By Ajay R. Singh
Advocate
2. CIT vs. Smt. Padmavathi
[dated 6th October, 2020; TCA/350/2020] [Income Tax Appellate Tribunal, Madras
‘C’ Bench, Chennai in ITA No. 1306/Chny/2019; Date of order: 2nd
December, 2019 for A.Y.: 2014-2015] (Madras
High Court)
Revision
– Limited scrutiny case – CIT cannot exercise the power of revision u/s 263 to
look into any other issue which the A.O. himself could not look at
The assessee is an
individual and a partner in a firm under the name and style of Sri Ram
Associates. She filed her return of income declaring a total income of Rs.
2,58,110. The return was processed u/s 143(1). Subsequently, the case was
selected under Computer Aided Scrutiny Selection for ‘Limited Scrutiny’ with
regard to purchase of a property by the assessee. The A.O., after hearing the
assessee, verifying the source of funds, completed the assessment by an order
dated 28th December, 2016 u/s 143(3) and made an addition of Rs.
8,00,000.
The PCIT issued a show
cause notice u/s 263 dated 26th October, 2018 to the assessee for
the reason that the assessee had purchased the immovable property by a sale
deed registered for a consideration of Rs. 41,50,000, whereas the guideline
value fixed by the State Government was Rs. 77,19,000 and there was a
difference of Rs. 35,69,000 which was not properly inquired into by the A.O.
and also not considered during the course of assessment. For this reason, the
PCIT proposed to invoke his powers u/s 263.
The assessee submitted her
reply dated 11th January, 2019. The PCIT considered the explanation
and held that in the first place a request has to be made by the assessee for
valuation of the property and nothing is discernible from the records that the
assessee made any request, which leads to an inference that the A.O. did not
apply his mind to the fair market value and the consequential taxability of the
investment as ‘unexplained investment’ u/s 56(2)(vii)(b)(ii). The PCIT further
held that though the A.O. verified the source of funds, he failed to apply the
said provision, namely, section 56(2)(vii)(b)(ii). Thus, the PCIT rejected the
explanation given by the assessee and set aside the assessment and referred
back the same to the A.O. to re-do the assessment.
The assessee challenged the
revision order dated 18th March, 2019 passed u/s 263 by filing an
appeal before the Tribunal. The Tribunal held that the value adopted for stamp
duty purposes is taken as ‘deemed consideration’ u/s 56(2)(vii)(b) and this is
only a deeming provision and there is no occasion for the assessee to explain
the source for deemed consideration. Further, the Tribunal held that since the
assessment was under limited scrutiny, it would be beyond the powers of the
A.O. to look into any other issue which has come to his notice during the
course of assessment and also faulted the PCIT for invoking his power u/s 263.
The Revenue filed an appeal before the High Court.
The High Court considered
the issue as regards the power of the PCIT u/s 263 and whether he could have
set aside the assessment on the ground that the A.O. did not invoke section
56(2)(vii)(b).
Further, the Court observed
that the assessment order shows that the case was selected for limited scrutiny
only on the aspect regarding the sale consideration paid by the assessee for
purchase of the immovable property and the source of funds. The A.O. has noted
that the sale consideration paid by the assessee was Rs. 41,50,000 and she has
paid stamp duty and incurred other expenses of Rs. 5,75,000. The source of
funds was verified and the A.O. was satisfied with the same. The PCIT, while
invoking his power u/s 263, faults the A.O. on the ground that he did not make
proper inquiry. It is not clear as to what in the opinion of the PCIT is
‘proper inquiry’. By using such an expression, it presupposes that the A.O. did
conduct an inquiry. However, in the opinion of the PCIT, the inquiry was not
proper. In the absence of not clearly stating as to why, in the opinion of the
PCIT, the inquiry was not proper, the Court held that the invocation of the
power u/s 263 was not justified.
The Court further observed
that the only reason for setting aside the scrutiny assessment was on the
ground that the guideline value of the property, at the relevant time, was
higher than the sale consideration reflected in the registered document. The
question would be as to what is the effect of the guideline value fixed by the
State Government. There is a long list of decisions of the Supreme Court
holding that guideline value is only an indicator and the same is fixed by the
State Government for the purposes of calculating stamp duty on a deal of
conveyance. Therefore, merely because the guideline value was higher than the
sale consideration shown in the deed of conveyance, cannot be the sole reason
for holding that the assessment is erroneous and prejudicial to the interest of
Revenue.
The A.O. in his limited
scrutiny has verified the source of funds, noted the sale consideration paid
and the expenses incurred for stamp duty and other charges. Furthermore, the
assessee in her reply dated 11th January, 2019 to the show cause
notice dated 26th October, 2018 issued by the PCIT, has specifically
stated that the assessment was getting time-barred; the A.O. took upon himself
the role of a valuation officer u/s 50(C)(2) and found that the guideline value
was not the actual fair market value of the property and the actual
consideration paid was the fair market value and therefore, he did not choose to
make any addition u/s 50(C). The PCIT has not dealt with this specific
objection, but would fault the A.O. for not invoking section 56(2)(vii)(b)(ii)
merely on the ground that the guideline value was higher. The guideline value
is only an indicator and will not always represent the fair market value of the
property and, therefore, the invocation of power u/s 263 by the PCIT was not
sustainable in law.
In the result, the Revenue appeal was
dismissed.
In the morning when thou risest
unwillingly, let this thought be present – I am rising to the work of a human
being
Why then am I dissatisfied if I
am going to do the things for which I exist and for which I was brought into
the world?
— Marcus Aurelius
The sage acts without taking
credit.
She accomplishes without
dwelling on it.
She does not want to display her
worth
— Lao Tzu, Tao Te Ching, Ch.
77
