Revision under s.263 quashed where FMV vs consideration within 10% per Circular No.8/2018 and s.50C amendment and s.56(2)(vii)

ITAT AGRA held that the PCIT's revision under s.263 was unsustainable and quashed it, allowing the assessee's appeals. The Tribunal accepted the assessee's reliance on precedents that Circular No.8/2018 and the Finance Act, 2018 amendment to s.50C (and pari materia s.56(2)(vii)) apply retrospectively, so where FMV exceeds actual consideration by less than 10% the difference is ignored. The AO's acceptance of the returned income was justified; the PCIT's action amounted to a mere change of opinion without supporting judicial authority.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the Assessing Officer correctly ignored the difference between consideration paid and Fair Market Value (FMV) determined by the Departmental Valuation Officer (DVO) where such difference was less than 10%, by applying the amendment to Section 50C and CBDT Circular No. 8/2018 (and subsequent enhancement) with retrospective effect to the assessment year under consideration.

2. Whether the Principal Commissioner of Income Tax's exercise of revisional jurisdiction under Section 263 of the Act was justified on the ground that the assessment was erroneous and prejudicial to the interest of revenue, or whether that exercise amounted to an impermissible change of opinion.

3. Whether an assessment completed after reference to a DVO and consideration of judicial decisions and CBDT Circulars involved absence of inquiries/verification such that Explanation 2 to Section 263 would render the order amendable.

ISSUE-WISE DETAILED ANALYSIS - Issue 1: Applicability and retrospective effect of amendment to Section 50C / CBDT Circular No. 8/2018 (and related amendment to Section 56(2)(viib))

Legal framework: Section 50C (and pari materia provisions such as Section 56(2)(viib)) govern treatment of stamp duty value vis-à-vis sale consideration; amendments and CBDT Circular No. 8/2018 rationalized adjustments by introducing a tolerance band (initially 5%, later enhanced to 10%). The Circular expressly stated amendments take effect from 1st April 2019 (AY 2019-20 onwards).

Precedent Treatment: Coordinate benches of Tribunals (as relied upon by the assessee) have treated the insertion of the proviso (tolerance band) as curative/declaratory and applied it retrospectively to the date of introduction of the relevant provision (1st April 2003). The Principal Commissioner relied on established principles of statutory interpretation that retrospective operation requires express provision or necessary implication and on apex-court authorities to the effect that retrospective effect should not be read in absentia.

Interpretation and reasoning: The AO, after obtaining DVO valuation, found the FMV-consideration difference was Rs. 15,14,399 (less than 10%) and, applying Tribunal decisions treating the amendment as retrospective and CBDT Circular's rationale, ignored that difference in assessment. The PCIT, however, emphasised the express temporal operation stated in Circular No. 8/2018 (effective 1.4.2019) and precedent that retrospective operation requires explicit indication, concluding the amendment/circular could not be applied to AY 2016-17. The Tribunal examined both positions, noted the AO had considered the DVO report and judicial decisions treating the amendment as curative, and observed the PCIT did not distinguish or cite contrary judicial authority to rebut the retrospective application authorities relied upon by the assessee/AO.

Ratio vs. Obiter: The Tribunal's finding that the AO's application of the curative retrospective view (followed by coordinate Tribunal precedents) was permissible in the absence of contrary binding authority is treated as ratio for disposal of the revision; observations about general rules of statutory interpretation (that retrospective effect requires express provision) are reiteration of established law and serve as guiding principle (ratio to the extent applied to facts here).

Conclusion: Where the AO, after referral to DVO, arrived at FMV and noted the difference to be under 10%, and having considered judicial authorities applying the amendment/circular retrospectively, the Tribunal held the AO's approach was supportable. The Principal Commissioner's contrary conclusion, resting on the Circular's stated prospective effective date but without distinguishing precedent relied upon by the AO, did not constitute a sustainable basis to treat the assessment as erroneous prejudicial to revenue.

ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of exercise of revisional jurisdiction under Section 263 - change of opinion vs. jurisdictional error

Legal framework: Section 263 empowers revision where an assessment is "erroneous in so far as it is prejudicial to the interests of the revenue." Explanation 2 (Finance Act, 2015) enlarges scope to include assessments where inquiries/verification which should have been made were not made.

Precedent Treatment: Authorities recognize that exercise of Section 263 cannot be used to substitute the opinion of the Commissioner for that of the Assessing Officer where the AO has applied mind to relevant facts and law; invoking Section 263 in such cases constitutes impermissible change of opinion unless there is lack of any inquiry, omission or illegality.

Interpretation and reasoning: The AO had reopened under Section 147, referred valuation to DVO under Section 142(1), obtained DVO valuation, issued queries under Section 142(1) to the assessee, considered the CBDT Circular and judicial pronouncements, and concluded the difference (below 10%) was ignorable. These steps constitute due inquiry and application of mind. The PCIT's action rested on a divergent legal view (prospective operation of amendment) but did not identify absence of enquiry, malafide, or illegality in AO's process. Tribunal noted that PCIT did not demonstrate that necessary verifications were omitted or that AO failed to make inquiries that should have been made; rather PCIT substituted its view on a debatable legal issue.

Ratio vs. Obiter: The Tribunal's conclusion that revision under Section 263 was not justified because the AO had performed requisite inquiries and reached a justifiable conclusion constitutes ratio. Statements that mere disagreement of PCIT amounts to impermissible change of opinion are consistent with established precedent (ratio in context).

Conclusion: The exercise of revisionary power by the PCIT amounted to a change of opinion rather than correction of an assessment which was erroneous for lack of required inquiries. Accordingly, revision under Section 263 was unsustainable and was quashed.

ISSUE-WISE DETAILED ANALYSIS - Issue 3: Effect of DVO reference and consideration of judicial decisions on preclusion of revision under Section 263 (interaction with Explanation 2)

Legal framework: Explanation 2 to Section 263 makes assessable orders amendable where AO failed to make enquiries/verification which ought to have been made. Referral to a DVO under statutory procedure and consideration of judicial decisions may indicate that necessary enquiries were made.

Precedent Treatment: Jurisprudence indicates that when an AO conducts statutory verifications (including DVO reference) and applies legal precedents, Section 263 cannot be invoked merely because a Commissioner prefers a different view; only omission of requisite inquiries or procedural lapses warrant revision.

Interpretation and reasoning: AO's referral to DVO, consideration of DVO valuation, issuance of notices under Section 142(1), and application of precedents demonstrate performance of verification and legal consideration. The PCIT did not point to any specific omission in enquiries that would engage Explanation 2. Tribunal therefore found that Explanation 2 was not attracted.

Ratio vs. Obiter: The Tribunal's determination that Explanation 2 was not engaged on these facts is ratio; ancillary remarks about prerequisites for invoking Explanation 2 reiterate settled law (obiter to the extent general).

Conclusion: Where the AO obtained DVO valuation and considered judicial authorities before accepting the assessee's returned income, Explanation 2 to Section 263 was not attracted and revision on that ground was not permissible.

OVERALL CONCLUSION

The AO's acceptance of the returned income after statutory valuation by DVO and application of coordinating judicial precedents treating the tolerance-band amendment as applicable was a tenable exercise of discretion. The Principal Commissioner's revision under Section 263 - grounded principally on a contrary view about the temporal operation of the Circular/amendment but not on omission of requisite enquiries - amounted to an unjustified change of opinion. The revisional order under Section 263 was therefore quashed and the appeals allowed.

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