Revision Justified as AO Failed to Examine Competing Provisions in Slump Sale Assessment.

Issue

Whether a Principal Commissioner (PCIT) can invoke revisionary jurisdiction under Section 263 to set aside a scrutiny assessment order as “erroneous,” on the grounds that the Assessing Officer (AO) accepted the assessee’s “slump sale” (Section 50B) treatment without conducting any inquiry or examining the applicability of a competing provision (Section 50).

Facts

The assessee-company sold its “Test House Division” and declared the transaction as a “slump sale,” computing capital gains under Section 50B.
The Assessing Officer (AO) completed a scrutiny assessment under Section 143(3) and accepted the assessee’s slump sale treatment.
Subsequently, the Principal Commissioner (PCIT) invoked Section 263 to set aside this assessment.
The PCIT’s reasoning was that the AO had failed to examine whether the sale was, in fact, a slump sale under Section 50B or if it should have been taxed as short-term capital gains under Section 50 (as the sale of depreciable assets). The AO’s order was completely silent on this critical, competing provision.

Decision

The High Court (implied) ruled in favour of the Revenue.
It held that the PCIT’s exercise of power under Section 263 was justified.
The court found that the AO’s assessment order was indeed “erroneous” because it “did not address the issue with reference to the competing provisions.”
This failure to examine a crucial and obvious aspect of the transaction constituted a “lack of inquiry,” which is a valid ground for a Section 263 revision.

Key Takeaways

“Lack of Inquiry” is an Error: An assessment order is “erroneous” under Section 263 not only if it reaches the wrong conclusion, but also if it fails to conduct a necessary inquiry into a critical, debatable issue.
AO Must Examine Competing Provisions: When a transaction could be taxed under multiple provisions (e.g., Section 50B vs. Section 50), the AO must apply their mind and examine the facts to determine the correct one. A simple, silent acceptance of the assessee’s claim is a “lack of inquiry.”
PCIT Can Revise for Non-Examination: The PCIT has the jurisdiction to revise an order where the AO, in a scrutiny assessment, simply accepts the assessee’s claim without conducting any inquiry into its correctness or the applicability of other relevant sections.
A Silent Order is Not a “Plausible View”: An assessment order that is silent on a critical, debatable issue apparent from the record is not a “plausible view” (which would bar revision). It is an erroneous order due to a failure to inquire.

HIGH COURT OF KERALA

Sterling Farm Research and Services (P.) Ltd.

Commissioner of Income-tax^*

A. Muhamed Mustaque and Harisankar V. Menon, JJ.

IT Appeal NO. 55 OF 2024

OCTOBER 21, 2025

M. Gopikrishnan Nambiar, K. John Mathai, Paulose C. Abraham, Raja Kannan, Kuryan Thomas and Joson Manavalan, Advs. for the Appellant. Jose Joseph, Standing Counsel for the Respondent.

JUDGMENT

Harisankar V. Menon, J. – This appeal, at the instance of an assessee under the provisions of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), questions the suo motu revisional steps under Section 263 of the Act (Annexure G) as confirmed by the impugned order in Sterling Farm Research & Services (P.) Ltd. v. Dy. CIT [IT.A No.661(COCH) of 2022, dated 09-02-2024] (Annexure M) of the Income Tax Appellate Tribunal. The assessment year concerned is 2016-17, relevant to the financial year 2015-16.

2. The appellant had two units/divisions – ‘Fertilizer Division’ and ‘Test House Division’, out of which, the Test House Division was sold as a case of ‘slump sale’ with reference to the provisions of Section 50B of the Act. A return was also presented in that fashion. Steps under Section 143(3) of the Act were taken, and by Annexure E order dated 20.12.2018, the same was finalised. It is worthwhile to notice the following observations made in Annexure E assessment order:

“6. During the year under consideration assessee has sold various assets of the company and produced supporting documents for income from Capital Gain declared. All the documents/materials produced are verified.”

Later, Annexure F notice under Section 263 of the Act dated 15.10.2020 was issued proposing to set aside the assessment order referred to above, to which the appellant-assessee sought to file objections placing reliance on the afore observations, in support of its contention that proper adjudication has been carried out in the matter by the assessing authority. The Commissioner, by Annexure G order dated 24.11.2020, however, found that the Assessing Officer has not enquired into the entire aspects of the matter and has merely completed the assessment, accepting the stand taken by the assessee, which is an incorrect assumption of facts. The appeal against the afore order is rejected by the Tribunal by the impugned order at Annexure M. It is in such circumstances that the captioned appeal is filed by the appellant-assessee under Section 260A of the Act.

3. We have heard Sri.Kuryan Thomas, the learned counsel for the appellant-assessee, and Sri.Jose Joseph, the learned Standing Counsel for the respondent.

4. The main contention urged on behalf of the appellant-assessee is with reference to the very invocation of the power under Section 263 of the Act, with reference to the enquiry carried out by the assessing authority, as is discernible from paragraph 6 of the assessment order referred to earlier.

5. In this connection, we notice the reasons pointed out for initiation of steps under Section 263 of the Act as recorded in the show cause notice at Annexure F as confirmed by the final order at Annexure G. The very question as to whether the transaction – sale is to be considered as a case of “slump sale” under Section 50B of the Act qua the provisions of Section 50 of the Act as per which the same is to be treated as a case of short term capital gain; does not appear to have been addressed by the assessing authority while issuing Annexure E order under Section 143(3) of the Act. True, the assessment order makes reference to certain documents/materials produced by the appellant-assessee. However, there is no adjudication with reference to the provisions of the statute in the afore assessment order. In Malabar Industrial Co. Ltd. v. Commissioner of Income-tax [2000] 243 ITR 83/109 Taxman 66 (SC)/(2000) 2 SCC 718], the Apex Court has categorically found that in a situation where the Commissioner is satisfied as regards the existence of the twin conditions – the assessment order being erroneous and prejudicial to the interest of revenue – power under Section 263 of the Act can be exercised. Elaborating further, the Apex Court held that if the assessing authority accepts the case of the assessee, without any enquiry, exercise of the jurisdiction under Section 263 of the Act was justified.

6. With reference to the touchstone of the principles laid down in the afore judgment, we note that since the assessment order does not appear to have addressed the issue with reference to the competing provisions, exercise of the power under Section 263 of the Act was justified. In the light of this, we find no reason to interfere with the impugned order of the Tribunal.

7. At this juncture, we take note of the submission made by the Sri.Kuryan Thomas, the learned counsel, with reference to subsequent completion of the assessment pursuant to the directions issued by the revisional authority by adopting the reasonings contained in Section 263 order as concluding the issue, which, when pointed out before the Tribunal, the Tribunal, after finding the said course as “unfortunate”, brushed aside the same as a subsequent development. However, we note that any observation made by the Commissioner in his order under Section 263 of the Act will not preclude the appellant-assessee from making submissions before the assessing authority in accordance with law and the assessing authority or the appellate authority before whom the appeal against the revised assessment is stated to be pending, would have to consider the legality or otherwise of the respective contentions in accordance with law.

With the above clarification regarding the findings in Annexure G order, as confirmed by the Tribunal, we dismiss this appeal.