PCIT's Section 263 revision partially upheld for property transactions with stamp duty value differences exceeding tolerance band

ITAT Mumbai partially allowed the assessee's appeal against PCIT's revision order under Section 263. The tribunal held that while PCIT correctly invoked Section 263 for two property transactions where AO failed to examine stamp duty value differences exceeding tolerance band under Section 43CA, the revision was improper for five other transactions where no addition was warranted. The tribunal rejected aggregation approach for Section 43CA applicability and set aside PCIT's direction for fresh examination of five transactions while upholding revision for two transactions where assessment was erroneous and prejudicial to revenue.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the Principal Commissioner of Income Tax (PCIT) correctly invoked the jurisdiction under Section 263 of the Income Tax Act, 1961 ("the Act") to revise the Assessment Order passed under Section 143(3) read with Section 147, on the ground that it was erroneous and prejudicial to the interest of Revenue.
• Whether the invocation of Section 263 by the PCIT amounted to impermissible change of opinion without pointing out any specific error in the Assessment Order.
• Whether the Assessing Officer (AO) failed to verify or inquire into the difference between the sale consideration declared by the Assessee and the stamp duty value of immovable properties sold, and thereby erred in not applying the provisions of Section 43CA of the Act.
• Whether the tolerance band of 10% difference between the sale consideration and stamp duty value, as provided in the Proviso to Section 43CA of the Act, applies retrospectively to the Assessment Year under consideration.
• Whether the PCIT was justified in setting aside the Assessment Order for all seven sale transactions or only for those where the difference between sale consideration and stamp duty value exceeded the tolerance band.
• Whether the AO's failure to requisition or consider sale agreements during the assessment proceedings constituted an error warranting revision under Section 263.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of PCIT under Section 263 and Allegation of Change of Opinion

Relevant Legal Framework and Precedents: Section 263 of the Act empowers the PCIT to revise an assessment order if it is found to be erroneous and prejudicial to the interest of Revenue. However, the power cannot be exercised merely because the PCIT disagrees with the opinion formed by the AO; there must be an identifiable error.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessee contended that the PCIT invoked Section 263 merely to take a different view, amounting to an impermissible change of opinion. The Tribunal examined the assessment record and found that the AO had not made any inquiry or verification regarding the difference between the sale consideration and stamp duty value, nor had the Assessee produced the relevant sale agreements during assessment proceedings.

Key Evidence and Findings: The Tribunal observed that the AO had only recorded the sale consideration and stamp duty value but failed to verify the difference or apply Section 43CA of the Act. The absence of sale agreements or any inquiry into the discrepancy was a significant omission.

Application of Law to Facts: Given the AO's failure to examine the applicability of Section 43CA, the Tribunal held that the PCIT's exercise of jurisdiction under Section 263 was justified and did not amount to mere change of opinion.

Treatment of Competing Arguments: The Assessee's argument that the AO had carried out necessary inquiry was rejected on the basis of the assessment record. The Department's contention that the AO failed to requisition sale agreements was accepted.

Conclusion: The Tribunal upheld the PCIT's jurisdiction under Section 263 to revise the assessment order.

Issue 2: Applicability of Section 43CA of the Act and the Tolerance Band

Relevant Legal Framework and Precedents: Section 43CA mandates that where the sale consideration of land or building is less than the stamp duty value, the stamp duty value shall be deemed to be the full value of consideration for computing income under the head "Profits & Gains of Business or Profession." The Proviso to Section 43CA, as amended by Finance Act 2021, provides a tolerance band of 10% difference between sale consideration and stamp duty value below which the provisions of Section 43CA do not apply.

Precedents include:
- Maria Fernandes Cheryl v. ITO (2021) 187 ITD 738 (Mumbai - Trib.) holding the 10% tolerance band applies retrospectively.
- Macrotech Developers Ltd. v. DCIT (2022) ITA Nos. 2266 & 2239 (Mumbai - Trib.) confirming retrospective application of the 10% tolerance band to Section 43CA.
- Gaurav Investments v. DCIT (2025) 174 taxmann.com 839 (Mumbai - Trib.) affirming the retrospective effect of the tolerance band.

Court's Interpretation and Reasoning: The Tribunal examined the difference between sale consideration and stamp duty value for seven transactions. For five transactions, the difference was below 10%, and for two transactions, it exceeded 10%. The Tribunal accepted the Assessee's contention, supported by the above precedents, that the 10% tolerance band applies retrospectively and thus Section 43CA does not apply to the five transactions with differences below 10%.

