Smt. Kailashbai Manubhai Kahor Vs PCIT (ITAT Rajkot)
Failure to Examine Stamp Value Difference Justifies Revision Under Section 263
Background of the Case
The assessee had not filed her return for AY 2016–17 within the prescribed time, despite having income exceeding the maximum amount not chargeable to tax.
The assessment was reopened, and a notice under section 148 was issued. In response, the assessee filed a return declaring total income of ₹2,64,610.
The Assessing Officer completed the reassessment under section 147 read with section 144B on 10 February 2023, accepting the returned income.
Subsequently, the Principal Commissioner examined the assessment records and noticed a property purchase involving a substantial difference between the stated consideration and stamp duty value.
Property Purchased for ₹7.66 Lakh Against Stamp Value of ₹38.50 Lakh
During the relevant year, the assessee purchased an immovable property for a stated consideration of ₹7,65,765.
The stamp duty paid was ₹1,88,650. Applying the stamp duty rate of 4.9%, the PCIT worked out the property’s stamp duty value at ₹38,50,000.
The difference between the consideration and stamp duty value was therefore ₹30,84,235.
The PCIT considered that this substantial difference required examination under section 56(2)(vii)(b), the provision applicable to the assessment year in question.
However, the assessment record did not disclose any enquiry or verification by the Assessing Officer concerning the transaction or the applicability of that provision.
PCIT’s Limited Revision
The PCIT issued a show-cause notice under section 263 on 25 January 2025.
After examining the matter, he concluded that the assessment had been completed without making the enquiries and verification that ought to have been made. Relying on Explanation 2 to section 263(1), he held the assessment order erroneous insofar as it was prejudicial to the interests of the Revenue.
By an order dated 20 March 2025, the PCIT set aside the assessment only to the extent of the section 56(2)(vii)(b) issue. He directed the Assessing Officer to conduct the necessary enquiries and pass a fresh order in accordance with law.
The assessee challenged this revision before the Tribunal.
Assessee’s Objection
The assessee contended that the assessment order was neither erroneous nor prejudicial to the Revenue and that the PCIT was not justified in invoking section 263.
She also disputed the revision on the footing that the PCIT had merely substituted his opinion for that of the Assessing Officer.
The Tribunal therefore examined whether the original assessment reflected an enquiry and a conscious view on the property purchase.
Tribunal’s Findings
The Tribunal noted that the difference of ₹30,84,235 was substantially above the prescribed threshold under section 56(2)(vii)(b). The transaction consequently required examination.
It found that the assessment order did not reveal any enquiry or verification regarding the purchase or the applicability of the provision.
More significantly, there was no material on record establishing that the Assessing Officer had examined the issue or formed a conscious and legally sustainable view.
The Tribunal therefore rejected the argument that the PCIT had merely substituted his opinion. That objection could not succeed where the record did not establish an earlier opinion reached after examination.
The Tribunal held that the Assessing Officer’s failure brought the assessment within Explanation 2(a) to section 263(1), concerning orders passed without enquiries or verification that should have been undertaken.
It also noted that the PCIT’s direction was confined to the identified issue and required fresh examination after providing the assessee an opportunity of hearing.
Final Decision
The Tribunal upheld the PCIT’s exercise of revisional jurisdiction and dismissed the assessee’s appeal.
The decision sustains the direction for fresh enquiry. It does not itself make a final addition of ₹30,84,235 in the assessee’s hands.
Author’s Comments
An accepted return is not necessarily an examined return. Where the records disclose a property purchase at a substantially lower consideration than its stamp duty value, the potential application of section 56 requires attention.
The decisive distinction here was between a view formed after enquiry and an issue left unexamined. The Tribunal did not uphold revision merely because the assessment order was brief. It expressly found that no material established examination of the issue or a conscious conclusion by the Assessing Officer.
For practitioners defending an assessment against section 263, the enquiry record is therefore crucial. Notices, replies, property documents, valuation explanations and other contemporaneous material may establish that the issue was actually considered. A general assertion that the Assessing Officer accepted the return cannot serve that purpose.
Equally, upholding revision does not conclusively establish the proposed tax liability. The assessee retains the opportunity to explain the transaction and contest the application or computation of section 56(2)(vii)(b) during the fresh proceedings.
The limited scope of the PCIT’s order also matters. The Tribunal approved a fresh examination of the identified property issue, rather than an unrestricted reopening of every aspect of the assessment.
The practical lesson is that a substantial stamp-value difference demands a documented enquiry; its omission can expose the assessment to revision under section 263.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
The captioned appeal has been filed by the assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (hereinafter referred to as “the Ld. PCIT”), Rajkot-1 vide order dated 20.03.2025 relevant to Assessment Year 2016-17.
2. The assessee has raised the following grounds of appeal:
1. The grounds of appeal mentioned hereunder are without prejudice to one another.
2. The order passed by Pr. Commissioner of Income-tax, Rajkot-1, Rajkot [hereinafter referred as to the “PCIT”] is bad in law, invalid and required to be quashed, the same may kindly be quashed.
