IN THE ITAT HYDERABAD BENCH Archives - Tax Heal

Reassessment Order Based on Mechanical Sanction Under Section 151 Lacking Year-Wise Investment Examination Is Invalid

Ashwani Kumar — Thu, 05 Nov 2026 10:44:36 +0000

Reassessment Order Based on Mechanical Sanction Under Section 151 Lacking Year-Wise Investment Examination Is Invalid

Issue Whether a reassessment initiated under Section 147 is legally sustainable when the approval under Section 151 suffers from non-application of mind regarding year-wise property payments, and whether Section 292BC can retrospectively validate an invalid Section 151 approval obtained prior to April 1, 2021.

Facts

Return of Income: The assessee, an individual, filed his return of income for AY 2017-18 declaring a total income of ₹14.15 lakhs.
Initiation of Reassessment: The Assessing Officer (AO) reopened the assessment under Section 147 by issuing a notice under Section 148 after obtaining approval under Section 151.
AO’s Addition: In the reassessment completed under Section 147 read with Section 144B, the AO noted the purchase of a commercial property valued at ₹92.27 lakhs (including ₹58.09 lakhs paid in cash) and treated the entire ₹92.27 lakhs as an unexplained investment under Section 69 for AY 2017-18, determining the total income at ~₹1.06 crores.
Lapse in Year-Wise Examination: The information relied upon pertained to property investment payments made across multiple previous years rather than exclusively during the relevant assessment year.
Mechanical Approval: The prescribed authority granted approval under Section 151 without examining the year-wise payment breakdown or verifying the exact assessment year in which the income allegedly escaped assessment.
Invocation of Section 292BC: The Revenue sought to cure the defect in the Section 151 approval by relying on Section 292BC (deemed validity of notices/approvals).

Decision

Verification of Multi-Year Investments: When information forming the basis of reopening relates to investments spread over multiple previous years, the AO must examine the exact year-wise breakdown before concluding that income escaped assessment for a specific assessment year [Para 8].
Invalid Mechanical Sanction Under Section 151: Approval granted under Section 151 without considering material facts regarding year-wise payments reflects non-application of mind, failing the statutory requirements of Section 151 [Para 9].
Quashing of Reassessment Proceedings: Reassessment proceedings initiated on the strength of an invalid, mechanical sanction under Section 151 are legally unsustainable [Para 11].
Prospective Scope of Section 292BC: Section 292BC (effective from April 1, 2021) cannot be invoked retrospectively to cure or validate an invalid Section 151 approval obtained prior to April 1, 2021 [Para 10].
All issues decided in favour of assessee.

Key Takeaways

Mandatory Duty to Verify Payment Timelines: Before issuing a reopening notice for multi-year property transactions, the AO must verify the specific assessment years in which payments actually occurred rather than making a lump-sum addition in a single year.
Section 151 Sanction Is Not a Rubber Stamp: The sanctioning authority under Section 151 must independently examine the underlying material; mechanical, routine approval without analyzing basic factual details renders the entire reassessment void ab initio.
Limits on Curative Savings Provisions: Section 292BC cannot be given retrospective effect to validate fundamental jurisdictional defects in Section 151 approvals granted before April 1, 2021.

IN THE ITAT HYDERABAD BENCH ‘A’

Kamuni Mallesh

Dy. CIT

VIJAY PAL RAO, VICE PRESIDENT
and MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER

IT Appeal No. 851 (Hyd.) OF 2026
[Assessment year 2017-18]

OCTOBER 16, 2026

Bhupesh Kumar Dand, CA for the Appellant. Mohan Babu, Sr. AR for the Respondent.

ORDER

Madhusudhan Sawdia, Accountant Member. – This appeal is filed by Shri Kamuni Mallesh (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi (“Ld. CIT(A)”) dated 14.01.2026 for the A.Y. 2017-18.

2. The assessee has raised the following grounds of appeal:

1. Invalid Reopening of Assessment

The order of the CIT(A) / NFAC is erroneous in law and on facts in confirming the reopening of the assessment under section 147, without appreciating that the reopening was initiated without proper jurisdiction and without furnishing the reasons recorded within a reasonable time as mandated by law.

