2025 (8) TMI 1360 - AT - Income Tax

AO's probe of cash deposits valid; no link to sale of two agricultural properties - Section 263 revision lacked jurisdiction

ITAT held that the AO properly investigated cash deposits as directed and there was no demonstrated nexus between those deposits and the sale of two ... Revision u/s 263 - sale of two (2) immovable agricultural properties by finding that the AO didn’t enquire about the same, which omission on the part of AO has resulted in assessment order being erroneous and prejudicial to the interests of the Revenue HELD THAT:- We do not agree with Ld PCIT for the simple reason that the AO was bound by law to enquire about the issue for which he was directed by CASS to enquire i.e, cash deposits. And the AO has carried out such an exercise as noted supra. Therefore, the action of the AO cannot be faulted. And it is not the case of PCIT that there is any nexus between the cash deposits and the sale of two (2) immovable agricultural properties flagged by him in the impugned order. In such an event, the action of AO not to enquire about the sale consideration received by assessee cannot be faulted. Resultantly, we find that assessment order framed by AO cannot be held to be erroneous as well as prejudicial to revenue. We are of the view that the PCIT erred in interfering with the action of the AO framing assessment and therefore, we find that the Ld. PCIT didn’t enjoy the jurisdiction under section 263 to interfere with the assessment order - Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal should condone a delay of 264 days in filing the appeal when the assessee furnished an affidavit explaining bona fide reasons for delay. 2. Whether the Principal Commissioner (revisee) validly exercised jurisdiction under section 263 to set aside an assessment framed after 'limited scrutiny' where the revisional order challenged the Assessing Officer's failure to adopt guideline values under section 50C and directed reassessment and verification of buyers' taxability under section 56. 3. Whether an Assessing Officer in a case selected for limited scrutiny (CASS) is bound to enquire into issues not flagged for scrutiny, and whether failure to do so renders the assessment order 'erroneous and prejudicial to the interests of revenue' within the meaning of section 263. 4. Whether guideline/registration values adopted by registration authorities (for stamp duty) are conclusive for income-tax assessment under section 50C(1), or only act as indicators such that higher guideline value alone cannot justify revisional action under section 263. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of Delay Legal framework: Tribunal's discretion to condone delay where sufficient cause is shown and delay is not willful. Interpretation and reasoning: The assessee filed a notarized affidavit explaining a bona fide misunderstanding of tax consequences of substitution of guideline values and advised against filing appeal earlier; the Revenue did not controvert those averments. The Tribunal found the delay neither willful nor wanton and held that reasonable cause was shown. Ratio vs. Obiter: Ratio - delay was properly condoned on the facts and affidavit; this admissibility finding is integral to the Tribunal's jurisdiction to hear the appeal. Conclusion: Delay of 264 days was condoned and the appeal admitted for adjudication. Issue 2 - Validity of Exercise of revisional jurisdiction under section 263 where assessment was subject to limited scrutiny Legal framework: Section 263 empowers the Principal Commissioner to revise an assessment that is erroneous and prejudicial to the interests of Revenue. CASS selections can limit the scope of AO's inquiry; the AO must investigate issues for which the return was selected. Revisional jurisdiction requires that the order be both erroneous and prejudicial. Precedent treatment: The Tribunal relied on a decision of the jurisdictional High Court which addressed similar facts involving limited scrutiny, guideline values and invocation of section 263; that High Court's reasoning was followed. Interpretation and reasoning: The Tribunal found that the return was selected for 'limited scrutiny' only on the cash deposits issue and that the AO carried out the prescribed enquiries and made an addition on that account. The Commissioner's revisional notice proceeded on the erroneous factual premise that the case had been selected for complete scrutiny and faulted the AO for not examining the sale of agricultural lands. There was no nexus shown between the limited-scrutiny issue (cash deposits) and the immovable property sales flagged by the Commissioner. The Tribunal held that the AO cannot be faulted for not