Muthyala Suryababu Vs PCIT (ITAT Bangalore)
Assessee had sold an immovable property for ₹12.50 crore. While computing LTCG, he claimed deduction of ₹10,42,815/- towards arrears of property tax, treating it as part of cost of acquisition / improvement. AO, after assessment proceedings, accepted the claim.
On examination of records, PCIT held that arrears of property tax do not fall within “cost of acquisition” or “cost of improvement” as per section 55 r.w.s. 48. Holding that AO failed to verify this aspect, PCIT invoked Explanation 2(a) to section 263, treating the assessment order as erroneous & prejudicial to the interest of Revenue. He issued notice on 18.03.2025 fixing hearing on 02.04.2025, but later issued corrigendum on 24.03.2025, preponing hearing to 27.03.2025. Assessee filed written submissions on 27.03.2025, but PCIT passed his order on the very next day (28.03.2025), without affording further opportunity.
Tribunal noted that jurisdiction under section 263 requires satisfaction of twin conditions – order must be erroneous & prejudicial to Revenue’s interest – but also subject to principles of natural justice. Relying on the Supreme Court ruling in CIT v. Amitabh Bachchan (2016) 384 ITR 200 (SC), the Bench observed that while no formal show-cause notice is mandatory, adequate opportunity of hearing must be provided. . Further, the failure to give such an opportunity would render the revisional order legally fragile not on the grounds of lack of jurisdiction but on the grounds of violation of principles of natural justice
