2022 (10) TMI 1285 - AT - Income Tax

Revision u/s 263 - as per CIT AO failed to verify difference between the stamp duty value and agreement value of the flats sold - HELD THAT - We are of the considered view that in the interest of natural justice assessee should be provided with one more opportunity to present its case before the learned PCIT. Accordingly we set aside the impugned order passed by the PCIT and restore all the issues to the file of PCIT for examining them afresh after affording adequate opportunity of being heard to the assessee. Appeal by the assessee is allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal under section 263 of the Income Tax Act, 1961, are as follows:

(a) Whether the learned Principal Commissioner of Income Tax (PCIT) was justified in invoking the revisionary jurisdiction under section 263 merely to take a different view from that of the Assessing Officer (AO), without pointing out any specific error in the AO's order;

(b) Whether the PCIT was correct in holding that the AO failed to verify the difference between the stamp duty value and the agreement value of the flats sold;

(c) Whether the impugned order under section 263 was validly passed despite the absence of service of the show cause notice and the revision order on the assessee;

(d) Whether the PCIT had proper jurisdiction to invoke section 263 in the facts and circumstances of the case, especially when the AO had already conducted reassessment proceedings under section 147 and passed an order accepting the returned income;

(e) The procedural fairness and adherence to principles of natural justice in the passing of the revisionary order under section 263.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Legitimacy of invoking section 263 merely for change of opinion

Relevant legal framework and precedents: Section 263 of the Income Tax Act empowers the PCIT to revise an assessment order if it is erroneous in so far as it is prejudicial to the interests of the revenue. However, it is well-settled that mere difference of opinion between the AO and the PCIT does not justify revision under section 263. Revision can be invoked only if there is an error apparent on the face of the record or if the order is prejudicial to revenue due to such error.

Court's interpretation and reasoning: The Tribunal noted that the learned PCIT invoked section 263 to take a view different from the AO's without pointing out any specific error in the AO's order. The assessee contended that this amounted to impermissible change of opinion, which the law does not allow under section 263.

Key evidence and findings: The AO had passed the assessment order after considering detailed submissions and documents filed by the assessee. The order was passed under section 143(3) read with section 147, indicating reassessment proceedings were duly conducted.

Application of law to facts: Since the AO's order was based on detailed material and was not found to be erroneous on record, the PCIT's attempt to revise the order solely to take a different view was not justified.

Treatment of competing arguments: The revenue argued that the PCIT was entitled to examine the correctness of the AO's order. However, the Tribunal emphasized that such power cannot be exercised to merely substitute the AO's opinion by the PCIT's opinion without identifying any error.

Conclusion: The Tribunal held that invoking section 263 merely for change of opinion is erroneous and not permissible.

Issue (b): Alleged failure of AO to verify difference between stamp duty value and agreement value

Relevant legal framework and precedents: The AO is required to verify material facts relevant to the assessment, including valuation of property transactions, especially where there is a discrepancy between stamp duty value and agreement value.

Court's interpretation and reasoning: The PCIT held that the AO failed to verify the difference between stamp duty value and agreement value of flats sold. The assessee disputed this, stating that all relevant details were furnished and considered during reassessment.

Key evidence and findings: The AO had conducted reassessment under section 147 and passed an order accepting the returned income after considering the details submitted by the assessee.

Application of law to facts: Since the AO had already examined the issue and accepted the income, the Tribunal found no justification for the PCIT's conclusion that the AO failed to verify the relevant facts.

Treatment of competing arguments: The revenue relied on the PCIT's order, but the Tribunal emphasized the procedural history and the AO's detailed consideration of facts.

Conclusion: The Tribunal did not uphold the PCIT's finding of failure on the AO's part to verify the difference in values.

Issue (c): Validity of revision order in absence of service of show cause notice and order

Relevant legal framework and precedents: Principles of natural justice require that the assessee be given an opportunity of hearing before passing an order under section 263. Service of the show cause notice and the order is essential to ensure such opportunity.

Court's interpretation and reasoning: The Tribunal noted that the assessee submitted that neither the show cause notice nor the order under section 263 was received by it. The PCIT passed the order in absence of any submission from the assessee.

Key evidence and findings: The assessee only received the physical copy of the order after it was handed over by the AO. The show cause notice was not complied with by the assessee, but the assessee contended it was never served.

Application of law to facts: The Tribunal emphasized the requirement of affording adequate opportunity of hearing and held that the impugned order was passed without complying with this essential procedural safeguard.

Treatment of competing arguments: The revenue relied on the impugned order, but the Tribunal prioritized the principles of natural justice and procedural fairness.

Conclusion: The order under section 263 was set aside on the ground of violation of natural justice due to non-service and non-hearing.

Issue (d): Jurisdiction of PCIT to invoke section 263 after reassessment and acceptance of income

Relevant legal framework and precedents: The PCIT's jurisdiction under section 263 is supervisory and limited to cases where the AO's order is erroneous and prejudicial to revenue. If the AO has conducted reassessment and accepted the income after considering all relevant material, the PCIT's power to revise is circumscribed.

Court's interpretation and reasoning: The Tribunal observed that the AO had passed the assessment order under section 143(3) read with section 147 after reassessment, accepting the returned income. The PCIT's initiation of revision proceedings without identifying any error was therefore improper.

Key evidence and findings: The reassessment order dated 18/12/2018 was on record and was not challenged by the revenue before the Tribunal.

Application of law to facts: The PCIT's jurisdiction was not properly invoked as the AO's order was not erroneous or prejudicial to revenue.

Treatment of competing arguments: The revenue's reliance on the PCIT's supervisory role was rejected insofar as it was exercised without valid grounds.

Conclusion: The Tribunal held that the PCIT lacked jurisdiction to revise the order in the absence of any error.

Issue (e): Procedural fairness and natural justice