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2022 (9) TMI 516 - AT - Income TaxRevision u/s 263 by CIT - Capital gain computation - Applicability of section 50C - as per CIT AO failed to make any enquiry on the applicability of section 50C as the ld AO failed to refer the matter to District Valuation Office (DVO) for determining the correct fair market value of the property - HELD THAT - What transpires from the record is that when the ACIT Range-22, New Delhi directed AO to examine the facts in entirety and suggest remedial action in regard to audit objection. He observed, as is evident that there was on record a reply of the assessee wherein he had given explanation of the reasons why provisions of Section 50C are not applicable and why the fair market value which is less than the circle rates should be accepted. The assessee has placed these submissions on record on paper book along with copies of three registered sale deeds in the area in vicinity where property is situated to justify acceptance of fair market value instead of the circle rates. AO vide communication informed Pr.CIT-08, New Delhi in regard to audit objections that the assessee had filed reply along with copies of valuation report, copies of registry of nearby areas and that having considered the same during original assessment proceedings the assessment order was passed and at the same time a request was made that audit objection be considered as settled. AO made a proposal for initiating revision proceedings u/s 263 of the Act by a letter addressed to the Pr. Commission of Income Tax, Delhi-8. Thus, the findings of Ld. CIT(A) that Ld. AO had not considered the application of Section 50C of the Act by proper inquiries or verification is not sustainable. Indeed in the assessment order there is no discussion in respect of Section 50C but what transpires is that the case of assessee was selected for limited scrutiny for examining deduction u/s 54 of the Act and based upon the analysis an addition was made by making a disallowance u/s 54 - Thus, even if there is no specific mention of the examination of case u/s 50C of the Act. The fact that in limited scrutiny assessee s claim of deduction u./s 54 was examined in itself is comprehensive and would cover all other aspects which entitle not only the right to deduction but also quantum of deduction. Merely because the assessment order is silent on that aspect that cannot be a ground for invoking powers u/s 263. Clear distinction between inadequate inquiry and lack of inquiry has been examined by Hon ble Delhi High Court in case of Gee Vee Enterprises 1974 (10) TMI 29 - DELHI HIGH COURT . There is substance in the argument of Ld. AR that merely on the basis of audit objection powers u/s 263 could not have been exercised. The impugned order u/s 263, does not indicate that the power was exercised on the basis of a finding of the assessment order being erroneous and prejudicial to the Revenue by examining facts and record by the ld. Revisional Authority beyond the audit objections rather it is obvious that in attempt to meet the audit objections and to take them to a reasonable end, the power u/s 263 was exercised and same cannot be sustained. Doctrine of merger - Whether powers u/s 263 could not be exercised as all facets of claim of deduction under capital gains on sale of capital assets, got merged in appeal order passed by Ld. CIT(A), as being First Appellate Authority it had power of enhancement on issues which was not considered by Ld. AO in assessment proceedings ? - HELD THAT - As when at one hand, the matter on record suggests AO had gone into the question of applicability of Section 50C and on other hand ld, CIT(A) has heard the matter determining the issue deduction available u/s 50C, in favour of assessee by order dated 04.04.2019 then by virtue of doctrine merger the order of ld. AO stood merged in the order of Ld. First Appellate Authority dated 04.04.2019. Fact of decision of appeal before CIT(A) and pendency of appeal before Triunal, was mentioned by Ld. AO in its letter dated 25.06.2019 available at page no. 298 of the paper book for forwarding proposal for initiating revision proceedings u/s 263, then Ld. Revisional Authority was not justified in exercising powers u/s 263 in regard to assessment order dated 27.12.2017. As by then Revenue had approached the Tribunal against the order of ld. CIT(A) and the Revenue had availed alternate remedy of challenging the order of ld. CIT(A) wherein in regard to the present controversy also grounds were available, as to if the Tax authorities below had fallen in error in not considering applicability of section 50C of the Act or that reference to DVO was mandatory. Appeal of assessee allowed.
Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Applicability of Section 50C of the Income Tax Act, 1961. 3. Examination and verification by the Assessing Officer (AO). 4. Merger of assessment order in the appellate order. 5. Basis of audit objection for exercising revisional powers under Section 263. Issue-wise Detailed Analysis: 1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961: The Assessee challenged the jurisdiction assumed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263, arguing that the assessment order dated 27.12.2017 was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal held that the Pr. CIT's order was not sustainable as it was based on audit objections and not on independent examination of facts, thereby making the exercise of jurisdiction under Section 263 unjustified. 2. Applicability of Section 50C of the Income Tax Act, 1961: The Pr. CIT found the assessment order erroneous for not applying Section 50C, which mandates adopting the value assessed by the Stamp Valuation Authority if it is higher than the actual sale consideration. The Tribunal observed that Section 50C uses the word "may," indicating discretion rather than a mandatory requirement to refer the matter to the District Valuation Officer (DVO). The Tribunal cited various judicial precedents supporting that an AO's decision not to refer to the DVO, if justified by evidence, does not render the assessment order erroneous. 3. Examination and verification by the Assessing Officer (AO): The Tribunal noted that the AO had examined the fair market value of the property during the assessment proceedings, supported by the Assessee's submissions, valuation reports, and comparable sale deeds. The AO's decision not to refer the matter to the DVO was based on this detailed examination. The Tribunal emphasized that a lack of discussion in the assessment order does not imply a lack of inquiry if the AO had indeed considered the relevant facts. 4. Merger of assessment order in the appellate order: The Tribunal highlighted that the assessment order had merged with the appellate order of the CIT(A), who had the authority to examine all aspects, including the applicability of Section 50C. The CIT(A) had allowed the Assessee's appeal, and the Revenue had already challenged this order before the Tribunal. The Tribunal held that the Pr. CIT could not invoke Section 263 to revise an order that had already merged with an appellate order. 5. Basis of audit objection for exercising revisional powers under Section 263: The Tribunal found that the Pr. CIT's action was primarily based on audit objections, which cannot be the sole basis for exercising revisional powers under Section 263. The Tribunal referred to various judicial decisions establishing that audit objections alone do not justify the invocation of Section 263 unless the Pr. CIT independently examines and finds the assessment order erroneous and prejudicial to the interest of the revenue. Conclusion: The Tribunal set aside the impugned order dated 30.03.2021 passed by the Pr. CIT under Section 263, concluding that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal emphasized the need for independent examination by the Revisional Authority and the discretionary nature of Section 50C regarding reference to the DVO. The appeal was allowed in favor of the Assessee.
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