3. the Ld. PCIT erred in law and on facts in arriving at a conclusion that the assessment order passed by the AO was erroneous as well as prejudicial to the interest of the revenue on the ground that the AO has not applied his mind and not conducted proper inquiry & verification in respect of applicability of section 56(2)(vii)(b) in respect of immovable property purchased. The order passed by PCIT requires to be quashed and may kindly be quashed.
4. The learned Pr. CIT erred on facts as also in law in setting aside the assessment order dated 10.02.2023 passed u/s. 147 of the Income Tax Act, 1961 directing the AO to pass a fresh assessment order. The order passed u/s 263 of the Act by the learned Pr. CIT is totally unjustified on facts as also in law therefore the same may kindly be quashed.
5. Your Honour’s appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.
3. The brief facts of the case are that assessee did not file the return of income for Assessment Year 2016-17 within the prescribed time under section 139 of the Act, despite having income exceeding the maximum amount not chargeable to tax. Consequently, the case was reopened and notice under section 148 of the Act was issued to the assessee. In response to the notice under section 148, the assessee filed the return of income declaring total income of Rs.2,64,610/-. Thereafter, the Assessing Officer passed the assessment order under section 147 read with section 144B of the Act on 10.02.2023, accepting the returned income.
4. Subsequently, on examination of the assessment records, the Ld. PCIT noticed that during the relevant financial year the assessee had purchased an immovable property for a stated consideration of Rs.7,65,765/-. However, the stamp duty paid in respect of the said property was Rs.1,88,650/-. On the basis of the applicable stamp duty rate of 4.9%, the stamp duty value of the property was worked out by the Ld. PCIT at Rs.38,50,000/-. The Ld. PCIT was of the view that the difference between the actual consideration paid by the assessee and the stamp duty value of the property attracted the provisions of section 56(2)(vii)(b) of the Act. According to the Ld. PCIT, the Assessing Officer had neither examined this issue nor made any inquiry or verification with regard to the applicability of the aforesaid provision while completing the assessment.
5. Accordingly, the Ld. PCIT issued a show-cause notice under section 263 of the Act dated 25.01.2025, which was duly served upon the assessee. The Ld. PCIT eventually held that the assessment order had been passed without making the inquiries and verification which ought to have been made. 6. The Ld. PCIT, after referring to Explanation 2 to section 263(1) of the Act, held that the assessment order was erroneous in so far as it was prejudicial to the interests of the Revenue. Accordingly, the assessment order dated 10.02.2023 was set aside to the limited extent of the issue relating to the applicability of section 56(2)(vii)(b) of the Act, with a direction to the Assessing Officer to make necessary inquiries and pass a fresh assessment order in accordance with law.
7. Aggrieved by the order passed by the Ld. PCIT under section 263 of the Act, the assessee is now in appeal before the Tribunal.
8. During the course of hearing, the Ld. AR of the assessee submitted that the Ld. PCIT was not justified in invoking the provisions of section 263 of the Act. It was contended that the assessment order passed by the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue. Accordingly, it was submitted that the order passed under section 263 be quashed and the assessment order dated 10.02.2023 be restored.
9. We have heard the rival submissions and perused the material available on record. The only issue for our consideration is whether the Ld. PCIT was justified in invoking the provisions of section 263 of the Act.
It is undisputed from the material available on record that the assessee purchased an immovable property during the relevant previous year for a consideration of Rs.7,65,765/-, whereas the corresponding stamp duty value of the property was Rs.38,50,000/-. The difference between the consideration paid and the stamp duty value was thus Rs.30,84,235/-, which was substantially in excess of the prescribed threshold under section 56(2)(vii)(b) of the Act. Accordingly, the transaction required examination with reference to the applicability of the said provision. The assessment order passed under section 147 r.w.s. 144B of the Act on 10.02.2023 does not reveal any inquiry or verification by the Assessing Officer regarding the aforesaid transaction or the applicability of section 56(2)(vii)(b) of the Act.
10. In our considered view, the Assessing Officer failed to make the requisite inquiry and verification on an issue which had potential tax implications. Therefore, the assessment order was passed without making inquiries or verification which ought to have been made, thereby falling within the ambit of Explanation 2(a) to section 263(1) of the Act. The contention of the assessee that the Ld. PCIT merely substituted his opinion for that of the Assessing Officer is not acceptable, since there is no material on record to establish that the Assessing Officer had examined the issue or formed any conscious and legally sustainable view regarding the applicability of section 56(2)(vii)(b) of the Act. We further note that the Ld. PCIT has invoked his revisional jurisdiction only in respect of the aforesaid issue and has directed the Assessing Officer to make necessary inquiries and pass a fresh assessment order in accordance with law after affording due opportunity of being heard to the assessee. Such direction is within the scope of the powers contemplated under section 263.
11. In view of the foregoing discussion, we hold that the assessment order was erroneous in so far as it was prejudicial to the interests of the Revenue and that the exercise of jurisdiction by the Ld. PCIT under section 263 of the Act was justified. Accordingly, the impugned order passed by the Ld. PCIT under section 263 of the Act is upheld. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 12.10.2026.
