2025 (1) TMI 242 - AT - Income Tax

Revision u/s 263 - AO had added the Fair Market Value (FMV) of the property to the total income of the assessee u/s 56(2)(x) - PCIT observed that the AO should have added u/s 56(2)(x) and actual purchase consideration as unexplained investment u/s 69A - HELD THAT - Assessee failed to explain the nature and source of investment with necessary supporting evidences. Action of the PCIT is in accordance with clear statutory provisions of the Act. Clause (x) of Section 56(2) expands the scope of income from other sources w.e.f. AY.2017-18 and subsequent year to provide that receipt of the sum of money or property by any person without consideration or for inadequate consideration in excess of Rs. 50,000/- shall be chargeable to tax in the hands of recipient under the head Income from other sources . AO should have taxed Rs. 14,93,393/- and not the entire Stamp Duty Value (SVA) u/s 56(2)(x) of the Act. Moreover, AO should have added Rs. 33,18,000/- u/s 69 because assessee did not offer explanation about the nature and source of the investment which was not recorded in his books of account. As held in case of Malabar Industries Co 2000 (2) TMI 10 - SUPREME COURT an incorrect application of law will satisfy the requirement of the order being erroneous. Hence, the PCIT has rightly involved provisions of section 263 of the Act. Whether directions of PCIT in the order u/s 263 of the Act are in order? - We find that there is confirmation and ledger account from the builder, M/s N. Rose Developers Pvt. Ltd., who has accepted payments from the appellant and also signed the documents. The said documents are the basis for the re-opening the assessment u/s 147 of the Act as well as revision proceedings u/s 263 of the Act. It is also a fact that in the payment receipts, different flats numbers are mentioned. It is also submitted that payments for purchase of flat were made from 09.11.2011 to 15.02.2020. Hence, all investments were not made in the current assessment year. Therefore, the addition of the total amount cannot be made in the subject assessment year. We also find that the facts as stated in different stages are contrary to each other, which require further clarification and verification to come to a correct conclusion. Therefore, in the interest of justice and fair play, the matter is set aside to the file of PCIT to make further inquiry with respect to the year of purchase, purchase cost and date-wise payments etc. to determine the amount of investment u/s 69. For statistical purpose, the appeal of the assessee is partly allowed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily revolves around the following core issues:

Whether the Principal Commissioner of Income Tax (PCIT) was justified in revising the assessment order under section 263 of the Income-tax Act, 1961, considering the original assessment and reassessment proceedings.
Whether the delay in filing the appeal by the assessee should be condoned.
Whether the additions made by the Assessing Officer (AO) under section 56(2)(x) of the Act were appropriate, and if the PCIT's directive to add amounts under sections 56(2)(x) and 69A was justified.
Whether the PCIT's order was prejudicial to the interests of the revenue due to the AO's failure to conduct a proper inquiry.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Revision of Assessment under Section 263

Relevant Legal Framework and Precedents: Section 263 of the Income-tax Act allows the PCIT to revise an order that is erroneous and prejudicial to the interests of the revenue. The Supreme Court's decision in Malabar Industries Co. vs. CIT is pivotal, establishing that an incorrect application of law renders an order erroneous.
Court's Interpretation and Reasoning: The PCIT found the AO's order erroneous because it failed to treat the investment as unexplained under section 69A, and the difference in property value was incorrectly taxed under section 56(2)(x).
Key Evidence and Findings: The PCIT noted discrepancies in the AO's assessment, particularly the lack of inquiry into the nature and source of the investment.
Application of Law to Facts: The PCIT's revision was based on the AO's omission to add the correct amounts under the appropriate sections, which was deemed prejudicial to the revenue.
Treatment of Competing Arguments: The assessee argued that the issue was already considered during assessment and that the PCIT should not revise while an appeal is pending with CIT(A). The PCIT countered that the AO's failure to conduct a proper inquiry justified the revision.
Conclusions: The Tribunal upheld the PCIT's revision under section 263, agreeing that the AO's order was erroneous and prejudicial to the revenue.

Issue 2: Condonation of Delay

Relevant Legal Framework and Precedents: Section 253(3) of the Act outlines the time limits for filing appeals, with provisions for condoning delays given sufficient cause.
Court's Interpretation and Reasoning: The Tribunal found the reasons for the delay, as stated in the affidavit, to constitute a sufficient cause, noting that the delay was not willful or deliberate.
Key Evidence and Findings: The delay was attributed to a lack of proper advice from the previous tax consultant and the subsequent discovery of the PCIT's order.
Application of Law to Facts: The Tribunal applied the principle of sufficient cause, condoning the 27-day delay in filing the appeal.
Treatment of Competing Arguments: The Revenue's argument against condonation was dismissed due to the sufficient cause demonstrated by the assessee.
Conclusions: The delay was condoned, allowing the appeal to proceed.

Issue 3: Appropriateness of Additions under Sections 56(2)(x) and 69A

Relevant Legal Framework and Precedents: Section 56(2)(x) pertains to taxing income from other sources, while section 69A deals with unexplained investments.
Court's Interpretation and Reasoning: The Tribunal agreed with the PCIT's bifurcation of the amounts, indicating that the AO should have applied the correct sections for taxation.
Key Evidence and Findings: The PCIT's order highlighted the AO's failure to properly assess the nature and source of the investment, leading to an erroneous order.
Application of Law to Facts: The Tribunal found the PCIT's directive to add amounts under sections 56(2)(x) and 69A appropriate, given the AO's oversight.
Treatment of Competing Arguments: The assessee's argument that the payments were made in earlier years was considered, but the Tribunal emphasized the need for further inquiry.
Conclusions: The Tribunal upheld the PCIT's directive for further inquiry and assessment under the correct sections.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "An incorrect application of law will satisfy the requirement of the order being erroneous."
Core Principles Established: The necessity for proper inquiry by the AO and the PCIT's authority to revise orders that are erroneous and prejudicial to the revenue.
Final Determinations on Each Issue: The Tribunal condoned the delay in filing the appeal, upheld the PCIT's revision under section 263, and directed further inquiry into the appropriateness of additions under sections 56(2)(x) and 69A.

Overall, the judgment underscores the importance of thorough inquiry and correct application of tax provisions by assessing officers, while also emphasizing the PCIT's role in safeguarding revenue interests through revision powers.

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