ITAT Quashes Tax Addition on Immovable Property; Warrants Revision by PCIT

ITAT Quashes Tax Addition on Immovable Property; Warrants Revision by PCIT

A revision order was passed by treating the AO’s order as erroneous and prejudicial to the interests of the revenue department

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed the tax addition on immovable property, warranting revision by the Principal Commissioner of Income Tax (PCIT).

The bench of Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) observed that after the inquiries, the assessing officer (AO) made an addition for alleged money receipts on a protective basis in the hands of the assessee.

(Once adequate inquiries were made, they could not be subjected to revision by the PCIT under Section 263, as the PCIT had a different view on the issue).

The assessee/appellant sent a letter to the AO stating that RNB Mercantile Pvt. Ltd. had filed a settlement application before the Settlement Commission. It showed that the money transactions in the property were offered by the company before the Commission.

Without taking cognizance, the AO proceeded to treat the receipts as undisclosed income of the assessee on a protective basis. He observed that they would be reviewed based on the outcome of the settlement petition.

Thereafter, the Interim Board for Settlement disposed of the application and passed an order in the hands of RNB Mercantile. Before that, the PCIT stated in its Rule 9 Report that the capital gain had to be assessed in the hands of the assessees as they were the registered property owners.

The department's argument was rejected by the Settlement Commission, which held that the land had formed part of the assets of RNB Mercantile since its date of purchase. Therefore, the capital gains would be assessable only in the hands of the company and not the assessees.

Thus, based on the order of the Settlement Commission, the Commissioner of Income Tax (Appeals) deleted the protective addition made by the AO. By invoking the revision jurisdiction under Section 263, on a substantive basis, the PCIT sought to tax the amount of the assessee.

The PCIT passed a revision order by treating the order passed by the AO as erroneous and prejudicial to the interests of the revenue department. It was done on the ground that the undisclosed income from the sale of the property should have been assessed on a substantive basis instead of a protective basis.

The tribunal ruled that once a matter is considered and decided by CIT(A) on the provisions of Explanation 1(c) to Section 263, the issue cannot be the subject matter of any consideration by the PCIT in the revision proceedings. It is irrespective of whether it is substantive or protective. The revision order under Section 263 was quashed.