Tribunal upholds tax revision but sets aside Section 50C verification, partly allows appeal

The tribunal upheld the Principal Commissioner of Income Tax's revision of the assessment order under Section 263, finding the Assessing Officer's failure to verify the source of investment in the property purchase as erroneous and prejudicial to revenue. However, the tribunal set aside the Commissioner's direction to verify the applicability of Section 50C in the seller's hands, allowing the assessee's appeal on this issue. The appeal was partly allowed based on these findings.

---

---

Issues Involved:
1. Validity and justification of the Principal Commissioner of Income Tax (Pr. CIT) assuming jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Verification of the source of investment in the acquisition of immovable property.
3. Applicability of Section 50C in the hands of the seller.

Issue-Wise Detailed Analysis:

1. Validity and Justification of Pr. CIT Assuming Jurisdiction under Section 263:
The assessee contested the Pr. CIT’s jurisdiction under Section 263, arguing that the assessment order under Section 143(3) was neither erroneous nor prejudicial to the revenue. The Pr. CIT had observed that the Assessing Officer (A.O) did not verify the source of investment for the property purchase during the assessment proceedings. The Pr. CIT noted discrepancies in the assessee's explanation regarding the source of funds, which led to the conclusion that the A.O’s order was erroneous and prejudicial to the revenue. The tribunal upheld the Pr. CIT’s jurisdiction, noting that the A.O failed to make necessary verifications regarding the source of investment, rendering the order erroneous and prejudicial to the revenue.

2. Verification of the Source of Investment in the Acquisition of Immovable Property:
The Pr. CIT found that the assessee had purchased a property for Rs. 5 Crore, claiming the investment was made from a loan taken from his mother. However, the Pr. CIT discovered that the payment to the seller was made in 2008, not from the loan taken in 2011. The assessee argued that the payment source was a loan from M/s Kalpavruksha Plantation Pvt. Ltd., repaid in 2011 using a loan from his mother. The tribunal found that the A.O did not verify the actual source of investment during the assessment, thus supporting the Pr. CIT’s decision to revise the order under Section 263. The tribunal concluded that the A.O's failure to verify the source of investment rendered the assessment order erroneous and prejudicial to the revenue.

3. Applicability of Section 50C in the Hands of the Seller:
The Pr. CIT directed the A.O to verify the applicability of Section 50C, which pertains to the valuation of the property for stamp duty purposes, in the hands of the seller. The tribunal held that Section 50C applies to the seller, not the buyer (assessee in this case). Therefore, the Pr. CIT's direction to verify the applicability of Section 50C in the hands of the seller was not justified. The tribunal set aside the Pr. CIT’s exercise of revisional jurisdiction on this issue, allowing the assessee’s appeal on this ground.

Conclusion:
The tribunal upheld the Pr. CIT’s revision of the assessment order under Section 263 concerning the verification of the source of investment in the property purchase, dismissing the assessee’s appeal on this ground. However, it set aside the Pr. CIT’s direction to verify the applicability of Section 50C in the hands of the seller, allowing the assessee’s appeal on this issue. The appeal was partly allowed based on these observations.

---