enquiring into matters outside the limited scope assigned by CASS, absent evidence that the AO had converted the exercise into complete scrutiny or that there was a connection between the issues. The Commissioner failed to address the crucial factual record that the selection was limited and did not explain why the AO's inquiry was improper. Ratio vs. Obiter: Ratio - where assessment was conducted only for limited scrutiny and AO performed the required enquiries, invoking section 263 on an unrelated unflagged issue (without showing nexus or record inadequacy) is not sustainable; the revisional order is quashed. Conclusion: The Principal Commissioner lacked jurisdiction to set aside the AO's limited-scrutiny assessment under section 263 on the ground that the AO did not examine unflagged issues; the revisional order was quashed. Issue 3 - Obligation of Assessing Officer in limited scrutiny and scope of section 263 Legal framework: CASS allocations (limited vs complete scrutiny) delineate AO's investigatory remit; section 263 does not permit supervisory authority to overturn an assessment merely because it would have conducted a broader enquiry unless the assessment is shown to be erroneous and prejudicial. Interpretation and reasoning: The Tribunal emphasised that an AO is bound to inquire into the subject matter for which the case was selected. When the AO conducts that inquiry and records satisfaction or makes specific additions, a revisional authority must demonstrate a material error or prejudice - not simply prefer a broader line of enquiry. The Commissioner's order used conclusory language that the AO 'did not enquire properly' without specifying deficiencies or establishing that the AO omitted relevant enquiry within the selected scope. Ratio vs. Obiter: Ratio - in a limited-scrutiny case, absence of enquiry into unselected issues does not, by itself, make the assessment erroneous and prejudicial; revisional jurisdiction cannot be invoked on that basis. Conclusion: AO's adherence to limited-scrutiny remit precludes fault for not examining unrelated matters; section 263 cannot be used to convert a limited scrutiny outcome into a complete reappraisal absent demonstrable error. Issue 4 - Legal effect of guideline/registration values (section 50C) and sufficiency of guideline value disparity to sustain revision under section 263 Legal framework: Section 50C(1) deems registration value to be the consideration for transfer of immovable property if actual consideration is less than guideline value; however, rule-of-thumb and judicial precedent treat guideline value as an indicator of stamp-duty base, not invariably determinative of fair market value in every assessment. Precedent treatment: The Tribunal followed the High Court's ruling that guideline value is only an indicator and that higher guideline value alone cannot be the sole basis for concluding the assessment is erroneous and prejudicial to revenue. Interpretation and reasoning: The Commissioner set aside the assessment solely because registration/guideline values exceeded the sale consideration shown in deeds. The Tribunal (following the High Court) observed that the AO had examined source of funds and treated the deed consideration as reflecting the true transaction; he had considered section 50C and exercised valuation-related discretion. The Commissioner did not address AO's specific findings or elucidate why the guideline value should displace the recorded consideration as the fair market value. Therefore, mere disparity between guideline value and deed consideration, without specific findings that the AO erred in valuation or disregarded statutory criteria, did not justify revisional action. Ratio vs. Obiter: Ratio - guideline/registration values being higher than declared consideration do not automatically render an assessment erroneous and prejudicial; section 263 cannot be invoked on that basis alone where the AO has evaluated source and consideration. Conclusion: The Commissioner's use of higher guideline values as the sole ground for revision under section 263 was unsustainable; absence of detailed rebuttal of the AO's findings meant the revisional order must be quashed. Overall Conclusion The Tribunal condoned delay, adjudicated the appeal and quashed the revisional order passed under section 263 because the revisional authority erroneously proceeded on a wrong factual premise (complete scrutiny), failed to respect the limited-scrutiny scope of the AO's enquiry, and relied solely on guideline value disparities under section 50C without dealing with the AO's specific findings; consequently, the revisional order was held to be without jurisdiction and was set aside. The appeal was allowed.