2. Violation of Principles of Natural Justice

The CIT(A) / NFAC erred in confirming the assessment order passed by the Assessing Officer without appreciating that the Assessing Officer failed to provide adequate opportunity to the appellant and did not properly consider the explanations and submissions furnished by the appellant.

3. Addition under Section 69 – Unexplained Investment

The CIT(A) / NFAC erred in confirming the addition made by the Assessing Officer under section 69 treating the alleged investment as unexplained income of the appellant for AY 2017-18.

4. Wrong Assessment Year Considered

The authorities below failed to appreciate that the property transaction relied upon by the Assessing Officer took place on 19.06.2019, which falls in Assessment Year 2020-21 and therefore cannot be taxed in Assessment Year 2017-18.

5. Addition Based on Incorrect Facts

The addition confirmed by the CIT(A) / NFAC is based on incorrect assumptions and without proper verification of the facts and documentary evidence placed on record. The CIT(A) / NFAC erred in confirming the assessment determining the income at Rs 1,06,42,350 as against the returned income of Rs 14,15,100, without any valid legal basis.

6. Other Grounds

The appellant craves leave to add, alter, amend, or withdraw any of the above grounds at the time of hearing.

3. The brief facts of the case are that the assessee is an individual who filed his return of income for the assessment year 2017-18 on 29.03.2018, declaring a total income of Rs. 14,15,100/-. Subsequently, the case of the assessee was reopened by the Assessing Officer (“AO”) under section 147 of the Income Tax Act, 1961 (“the Act”) and accordingly, notice under section 148 of the Act dated 30.03.2021 was issued to the assessee. In response to the said notice, the assessee filed his return of income on 09.04.2021, declaring the same total income of Rs. 14,15,100/-. During the assessment proceedings, the AO observed that the assessee had purchased a commercial property from M/s. Skill Promoters Private Limited for a total consideration of Rs. 92,27,250/-, out of which an amount of Rs. 58,09,750/- was paid in cash. The AO was not satisfied with the explanation furnished by the assessee regarding the source of investment in the said property. Accordingly, the AO treated the entire purchase consideration of Rs. 92,27,250/- as unexplained investment under section 69 of the Act and added the same to the income of the assessee. Consequently, the AO completed the assessment under section 147 read with section 144B of the Act, vide order dated 30.03.2022, determining the total income of the assessee at Rs. 1,06,42,350/-.

4. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee.

5. Aggrieved by the impugned order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that Ground Nos. 1 and 2 of the appeal relate to the validity of the reassessment proceedings initiated under section 147 of the Act on account of mechanical approval granted by the prescribed authority under section 151 of the Act. The Ld. AR submitted that the approval granted by the prescribed authority was without proper application of mind to the material available on record and, therefore, the reassessment proceedings initiated on the basis of such approval are not sustainable in law. The Ld. AR further submitted that the provisions of newly inserted section 292BC of the Act, introduced by the Finance Act, 2026 with retrospective effect from 01.04.2021, cannot come to the rescue of the Revenue in the present case, as the approval under section 151 of the Act was obtained prior to 01.04.2021, whereas the said provision has been made applicable with effect from 01.04.2021. The Ld. AR further invited our attention to para nos. 7 and 8 of the assessment order, wherein the AO has reproduced the details of payments made by the assessee towards the purchase consideration of Rs. 92,27,250/-. Referring to the said details, the Ld. AR submitted that the entire purchase consideration was not paid during the assessment year under consideration, i.e., assessment year 2017-18. Certain payments towards the purchase of the said property were also made during the assessment years 2018-19 and 2019-20. However, despite the availability of such details, the AO proceeded on the premise that the entire purchase consideration of Rs. 92,27,250/- represented income escaping assessment for the assessment year 2017-18. The Ld. AR submitted that the details of payments spreading over different assessment years were available before the AO at the time of recording the reasons for reopening the assessment and were also relevant for consideration by the prescribed authority while granting approval under section 151 of the Act. However, without examining the year-wise details of the investment, the prescribed authority granted approval for reopening the assessment on the premise that the entire amount of Rs. 92,27,250/- had escaped assessment during the assessment year 2017-18. The Ld. AR, therefore, contended that the approval was granted in a mechanical manner without proper application of mind to the relevant facts and material available on record. Accordingly, he submitted that the approval granted under section 151 of the Act is invalid and the consequential reassessment proceedings are liable to be quashed.

