INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial orderLack of enquiry--During the year in question the assessee had sold an immovable property (unfortunately, the details of the said property are not mentioned in the appeal and in the annexures, i.e., the assessment order, order of the CIT ('the CIT') and the Tribunal) and had claimed long-term capital loss of Rs. 35.71 lakhs after indexation. The said property was purchased by the respondent-assessee in 1997 for Rs. 69.63 lakhs and was sold in 2003 (the date is not given in any of the orders or in the appeal) for Rs. 70 lakhs. The property was yielding monthly rent of Rs. 2.05 lakhs per month and was sold to the tenant in occupation. The AO had examined the said transaction and accepted the computation of the respondent-assessee. Addition of Rs. 7,500 was made to cover up possible leakages. The CIT thereafter issued notice under section 263. The assessment order is held to be erroneous and prejudicial to the interests of the revenue. It is hence set aside to be made afresh by the AO according to law after giving opportunity to the assessee of being heard.' The Tribunal has set aside the order observing that the CIT had not held and come to the conclusion or given a finding that the actual receipt of consideration was more than what was declared in the return. The CIT had not recorded any finding that the sale consideration of the property was higher. It has been held that the CIT could not have made any addition under section 50C as the stamp duty had not been enhanced by the registering authority and the sale deed was registered. It was not the case of the CIT that any extra stamp duty over and above the transaction value was payable because of the circle rates. The order under section 263 was set aside/cancelled. Held: The CIT had doubts about valuation and sale consideration received but he should have examined this aspect himself and given a finding that order passed by the AO was erroneous.

In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the assessing officer was erroneous. The finding recorded by the CIT is that 'order passed by the assessing officer may be erroneous'. The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the AO was erroneous. He came to the conclusion and finding that the AO had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the AO but was not properly examined and, therefore, the assessment order is 'erroneous'. The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on the merits. As held above, a distinction must be drawn in the cases where the AO does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interests of the Revenue and cases where the AO conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interests of the revenue. In latter cases, the CIT has to examine the order of the AO on the merits or the decision taken by the AO on the merits and then hold and form an opinion on the merits that the order passed by the AO is erroneous and prejudicial to the interests of the revenue. In the second set of cases, the CIT cannot direct the AO to conduct further enquiry to verify and find out whether the order passed is erroneous or not. [Para 20] The CIT is patently wrong in mentioning and stating that Schedule III to the WT Act, 1957, was not applicable but, the AO should have adopted the said formula/method. The aforesaid reasoning cannot be accepted and does not show or establish that the assessment order was erroneous. [Para 21]