(b)(ii) has to be considered by reading the provision as a whole and in the context of various exceptions provided in the provisos to the said provision. This can be done through a proper and complete enquiry being done by the assessing officer. The assessing officer cannot act independently if he is circumscribed by various observations of learned PCIT on merits. We modify the order of Learned PCIT by directing the AO to examine the applicability of section 56(2)(vii)(b)(ii) to the subject transaction relating to purchase of Flat No.B-5102, Trump Tower, Worli without being influenced by any of the observations of learned PCIT on merits. While doing so, he must allow fair and reasonable opportunity to the assessee to establish its case on merits and must decide the issue dealing with all the submissions of the assessee and in the light of relevant case laws to be cited by the assessee. Appeal is partly allowed for statistical purpose.

Summary

Issues:
1. Jurisdiction under section 263 of the Income Tax Act, 1961
2. Application of section 56(2)(vii)(b)(ii) of the Act
3. Adequacy of enquiry by the assessing officer

Jurisdiction under section 263 of the Income Tax Act, 1961:
The appeal challenged the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 for the assessment year 2015-16. The PCIT found the assessment order to be erroneous and prejudicial to the interest of revenue due to the assessing officer's failure to add the differential value between declared sale consideration and stamp duty value under section 56(2)(vii)(b)(ii) of the Act. The PCIT issued a show cause notice, and upon unsatisfactory responses from the assessee, set aside the assessment order for fresh assessment. The appellant contended that the assessment was not erroneous as the assessing officer had examined the property purchase issue during limited scrutiny. However, the ITAT held that the failure to enquire into the applicability of section 56(2)(vii)(b)(ii) rendered the assessment order erroneous, justifying the PCIT's revision.

Application of section 56(2)(vii)(b)(ii) of the Act:
The ITAT observed that the assessing officer did not investigate the applicability of section 56(2)(vii)(b)(ii) despite the difference between declared sale consideration and stamp duty value for the property purchase. The ITAT agreed with the PCIT's decision to revise the assessment order based on this failure. However, the ITAT criticized the PCIT for substituting his own property valuation without evidence and overlooking the government-approved valuer's report provided by the assessee. The ITAT emphasized that the assessing officer should have conducted a thorough enquiry into the applicability of section 56(2)(vii)(b)(ii) independently, without being influenced by the PCIT's observations on the merits.

Adequacy of enquiry by the assessing officer:
The ITAT determined that the assessing officer's failure to investigate the applicability of section 56(2)(vii)(b)(ii) made the assessment order erroneous, justifying the PCIT's revision. However, the ITAT criticized the PCIT for exceeding jurisdiction by making observations on the valuation of the property and not considering the submissions regarding the non-applicability of the Act's section. The ITAT directed the assessing officer to re-examine the applicability of section 56(2)(vii)(b)(ii) without being influenced by the PCIT's observations on merits, ensuring a fair opportunity for the assessee to present its case and citing relevant case laws.

In conclusion, the ITAT partially allowed the appeal for statistical purposes, modifying the PCIT's order and directing a fresh examination of the section's applicability without the PCIT's influence on the assessing officer's decision-making process.