6. On the other hand, the Learned Departmental Representative (“Ld. DR”) relied upon the orders of the lower authorities and supported the validity of the reassessment proceedings initiated by the AO.

7. We have heard the rival submissions and perused the material available on record. We find that the principal issue arising for our consideration under ground nos. 1 and 2 of the appeal is whether the approval granted by the prescribed authority under section 151 of the Act for reopening the assessment was granted after due application of mind to the material available on record or whether the same was granted in a mechanical manner, thereby rendering the consequential reassessment proceedings invalid. It is an undisputed fact that the AO reopened the assessment for the assessment year 2017-18 on the basis of information relating to the purchase of a commercial property by the assessee for a total consideration of Rs. 92,27,250/- The AO proceeded on the premise that the entire purchase consideration represented income escaping assessment for the assessment year under consideration. However, the contention of the Ld. AR is that the said amount was not entirely paid during the relevant previous year and that certain payments were made during the subsequent previous years relevant to the assessment years 2018-19 and 2019-20. We have carefully gone through para nos. 7 and 8 of the assessment order, wherein the AO has reproduced the details of payments made by the assessee towards the purchase consideration of Rs. 92,27,250/-, the same is reproduced as under:

8. On perusal of the above, we find that the contention advanced by the Ld. AR regarding the payments having been spread over different assessment years is supported by the details reproduced in the assessment order itself. We observe that certain payments were made during the subsequent previous years relevant to the assessment years 2018-19 and 2019-20. Thus, the entire purchase consideration of Rs. 92,27,250/- cannot be treated as an investment made during the previous year relevant to the assessment year 2017-18 merely because the total consideration for the property was Rs. 92,27,250/-. The actual dates of payments and the year in which the investment was made are relevant considerations for determining whether any income chargeable to tax had escaped assessment for the particular assessment year. We further find that the AO, while initiating the reassessment proceedings, proceeded on the basis that the entire purchase consideration of Rs. 92,27,250/- had escaped assessment for the assessment year 2017-18, without giving due consideration to the fact that the payments towards the said property were spread over different assessment years. In our considered opinion, where the information forming the basis of reopening relates to an investment made over more than one previous year, it is necessary for the AO to examine the relevant details before arriving at a conclusion regarding escapement of income for a particular assessment year. The mere fact that a property was purchased for a particular consideration does not, by itself, establish that the entire consideration constituted an investment made during one previous year.

9. We are conscious of the fact that, at the stage of reopening an assessment, the AO is not required to conclusively establish escapement of income. However, there must be a rational connection between the material available on record and the formation of belief that income chargeable to tax has escaped assessment for the relevant assessment year. The requirement of obtaining approval under section 151 of the Act is an additional statutory safeguard intended to ensure that the power of reopening an assessment is exercised after due consideration of the relevant material and in accordance with law. The approval contemplated under section 151 of the Act is not an empty formality. The prescribed authority is required to examine the reasons recorded by the AO and the relevant material forming the basis of the proposed reassessment proceedings before granting approval. Such approval must reflect due application of mind to the circumstances of the case. A mechanical approval, without consideration of the material facts relevant to the formation of belief regarding escapement of income, would defeat the very purpose for which the statutory requirement of prior approval has been prescribed. In the present case, we find that the reassessment proceedings were initiated on the premise that the entire investment of Rs. 92,27,250/- related to the assessment year 2017-18, whereas the details reproduced by the AO in para nos. 7 and 8 of the assessment order indicate that the payments were made over different assessment years. This discrepancy goes to the very basis of the formation of belief regarding escapement of income for the assessment year under consideration. The year- wise details of the payments constituted material facts which required consideration before approval for reopening the assessment was granted. In our considered opinion, the prescribed authority, while granting approval under section 151 of the Act, was required to examine whether the reasons recorded by the AO were consistent with the material available on record, particularly when the alleged escapement of income was based on the entire purchase consideration of an immovable property, payments towards which were spread over different assessment years. The approval granted without addressing this material discrepancy cannot be regarded as an approval granted after due application of mind. We further find that the statutory requirement of approval under section 151 of the Act is intended to provide an independent examination of the reasons recorded by the AO before the jurisdiction to reopen a completed assessment is exercised. If such approval is granted mechanically, without examining the material facts relevant to the assessment year sought to be reopened, the statutory safeguard becomes illusory. Therefore, the requirement of approval cannot be treated as a mere procedural formality.

