PCIT Cannot Invoke Section 263 for Reverification When AO Throroughly Examined DVO Valuation and Property Sale
Issue
Whether the Principal Commissioner of Income Tax (PCIT) can validly exercise revisional powers under Section 263 to set aside an assessment order for reverification, when the Assessing Officer (AO) had already examined the sale of flats, called for purchase details, and referred the property valuation to the Departmental Valuation Officer (DVO).
Facts
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Transaction & Return: During Assessment Year 2021–22, the assessee sold five flats to its sister concern and declared the resulting long-term capital gains in its return of income.
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AO’s Inquiries & DVO Referral: During scrutiny assessment proceedings, the AO scrutinized the purchase and sale details of the flats, raised queries regarding the property valuation, referred the matter to the DVO, and accepted the disclosed capital gains after considering the DVO’s valuation report.
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Revisional Action under Section 263: The PCIT initiated revision proceedings under Section 263, alleging that the flats could not have been legally sold (as legal ownership/registered transfer was not demonstrated and flats were shown only as advances paid) and claiming that the AO called for details without properly examining them.
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Ground of Revision: The PCIT passed a revisional order directing a fresh assessment on the ground of inadequate inquiry by the AO.
Decision
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Exhaustive Inquiry by AO: The Tribunal held that the AO had looked into the issue threadbare by examining the purchase and sale details, questioning the valuation, and obtaining a formal DVO report prior to accepting the returned income.
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No Scope for Reverification: Section 263 cannot be invoked merely to conduct a reverification or re-examine issues that were already thoroughly investigated and adjudicated during the original assessment proceedings.
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Order Quashed: The PCIT’s allegation of non-examination was baseless, rendering the revisional order under Section 263 legally unsustainable, and it was accordingly quashed.
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Outcome: Decided entirely in favor of the assessee.
Key Takeaways
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Revision vs. Re-examination: Section 263 does not empower the Revenue to initiate a second inning of inquiries or seek a fresh verification on issues already examined in depth by the AO.
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Reliance on DVO Referral: Where an AO actively raises valuation queries and relies on an official DVO report, the resulting assessment cannot be branded as “erroneous and prejudicial to the interests of the Revenue” due to lack of inquiry.
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Plausible View Protection: Once the AO considers all relevant documents and adopts a permissible view after proper inquiry, the PCIT cannot substitute their own view or order a re-investigation under Section 263.
IN THE ITAT RANCHI BENCH
Kosi Consultants (P.) Ltd.
v.
ACIT/DICT*
George Mathan, Judicial Member
and Ratnesh Nandan Sahay, Accountant Member
and Ratnesh Nandan Sahay, Accountant Member
IT APPEAL No. 237 (RAN) OF 2026
[Assessment year 2021-22]
[Assessment year 2021-22]
JULY 30, 2026
Devesh Poddar, Adv. and R.R. Mittal, AR for the Appellant. H. Rovindro Singh, ld. CIT DR for the Respondent.
ORDER
1. This is an appeal filed by the assessee against the order passed u/s.263 of the Act by the ld. Pr.CIT (Central), Patna at Ranchi, dated 31.03.2026 passed in Revision No.PCIT(Central), Patna AT Ranchi/Revision-263/100001010663/2026 for the assessment year 2021-2022.
2. Shri Devesh Poddar and Shri R.R.Mittal, ld. ARs appeared on behalf of the assessee. Shri H.Robindro Singh, ld. CIT-DR appeared on behalf of the revenue.
3. It was submitted by the ld. AR that there was a search and seizure operation conducted on the assessee’s group on 28.07.2021. Returns have been filed by the assessee. In the course of assessment, the Assessing Officer had found that the assessee had disclosed the sale of 5 flats owned by the assessee to its sister concern for sale consideration of Rs.2,69,40,000/- and after reducing the cost of purchase, the capital gain was disclosed by the assessee at Rs.1,06,06,667/-. It was the submission that the Assessing officer had also sent the flats sold by the assessee for valuation by the DVO and after considering the valuation by the DVO had accepted the long term capital gains as disclosed by the assessee. It was submission that the Ld.PCIT invoked his powers u/s 263 of the Act to hold that the flats which have been sold by the assessee to its sisters’ concern could not have been sold insofar as the legal ownership and the registered transfer was not demonstrated. It was the submission that the Ld. PCIT has taken the stand that the flats have been shown as only advance paid for. It was the submission that the issues of the long term capital gain in respect of the sale of the 05 flats have been looked into details by the AO in the course of assessment proceedings. It was the submission that the order u/s 263 of the Act is being done only for replacing the opinion of the Ld.PCIT over that of the AO. It was the further submission that no specific error has been pointed out. It was the submission that all enquiries have been done by the AO. It was the prayer that the order passed u/s.263 of the Act is liable to be quashed. Ld. AR has also filed written submissions which reads as follows :-
4. In reply, ld. CIT-DR vehemently supported the order of the ld. Pr.CIT. It was submission that the relevant enquiries which were required to be made by the AO had not been done. It was the submission that even though the AO has called for certain details but he has not examined them. It was the submission that the ld. Pr.CIT has recognized that the AO had only kept the submissions and that too only partial submissions on record and had proceeded to complete the assessment. It was the submission that the order passed by the ld. Pr.CIT is liable to be upheld.
5. We have considered the rival submissions. A perusal of the facts in the present case clearly shows that in the course of assessment proceedings, the AO has examined the issue in regard to the sale of the flats. The AO has also examined the details in regard to the purchase of the flats. A perusal of the page 6 of the assessment order shows that all these details have been placed before the AO and the AO has recorded the same in his assessment order. The AO has questioned the valuation of the flat sold. The AO had the flats valued by the DVO. It is only after all these examinations, the AO had accepted the returned income. The claim of the ld. Pr. CIT that the AO had called for certain details but did not examine them does not stand to reason insofar as the assessment order says otherwise. The claim of the ld. Pr.CIT that the AO had only kept the submissions and that too only partial submissions on record and moved on to complete the assessment also does not stand to reason, insofar as the AO has gone to the extent of even questioning the valuation of the flats. This being so, as it is noticed that the issue has been adjudicated and looked into threadbare by the AO, the order u/s.263 of the Act is found only for the purpose of reverification of the issues which have already been considered by the AO in the assessment proceedings. This is not permissible under the provisions of Section 263 of the Act. This being so, the order passed u/s.263 of the Act by the ld. Pr.CIT is not found to be substantiable and same stands quashed.
6. In the result, appeal of the assessee is allowed.