TaxTMI 
TaxTMI 
2026 (2) TMI 1037
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....ssing Officer assessed the assessee at an income of Rs.133,46,92,080/- after making addition of Rs.44,77,708/- on account of disallowance under Section 24(b) of the Act and also disallowed a sum of Rs.40,10,848/- under Section 14A read with Rule 8D of the Income-tax Rules, 1962 (hereinafter 'the rules'). The PCIT called and examined the records and accordingly, notice under Section 263 of the Act dated 11th March, 2025 was issued, giving show cause notice with intent to revise the assessment under Section 263 of the Act. 1st issue - Taxability of various funds held by the assessee and sold during the year, whether to be taxed on long term capital gain basis or short term capital gain basis. 3. At the time of hearing before us, learned Senior Advocate raised the first issue on merits, which is as regards the long term capital gain proposed to revise it to short term capital gain to be taxed at normal rate instead of special rate of 10%. The PCIT also proposed for recomputation/revision of assessment of long term capital gain under Section 112A of the Act to the extent of 80,42,324/ -. Learned Counsel for the assessee, first of all, took us through the revision order pa....
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....ised the assessment order and directed the Assessing Officer to redo the assessment after verification. 5. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the PCIT, on examination of assessment records, noted that the assessee has declared long term capital gain on sale of various funds under Section 112A of the Act but, on perusal of the list of funds provided by the assessee, learned PCIT noted that the nature of all funds was not equity-oriented funds and once these are not equity-oriented funds, these are not to be taxed under special rate of taxation under Section 112A of the Act, rather, these will be taxed under normal rate of tax. The PCIT recomputed the short term capital gain on the six funds as the assessee has held these funds for less than 36 months and thereby computed short term capital gain at Rs.1,27,22,989/ -. The PCIT also directed the Assessing Officer to reduce the long term capital gain to Rs.80,42,324/- as against declared by the assessee at Rs.89,46,691/ -. According to the PCIT, these funds are not equity-oriented funds and hence, these are to be taxed on normal rate of taxation and directed the Ass....
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....income for assessment year 2019-20, wherein this property was declared as sold and capital gain was offered to tax. The relevant details are enclosed at page 115, wherein long term capital gain is calculated at Rs.27,21,092/ -. When this fact was confronted to the learned CIT-DR, he could not controvert the same but, he made only one submission that this can be verified by the Assessing Officer. 9. After hearing rival contentions and going through the facts of the case, we noted that property at Apartment No.8 in Hepworth Court 30 at Gatlif Road, London was sold by the assessee on 25th March, 2019 and the capital gain was offered to tax in assessment year 2019-20, which is verified from the computation of income filed along with return of income for the assessment year 2019-20. Hence, there is no question of declaration of ALV in the relevant assessment year. 10. Coming to the next Apartment No.20, Hirst Court, London, the ALV of the same is to be computed. The PCIT on perusal of the schedule for ALV for assessment year 2020-21 noted that another property located in London as Apartment No.20, Hirst Court, Grosvenor Duck, 20 Gattiff Road, valued at Rs.21,34,80,319/- but no ALV....
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....No.19, Hirst Court at Gatlif Road, London, the learned PCIT noted that this property was value at Rs.6,34,17,575/- but, the assessee has disclosed ALV at an incredibly low value of Rs.3.50 lakhs for the year under consideration. According to him, this value is very low as compared to the market rate, an indication of which can be had from an Al overview as per law, in the relevant time period in London, which yielded rental income ranging from 4 to 6%. The PCIT has taken the Al overview and the same is reproduced now from the order of learned PCIT :- "Al Overview In 2020, the average rental yield for properties in London was around 4-6%. Rental yield is the annual rental income of a property expressed as a percentage of its value. It's a measure of how profitable a property is." 15. The PCIT estimated the rental income at 5% and accordingly, estimated the ALV at Rs.32 lakhs and directed the Assessing Officer that the ALV of this property was required to be assessed as per prevailing market rates, which the Assessing Officer failed to do so. According to the PCIT, no enquiry was made by the Assessing Officer and, therefore, as per Explanation 2(a) to Section....
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....the property at Rs.3.50 lakhs for seven months and no fault was found by the Assessing Officer and hence, he accepted the same. It means that he has formed an opinion and that is one of the possible views. 19. Coming to the next property located at Goa at Ocean Park having Flat No.1 at Plot B-13, Bella Vista. The PCIT noted that this property was acquired by the assessee at a cost of Rs.2,94,11,430/- and assessee is disclosing the ALV for this property at Rs.1.20 lakhs only. The PCIT noted that since assessment year 2010-11, the ALV of this property has been disclosed on identical value of Rs.10,000/- per month only and accordingly, the ALV of this property was required to be assessed, which the Assessing Officer failed to do so. According to learned PCIT, the Assessing Officer has not carried out any verification or enquiries and hence, in terms of Explanation 2(a) to Section 263 of the Act, the assessment order is deemed erroneous insofar as it is prejudicial to the interest of the Revenue due to lack of such enquiry/verification. Learned Counsel for the assessee stated that this property is being assessed regularly and assessee is declaring the ALV of this property at Rs.1.20....