10. So far as the contention of the Ld. AR regarding the applicability of section 292BC of the Act is concerned, we find that the notice under section 148 of the Act was issued on 30.03.2021 and the approval under section 151 of the Act was necessarily obtained prior to the issuance of the said notice. Thus, the approval in question pertains to a period prior to 01.04.2021. Since the newly inserted provision, as submitted by the Ld. AR, has been made applicable with effect from 01.04.2021, the same cannot be invoked to validate an approval granted prior to the said date. Accordingly, we find merit on the said contention of the assessee that the provisions of newly inserted section 292BC of the Act, introduced by the Finance Act, 2026 with retrospective effect from 01.04.2021, cannot come to the rescue of the Revenue in the present case.

11. In view of the foregoing discussion, we are of the considered opinion that the approval granted by the prescribed authority under section 151 of the Act, without due consideration of the material facts relating to the year-wise payments towards the purchase of the immovable property, suffers from non- application of mind. Such mechanical approval does not satisfy the statutory requirement contemplated under section 151 of the Act. Consequently, the reassessment proceedings initiated on the basis of such invalid approval cannot be sustained in law. Accordingly, we hold that the approval granted under section 151 of the Act is invalid and, consequently, the reassessment proceedings initiated under section 147 of the Act and the assessment order passed under section 147 read with section 144B of the Act dated 30.03.2022 are hereby quashed.

12. Since we have quashed the reassessment proceedings on the aforesaid legal ground, the other grounds raised by the assessee challenging the additions made on merits have become academic in nature and, therefore, do not require separate adjudication.

13. In the result, the appeal filed by the assessee is allowed.

Addition under Section 68 on share premium is unsustainable post-revision, and loan verification is remanded.

Ashwani Kumar — Wed, 28 Oct 2026 09:31:08 +0000

Addition under Section 68 on share premium is unsustainable post-revision, and loan verification is remanded.

Issue

Whether an addition under Section 68 towards share premium in a consequential assessment order is sustainable when the PCIT, in the Section 263 revision order, did not record any finding that the share allotment consideration was fictitious or represented unexplained money of the assessee.
Whether the matter regarding unsecured loans treated as unexplained cash credit under Section 68 should be remanded to the Assessing Officer for detailed factual verification when substantial documentary evidence (confirmations, bank statements, ITRs) submitted by the assessee was ignored by the Commissioner (Appeals).
Whether the substituted first proviso to Section 68 (requiring proof of the “source of source”) can be retrospectively applied to Assessment Year 2014-15 to saddle the assessee with an additional statutory burden.

Facts

Share Premium Issue:
- For A.Y. 2014-15, the PCIT passed a revision order under Section 263 regarding share premium, observing that the Assessing Officer (AO) failed to examine share valuation under the Discounted Cash Flow (DCF) method, especially given substantial projected domestic sales increases.
- In the Section 263 order, the PCIT did not hold or find that the consideration received for share allotment was fictitious or that the share premium represented the assessee’s own unexplained funds.
- In the consequential assessment proceedings under Section 142(1), the AO treated the share premium received as unexplained cash credit under Section 68.
Unsecured Loans Issue:
- The AO treated part of the loans received by the assessee from 52 lenders as unexplained cash credits under Section 68, which was upheld by the CIT(A).
- Before the CIT(A), the assessee submitted extensive documentary evidence including loan confirmations, copies of returns of income, bank statements, ledger accounts, TDS details, and repayment records of the 52 lenders.
- The CIT(A) dismissed the appeal without examining or referring to a single document furnished for any of the lenders.
- The Revenue sought to apply the higher burden of proving the “source of source” under the substituted first proviso to Section 68 for A.Y. 2014-15.

Decision

Share Premium Addition Invalid: Since the PCIT in the Section 263 order did not record any finding that the share allotment consideration was fictitious or constituted unexplained money, the addition made by the AO under Section 68 in consequential assessment was not sustainable and decided in favor of the assessee.
Inapplicability of Substituted Proviso to Sec. 68: The substituted first proviso to Section 68 was not applicable during A.Y. 2014-15; hence, the assessee cannot be saddled with an additional statutory burden to prove the “source of source” for that assessment year.
Remand for Loan Verification: The issue regarding unsecured loans from 52 lenders was remanded to the file of the Assessing Officer for the limited purpose of carrying out detailed factual verification of individual confirmations, bank statements, ledger accounts, ITR details, and repayment transactions in accordance with the law applicable to A.Y. 2014-15.