Key Evidence and Findings: The detailed table of differences and percentages furnished by the Assessee was not disputed by the Revenue. The Tribunal relied on this undisputed data.

Application of Law to Facts: The Tribunal applied the retrospective tolerance band to exclude five transactions from Section 43CA's applicability and held that no addition was warranted for those.

Treatment of Competing Arguments: The Revenue did not dispute the percentage differences. The Assessee's reliance on the precedents was accepted. The Tribunal rejected the Assessee's argument that the differences should be aggregated, holding that the statutory language does not support such aggregation.

Conclusion: The Tribunal held that Section 43CA does not apply to five transactions with differences below 10%, and the assessment order in respect of these transactions is not erroneous.

Issue 3: Error in Assessment Order Regarding Two Transactions Exceeding the Tolerance Band

Relevant Legal Framework: Where the difference between sale consideration and stamp duty value exceeds the tolerance band, Section 43CA applies mandatorily, requiring the stamp duty value to be taken as full consideration.

Court's Interpretation and Reasoning: The Tribunal found that for two transactions (Sl. No. 6 and 7), the difference exceeded 10%, and the AO failed to examine or make any addition under Section 43CA. The AO also did not requisition or consider sale agreements.

Key Evidence and Findings: The absence of inquiry or verification by the AO and the significant difference in values were critical findings.

Application of Law to Facts: The Tribunal held that the AO's failure to apply Section 43CA to these two transactions rendered the assessment order erroneous and prejudicial to Revenue's interest.

Treatment of Competing Arguments: The Assessee's contention that the PCIT erred in invoking Section 263 for these transactions was rejected. The Tribunal also dismissed the Assessee's argument for aggregating transactions.

Conclusion: The Tribunal upheld the PCIT's order setting aside the assessment order for these two transactions and directing fresh assessment.

Issue 4: Invocation of Explanation 2 to Section 263

Relevant Legal Framework: Explanation 2 to Section 263 provides that an order passed without making inquiries or verification that the Assessing Officer ought to have made can be considered erroneous and prejudicial.

Court's Interpretation and Reasoning: The Tribunal noted that the PCIT's impugned order dated 09/02/2024 did not invoke Explanation 2, and the earlier order relying on Explanation 2 was set aside by the Tribunal. Hence, reliance on Explanation 2 was misplaced.

Conclusion: The Tribunal held that Explanation 2 was not relevant to the present order.

3. SIGNIFICANT HOLDINGS

"The Assessing Officer had neither requisitioned the sale agreements pertaining to the sale transactions under consideration, nor had the Assessee placed the same on record... the Assessing Officer failed to inquire into the same and examine the applicability of provisions contained in Section 43CA of the Act."

"The tolerance band of 10% contained in Proviso to Section 43CA of the Act... would apply retrospectively."

"The Assessment Order cannot be regarded as erroneous in relation to 5 out of the 7 sale transactions under consideration... as there was no violation of the provisions contained in Section 43CA of the Act."

"The Assessing Officer had failed to carry out any inquiry in respect of the balance two transactions... the failure on the part of the Assessing Officer has resulted in passing of assessment order which was erroneous... The Assessee would be at liberty to raise all contentions in relation to the aforesaid 2 sale transaction on merits before the Assessing Officer."

"The language of Section 43CA of the Act does not provide for... aggregating all the transactions."

"Ground No. 1 and 2(a) raised by the Assessee are dismissed while Ground No. 2(b) raised by the Assessee is partly allowed."

Core principles established include:

• The jurisdiction under Section 263 can be exercised where the AO's order is erroneous due to failure to verify or apply mandatory provisions, and not merely because of a change of opinion.
• The tolerance band of 10% difference between sale consideration and stamp duty value under Section 43CA applies retrospectively.
• Each sale transaction must be examined independently for applicability of Section 43CA; aggregation of differences is not permissible.
• Failure to requisition or consider relevant documents such as sale agreements can render an assessment order erroneous and prejudicial.

Final determinations:

• The PCIT was justified in setting aside the assessment order with respect to two transactions where the difference exceeded the tolerance band and directing fresh assessment.
• The assessment order in respect of the other five transactions where the difference was below 10% was not erroneous and did not warrant revision under Section 263.
• The appeal by the Assessee is partly allowed accordingly.

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