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.... Officer has specifically raised a query in regard to this property and PCIT has specifically noted this fact in his revision order Paragraph 6.5 that notice under Section 142(1) dated 5th September, 2022 was issued asking query about property at 205, Jor Bagh, New Delhi (wrongly mentioned as Noida). Learned Counsel for the assessee stated that specific reply was tendered by the assessee vide letter dated 22nd September, 2022 stating that ALV of this property has been offered by the assessee as no income from house property has accrued to the assessee as this property has been occupied by the assessee for professional purposes and has never been let out on lease. Learned Counsel explained that assessee being a Senior Advocate of the Supreme Court of India and had been the Attorney General for India and consequently, assessee has its work pan India and because of the nature of profession, the above said property was used and utilized for professional purposes and accordingly, ALV of that property was declared. He stated that once the Assessing Officer was satisfied and accepted the ALV declared by the assessee, the PCIT should have given a finding how that is wrong or not correct. L....
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....t years. Learned Counsel for the assessee stated that the PCIT has not given any finding what is the value and what is the fair market rent of this property. The details were already filed by the assessee before the Assessing Officer and the Assessing Officer, after noting all these facts, has not touched the ALV of this property. Learned Counsel further stated that the PCIT has not given any finding how the assessment order is erroneous insofar as it is prejudicial to the interest of the Revenue. Once the details are available before the Assessing Officer, he has formed an opinion taking a view that the ALV declared by the assessee is in terms of provisions of Section 23(1) of the Act. 27. On the other hand, learned CIT-DR relied on the revision order and stated that the Assessing Officer has simply accepted the ALV without any basis. 28. We have heard rival contentions and have gone through the facts and circumstances of the case. We noted that the assessee has disclosed ALV of this farm house property at Sahoopur, New Delhi and this is being assessed and accepted from earlier years. This has been consistently declared by the assessee and accepted by the Revenue. We have go....
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....e assessee has disclosed ALV of this farm house property at Mukteshwar Garh, UP at Rs.1,20,000/-, and this is being assessed and accepted from earlier years. This has been consistently declared by the assessee and accepted by the Revenue. We have gone through the case records including the revision order and could not find any observation by the PCIT that what should be the basis for ALV and how the ALV declared by the assessee is not correct and without that, the order of the Assessing Officer cannot be treated as erroneous insofar as prejudicial to the interest of the Revenue. In terms of the above, we are of the view that the Assessing Officer has made enquiry into this and formed an opinion on the basis of the declared ALV of this property. This is one of the possible views which is adopted by the Assessing Officer. 33. The next property is the Golf Links property located at 139, Golf Links, New Delhi. The PCIT noted from Schedule AL for assessment year 2020-21 that this property is acquired at a cost of Rs.63,41,35,318/- and assessee is declared extremely low ALV on deemed let out basis at Rs.3,01,200/- per annum. It was noted by the PCIT that this property has two floors a....
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....t find any observation by the PCIT that what should be the basis for ALV and how the ALV declared by the assessee is not correct and without that, the order of the Assessing Officer cannot be treated as erroneous insofar as prejudicial to the interest of the Revenue. In terms of the above, we are of the view that the Assessing Officer has made enquiry into this and formed an opinion on the basis of the declared ALV of this property. This is one of the possible views which is adopted by the Assessing Officer. 36. Coming to property No.2, Golf Links, New Delhi, the learned PCIT noted from Schedule 'AL' for assessment year 2020-21 that this property was acquired for a total cost of Rs.140,80,00,450/ -. For this property, no ALV has been disclosed by the assessee and the same is shown as self-occupied property. However, he records that nowhere this property has been shown as assessee's residence and there is no evidence that property No.2, Golf Links, New Delhi has been actually occupied by the assessee. The PCIT further notes that the assessee has shown property located at 59, Sunder Nagar as his residence in the income tax return filed for assessment year 2020-21 and i....
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....ings. He stated that the Assessing Officer has accepted the plea of the assessee but, there may be chances that to whom the other parties to whom payments have been made have already paid taxes on that amount and there cannot be any default on the part of the assessee for the same. Hence, learned Counsel argued that the revision order passed by the PCIT for initiating penalty proceedings directing the Assessing Officer is bad in law. 41. Learned CIT-DR relied on the revision order passed by the PCIT under Section 263 of the Act. 42. We noted that as regards the non-initiation of penalty proceedings and whether the assessment can be revised under Section 263(1) of the Act, the Hon'ble Delhi High Court in the case of CIT Vs. Nihal Chand Rekyan - [2000] 242 ITR 45 (Del) has held that where penalty proceedings were not initiated before or at the time of making the assessment, the Commissioner cannot invoke power under Section 263(1) of the Act so as to set aside the assessment order and direct the initiation of penalty proceedings. 43. On each of the issues discussed above i.e., investment made by the assessee in various funds whether these are equity-oriented funds or not....
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....n without finding the basis or without any material that the order is erroneous one and also prejudicial to the interest of the Revenue. We noted from the findings of the PCIT, in the present case before us, on various issues that the PCIT has not recorded reason for his conclusion, which is necessary for any quasi-judicial order required to be made by a quasi-judicial authority. The necessary consequence of revision order is that while passing the order revising an order passed by a subordinate authority, the PCIT must record reasons in support of his conclusion that the order is revised being erroneous and that it would be prejudicial to the interest of the Revenue due to such errors. In case the PCIT does not indicate the reasons for invoking the provisions of Section 263, his order cannot be held to be valid. In the present case, the entire material in regard to all the funds and the properties where ALV was questioned by the PCIT, the assessee has produced relevant material and offered explanations in pursuance to the notices issued under Section 142(1) and 143(2) of the Act and, after considering the materials and explanations, the Assessing Officer passed the assessment orde....