Key Takeaways

Consequential Assessment Limits: In reassessment or revision proceedings following a Section 263 order, the Assessing Officer cannot exceed the scope of the PCIT’s order or make additions under Section 68 without a specific finding by the PCIT that the funds were fictitious or unexplained.
Prospective Application of Statutory Burden: Taxpayers cannot be subjected to additional statutory requirements (such as establishing the “source of source” of lenders under the substituted proviso to Section 68) retrospectively for assessment years prior to its enactment.
Duty of Fact-Finding Authorities: Appellate authorities cannot summarily reject or ignore documentary evidence (bank statements, confirmations, ITRs) supporting loan transactions; detailed verification of each lender’s credentials must be conducted before making additions under Section 68.

IN THE ITAT HYDERABAD BENCH ‘B’

Samriddhi Petro Products (P.) ltd.

ACIT

Ravish Sood, Judicial Member
and MADHUSUDAN SAWDIA, Accountant Member

IT Appeal No. 101 (HYD) of 2026
[Assessment year 2014-15]

SEPTEMBER 23, 2026

GVN Hari for the Appellant. Gaurav Sharma, CIT-DR for the Respondent.

ORDER

Ravish Sood, Judicial Member.- The present appeal filed by the assessee company is directed against the order passed by the CIT(Appeals), dated 12.11.2025, for the assessment year 2014-15, which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under Section 143(3) r.w.s 263 of the Income Tax Act, 1961 (for short, “Act”) dated 28.02.2024. The assessee company has assailed the impugned order on the following grounds of appeal before us:

“1. The order of learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.

2. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.4,08,89,926 made by the assessing officer u/s 68 of the Act towards unexplained unsecured loans.

3. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.74,50,000 made by the assessing officer u/s 68 of the Act towards unexplained share premium.

4. Any other ground that may be urged at the time of appeal hearing.”

2. Succinctly stated, the assessee company, which is engaged in the business of wholesale and retail trade of Auto LPG Gas, had filed its return of income for AY 2014-15 on 22.11.2014, declaring an income of Rs. Nil. The assessment was originally completed under Section 143(3) of the Act vide order dated 12.09.2016, wherein certain additions/disallowances were made towards travel and sales promotion expenses, penalty charges and petty cash expenses and the income of the assessee company was determined at Rs. 2,16,571/-, which, after allowing setoff of brought-forward losses, resulted in assessed income at Rs. Nil.

3. Subsequently, the PCIT-3, Hyderabad, on examination of the assessment record, observed that certain issues had not been properly examined by the AO, viz. (i) valuation of shares under the DCF method in the backdrop of estimated domestic sales with an exorbitant increase from year to year; (iii) loans received from shareholders and other parties and the identity, genuineness and creditworthiness thereof; (iv) acceptance and repayment of loans/advances totaling to Rs. 2,38,82,326/- from shareholders and other parties the genuineness and creditworthiness of which is required to be verified; and (iii). the assessee company had accepted loans/advances in cash in violation of Section 269SS and has repaid loans/advances in violation of provisions of Section 269T of the Act, thus held the order passed by him as erroneous and prejudicial to the interest of the revenue, and set aside the same with a direction to redo the assessment in accordance with law after allowing an opportunity of being heard to the assessee company.

4. The AO, pursuant to the order passed by the PCIT under Section 263 of the Act, dated 06.12.2018, passed an order under Section 143(3) r.w Section 263 of the Act, dated 31.12.2019, determining the income at Rs. 4,84,97,326/-, after making certain additions, viz. (i) addition towards share premium under Section 68 of the Act: Rs. 74,50,000; and (ii) addition of the unsecured loans received by the assessee company by treating the same as unexplained credits under Section 68 of the Act: Rs. 4,10,47,326/-.

5. Aggrieved, the assessee company assailed the aforesaid order passed under Section 263 of the Act, dated 06.12.2018 before the Tribunal. The Tribunal, vide its order passed in Samriddhi Petro Products (P) Ltd v. Dy. CIT [IT Appeal No. 87 (Hyd) of 2020, dated 29-6-2021], observed that the assessee company had not participated in the proceedings before the PCIT and, accordingly, restored the matter to the file of the PCIT for fresh adjudication on merits, after providing one more opportunity to the assessee company.

