As the AO failed to consider the matter of the land purchase, revisional authority under Section 263 was properly exercised

Fact and issue of the case

This appeal filed by the assessee is directed against the order passed by the learned Principal Commissioner of Income-Tax, Ahmedabad-1 [hereinafter referred to as “PC/T”] dated 10.03.2021, in exercise of his revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year 2015-16

The grounds of appeal raised by the assessee read as under

That the Ld. Pr. CIT has erred in law in assuming jurisdiction under section 263 of the Income Tax Act on the ground that no inquiry has been conducted for the purchase of property by the assessing officer while passing order under section 143(3) of the Act

That the Ld. Pr. CIT has erred in law in assuming jurisdiction under section 263 of the Income Tax Act as the impugned assessment order is neither erroneous nor prejudicial to the interest of revenue

That the Ld. Pr. CIT further erred in law and facts in not appreciating the detailed submission of the assessee dated 23rd December, 2019 in a right

That the Ld. Pr. CIT has also erred in law in setting aside the whole assessment order and directing the assessing officer to redo the assessment de

That the appellant seeks leave to add, amend, alter, abandon or substitute any of the above grounds during the hearing of the appeal

At the outset itself, it was stated that the issue on which the revisionary power was exercised By the Ld. PC/T was pertaining to the non-invocation by the Assessing Officer of Section 56(2)(vii)(b) of the Act to the transaction of immovable property, being land, purchased by the assessee as a co-owner along with other two persons. The contention being that the property was purchased for a sum far below its stamp duty value and thus warranted the addition to be made to the income of the assessee of the amount short paid as compared to its stamp duty value, as per the provisions of Section 56(2)(vii)(b) of the Act. The Assessing Officer having not invoked the said section, the assessment order passed by him therefore was found to be erroneous and prejudicial to the interest of the Revenue by the Ld. PC/T

Our attention was first drawn to the facts of the issue requiring invocation of Section 56(2)(vii)(b) of the Act by the Assessing Officer as per the Ld. PC/T, from paragraph Nos. 2 & 3 of the order passed by the Ld. PC/T under Section 263 of the Act as under

On perusal of records, it is observed that the assessee along with two other co-owners namely Shri Aslam Fazlurrehman Kagdi & Shri Mohammed Fazlurrehman Kagdi (all three having equal share of 1/3rd each) had purchased an immovable property being land situated at Block / Survey Number 219, Ishanpur, Ahmedabad on 05.11.2014. The said property was purchased vide deed number 2173/2014 for a total consideration of Rs 59,01,000/- from S/Sri Manubhai Somabhai Patel & Dashrathbhai Somabhai Patel (sellers). Mohammed Aslam Abdul Kader Kureshi was the confirming party in this land transaction. Thus, having 1/3rdshare in the said property, the assessee, Shri Asad Fazlurrehman Kagdi had paid Rs. 19,67,000/- (being 1/3rd of Rs.59,01,000/-). It was further observed that assessee, along with two co-owners, had also paid stamp duty of Rs. 7,90,800/- in connection while making the said purchase. The Stamp Duty Rates applicable in Gujarat is as under

Basic rate of Stamp Duty	3.5%
Surcharge @40% on basic rate	1.4%
Actual Stamp duty payable on the sale of immovable property	4.9%

Therefore, the Fair Market Value of theproperty in accordance with its Stamp Duty Value works out at Rs 1,61,38,775/- (7,90,800 x 100/4.9). Hence, the Fair Market Value of the entire property exceeded the claimed sales consideration by Rs. 1,02,37, 775/-(Rs. 1,61,38,775/- less Rs.59, 01,000/-

Thus, in the case of the assessee, it appears that provisions of section 56(2)(vii)(b)(ii) of the Act should attract as the assessee had purchased the aforesaid immovable property for a consideration which is less than stamp duty valuation of the property. The difference of Rs.34,12,590/- (being 1/3rd of assessee’s share in total differential of Rs.1,02,3 7,775/-) was to be taxed in his hands. The aforesaid matter was not examined by the Assessing Officer while framing the assessment order

Observation of the court

We have heard the contention of the learned Counsel for the assessee and we do not find any merit in the same. The order of the Ld. PC/T is very clear wherein he directs the Assessing Officer to pass the order afresh after duly examining the issue discussed by him in his order passed under Section 263 of the Act. Therefore, his order is very clear requiring the Assessing Officer to examine only the issue relating to the applicability of Section 56(2)(vii)(b) of the Act in the facts of the present case. Even as per the facts noted by the Ld. PC/T in his order, the assessment in the present case was a limited scrutiny assessment for the purpose of examining the issue of cash deposits and purchase of property. Vis-à-vis the issue of purchase of property, the Ld. PC/T found the assessment order to be erroneous for the reason that the Assessing Officer having not examined the applicability and invocation of the provisions of Section 56(2)(vii)(b) of the Act. Therefore, it cannot be said that Ld. PC/T had directed the entire assessment to be framed afresh or that the entire assessment was open before the Assessing Officer even in the restored proceedings. The Assessing Officer, in any case, could not have exceeded the limited brief being a limited scrutiny assessment and, as we have noted, the order of the Ld. PC/T was very clear with regard to examination of the issue of invocation of Section 56(2)(vii)(b) of the Act. Therefore, this argument of learned Counsel for the assessee also merits no consideration and is rejected

The learned Counsel for the assessee also raised another argument that the Ld. PC/T had directed the Assessing Officer to conduct further inquiry or to examine the issue in the light of provisions of Section 56(2)(vii)(b) of the Act and, therefore, he himself was not sure about the applicability of the same. We are not convinced with this argument of the learned Counsel for the assessee also. /t is settled law that for the purpose of Section 56(2)(vii)(b) of the Act, the Ld. PC/T has to be reasonably satisfied that the assessment order is erroneous causing prejudice to the Revenue. He need not be conclusive in his findings in this regard. /t is sufficient if he makes out a case of there being an apparent error in the order of the Assessing Officer. /n the present case, the Ld. PC/T has brought out the fact that the Assessing officer was required to examine the issue of purchase of property while framing the assessment in the present case as per the limited scrutiny norms; that the details of purchase of property before him showed that the assessee had purchased the property at a very low price as compared to its stamp duty value. The Assessing Officer had clearly not examined the applicability of section 56(2) (vii) (b)in the light of the above facts and therefore, it was a clear case of error in the order of the Assessing Officer. /t is not the case of the assessee that the stamp duty value taken by the Ld. PC/T was incorrect. Therefore, based on the facts before him, the Ld. PC/T had rightly found the non-examination of the issue of purchase of land by the assessee in the light of provisions of Section 56(2)(vii)(b) of the Act was an error in the order of the Assessing Officer causing prejudice to the Revenue and accordingly had set aside the assessment order to the Assessing Officer to examine this aspect after giving due opportunity of hearing to the assessee and in accordance with law. /t cannot be said in the light of these facts that the Ld. PC/T himself was not convinced whether the provisions of Section 56(2)(vii)(b) of the Act were applicable in the facts of the present case. On the contrary, the facts before him revealed that the provisions of Section 56(2)(vii)(b) of the Act were clearly applicable and accordingly in all fairness he had restored the issue to the Assessing Officer to give a fair and proper hearing to the assessee on this issue before making any addition to his income on this count. Therefore, this argument of the learned Counsel for the assessee is also rejected

In view of the above, we hold that there is no infirmity in the order of the Ld. PC/T passed under Section 263 of the Act and the appeal of the assessee is liable to be dismissed

In effect, the appeal of the assessee is dismissed

Order pronounced in the open Court on 12th April, 2023 at Ahmedabad