6. As is discernible from the record, the PCIT, in the fresh proceedings, issued notice under Section 263 of the Act dated 16.01.2023. The assessee company participated in the proceedings and furnished its submissions in respect of the issues raised by the PCIT.

7. The PCIT thereafter passed an order under Section 263 of the Act dated 31.03.2023, setting aside the assessment and directing the AO to carry out necessary verification in respect of the issues referred to therein and to pass a speaking order in accordance with law.

8. Ostensibly, the assessee company again challenged the order passed under Section 263 of the Act, dated 31.03.2023, before the Tribunal. The Tribunal, vide its order passed in Samriddhi Petroproducts (P) Ltd v. ITO [IT Appeal No. 211 (Hyd) of 2023, dated 31-7-2023], upheld the order of the PCIT and dismissed the appeal of the assessee company.

9. Thereafter, the AO, pursuant to the aforesaid order, issued notices under Section 142(1) of the Act dated 11.04.2023 and 19.12.2023. In response, the assessee company furnished its replies on 25.12.2023 and 03.01.2024. The AO observed that, as per the unsecured loans group summary for the financial year 2013-14, there were substantial receipts and repayments of unsecured loans and that the assessee company had furnished confirmations and other documents in respect of the lenders. However, observing that the assessee company had not furnished bank statements and income-tax returns of several lenders, the AO accepted loans aggregating to Rs. 85,00,000/-, but treated the balance amount of Rs. 4,08,89,926/- as unexplained credits under Section 68 of the Act.

10. Apropos the share premium, the AO treated the amount of Rs. 74,50,000/-as unexplained cash credit under Section 68 of the Act.

11. The AO thereafter completed the assessment by his order passed under Section 143(3) r.w. Section 263 of the Act, dated 28.02.2024, determining the assessed income at Rs. 4,83,39,926/-.

12. Aggrieved, the assessee company carried the matter in appeal before the CIT(Appeals), but without success.

13. The assessee company, being aggrieved with the order of the CIT(Appeals), has carried the matter in appeal before us.

14. We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements pressed into service by them.

15. Before proceeding further, we deem it appropriate to delineate the scope of the present proceedings. As observed hereinabove, the order passed by the PCIT under Section 263 of the Act dated 31.03.2023, whereby the original assessment was set aside for carrying out factual verification in respect of the share valuation and the unsecured loans, has already been upheld by the Tribunal vide its order passed in ITA No. 211/Hyd/2023, dated 31.07.2023. We are, therefore, not examining the validity of the exercise of jurisdiction under Section 263 of the Act. Rather, the issue before us is confined to examining whether the additions made by the AO in the consequential assessment are sustainable in law and, insofar as the addition of unsecured loans under Section 68 is concerned, whether the same has been made after properly examining the material furnished by the assessee company and in accordance with the law applicable to the assessment year under consideration.

16. We shall first deal with the addition made by the AO towards share premium and thereafter examine the addition of the unsecured loans made under Section 68 of the Act.

17. As discernible from the record, the PCIT, while passing his order under Section 263 of the Act dated 31.03.2023, in respect of the share premium, had specifically observed that the AO had failed to examine the valuation of shares under the DCF method, particularly in view of the substantial increase in the projected domestic sales. In response, the assessee company, during the proceedings under Section 263 of the Act, had contended that it was entitled to adopt the DCF method and the Revenue could not substitute another method merely because it did not agree with the valuation. Accordingly, the PCIT had directed the AO to carry out necessary verification in this regard.

18. On a careful consideration of the order passed by the PCIT, we find that the issue which was required to be examined by the AO was the correctness of the valuation of the shares and the basis of the projections adopted under the DCF method. The PCIT had directed the AO to carry out necessary verification in this regard. The PCIT had not recorded any finding that the consideration received by the assessee company towards allotment of shares was fictitious or that the receipt of the share premium itself represented unexplained money belonging to the assessee company.

19. We are of the view that, in the backdrop of the aforesaid facts, if upon verification it was found that the shares had been issued by the assessee company at a value exceeding their fair market value (FMV), the appropriate statutory provision governing such excess, subject to its applicability and satisfaction of the statutory conditions, was Section 56(2)(viib) of the Act. We say so because the PCIT had never directed the AO to treat the share premium as an unexplained cash credit under Section 68 of the Act. However, the AO, by treating the entire amount of Rs. 74,50,000/- received towards share premium as unexplained cash credit under Section 68 of the Act, has therefore gone beyond the specific issue restored by the PCIT under Section 263 of the Act. We are of the firm conviction that the addition under Section 68 of the Act does not flow from the directions contained in the order passed by the PCIT under Section 263 of the Act. Accordingly, we are unable to persuade ourselves to subscribe to the addition of Rs. 74,50,000/- made by the AO under Section 68 of the Act, as the same does not arise from the directions given by the PCIT in the order passed by him under Section 263 of the Act, dated 31.03.2023. We, thus, in terms of our aforesaid observations, vacate the addition of Rs. 74,50,000/- made under Section 68 of the Act by the AO. The Ground of appeal No. 3 is allowed.

20. We shall now deal with the addition of Rs. 4,08,89,926/- made by the AO by treating the unsecured loans as unexplained cash credits under Section 68 of the Act.

21. As observed hereinabove, the PCIT, while exercising jurisdiction under Section 263 of the Act, had observed that the AO had failed to inquire into loans aggregating to Rs. 2,38,26,000/- received by the assessee company from shareholders and other parties and had not properly examined their identity, genuineness and creditworthiness. The PCIT had also observed specific deficiencies in the lenders’ details, including the absence of PAN particulars for certain persons and a discrepancy in the amount stated to have been received from Shri P. Sarath Chandra. Apart from that, the PCIT had further observed discrepancies in the aggregate loan figures. The PCIT had observed that the assessee company had filed a letter before the AO on 20.11.2019, wherein it was stated that the loans received during the year amounted to Rs. 4,10,47,326/- (as mentioned in the 3CD report), whereas the balance sheet reflected the same at Rs. 3,94,09,083/- under Current Liabilities/Short-term Borrowings and another figure was noticed in “Note No. 6”. The PCIT, therefore, directed the AO to verify the correct amount of loans received during the year and the identity, genuineness and creditworthiness of the respective creditors.

22. We find that the AO, in the course of the consequential assessment, while giving effect to the order passed by the PCIT under Section 263 of the Act, had considered unsecured loans aggregating to Rs. 4,93,89,926/-, and thereafter accepted loans aggregating to Rs. 85,00,000/- and treated the balance amount of Rs. 4,08,89,926/- as unexplained under Section 68 of the Act.

23. Before the CIT(Appeals), the assessee company submitted that the aggregate unsecured loans of Rs. 4,93,89,926/- comprised, viz.: (i) loans from shareholders: Rs. 3,18,59,926/-; (ii) loans from directors: Rs. 79,90,000/-; and (iii) loans from business associates: Rs. 95,40,000/-.

24. We further find that the assessee company, in order to substantiate the genuineness of the loans claimed to have been received from the 52 lenders during the year under consideration, had filed before the CIT(Appeals) documentary evidence substantiating the veracity of the subject loan transactions, which comprised, viz. confirmation letters, income-tax particulars, bank statements, ledger accounts, details of interest paid and TDS deducted, as well as evidence regarding receipt and, in several cases, repayment of the loans through banking channels. However, we find that the nature and extent of the documentary evidence furnished regarding the loans received from the 52 lenders during the subject year varied from lender to lender.

25. We find that the issue before us is whether, in the backdrop of the facts of the present case, read along with the material and documentary evidence filed by the assessee company in the course of the proceedings before the authorities below, the addition of Rs. 4,08,89,926/- can be sustained on the ground that the assessee company had failed to discharge the onus cast upon it as required under the mandate of Section 68 of the Act and had failed to satisfactorily establish the source of the amounts received by it?

26. At this stage, we may herein observe that under Section 68 of the Act, the initial burden is upon the assessee company to establish the identity of the lender, the genuineness of the transaction and the creditworthiness of the lender. However, once the assessee company places primary documentary evidence in support of the credit, the AO is required to examine such evidence objectively and, where circumstances warrant, conduct appropriate inquiry. We are of the firm conviction that the discretion vested in the AO under Section 68 to regard an explanation as unsatisfactory is not an arbitrary discretion and cannot be exercised merely on the basis of suspicion or conjectures. Our aforesaid view is supported by the judgment of the Hon’ble Supreme Court in CIT v. Orissa Corpn, (P.) Ltd. 159 ITR 78 (SC), wherein it was held that where the assessee had furnished the names and addresses of the creditors and the Revenue had not pursued the matter further, the addition could not be sustained merely because the creditors were not produced. Further, we find that the Hon’ble High Court of Gauhati in Nemi Chand Kothari v. CIT [2003] 264 ITR 254 (Gauhati), has explained that the burden cast upon the assessee under Section 68 cannot be stretched to an unreasonable extent and that, once the assessee establishes the identity of the creditor, the genuineness of the transaction and places prima facie material indicating the financial capacity of the creditor, the assessee cannot ordinarily be called upon to prove the source from which the creditor himself obtained the money. Also, we find that the Hon’ble High Court of Bombay in Gaurav Triyugi Singh v. ITO 423 ITR 531 (Bom), has reiterated the requirement of examining the primary documentary evidence furnished by the assessee and held that the Revenue could not reject the explanation without making appropriate inquiry.

27. However, we find that there is an additional statutory aspect which is relevant in the present case, i.e., the “first proviso” to Section 68 of the Act, as was applicable during the year under consideration, did not contain the present “first proviso” specifically dealing with loans or borrowings and requiring the person in whose name the credit was recorded to explain the nature and source of the sum credited. We say so because it was only by the Finance Act, 2022 that the “first proviso” to Section 68 was substituted, with effect from 01.04.2023. We find that the substituted “first proviso” specifically provides that where the sum credited consists of a loan or borrowing or any such amount, the explanation offered by the assessee shall be deemed to be not satisfactory unless the person in whose name such credit is recorded also offers an explanation regarding the nature and source of such sum and such explanation is found satisfactory by the AO. However, as the assessment year before us is AY 2014-15, the said substituted “first proviso” to Section 68 was not applicable during the year under consideration. As per the unamended Section 68 of the Act, while the AO was certainly entitled to examine the creditworthiness of the lender and to make appropriate inquiry regarding the financial capacity of the creditor, the assessee company could not, for AY 2014-15, be saddled with an additional statutory burden of establishing the source of the source merely by invoking the subsequently substituted “first proviso” to Section 68 of the Act. We, thus, are of the view that the observation of the AO that the bank statements of certain lenders did not establish the source of the amounts advanced by them, to the said extent, the addition is founded merely upon the proposition that the assessee company was required to establish the source of the loan, we are afraid, cannot be sustained for AY 2014-15. Although the assessee company continues to bear the initial burden of establishing the identity of the lender, the genuineness of the transaction, and the lender’s creditworthiness, but at the same time, it is impermissible to convert the aforesaid burden cast upon the assessee company into an obligation to establish, as a statutory condition under Section 68 applicable to AY 2014-15, the source from which the lender obtained the money.

28. We find on a perusal of the record that the assessee company has furnished substantial material/documentary evidence concerning 52 lenders and the AO has accepted loans aggregating to Rs. 85,00,000/-, while rejecting the balance of Rs. 4,08,89,926/-. Although we are conscious of the fact that, while considering the scope of Section 68 of the Act, an appellate remand should not ordinarily be made merely to provide the Revenue with another opportunity to fill up a lacuna in its investigation, but considering the totality of the facts involved in the present case, wherein there are 52 lenders and the amounts claimed by the assessee company to have been received from all the said 52 lenders have been summarily, or in fact most casually, held by the CIT(A) as unexplained credits under Section 68 of the Act, the case stands on a different factual footing.

29. As observed by us hereinabove, the material/documents as was made available on record of the authorities below by the assessee company comprises details concerning 52 lenders, with different categories of documentary evidence. We find that the CIT(Appeals) chose not to undertake a comprehensive lender wise examination of the material that was available on record and was filed by the assessee company and, based on generalized observations, has summarily upheld the view taken by the AO and held the loans received by the assessee company as unexplained credits under Section 68 of the Act. We find it difficult to fathom that though the assessee company had filed substantial documentary evidence before the CIT(Appeals) in the form of confirmations, copies of the returns of income, copies of the bank accounts of the lenders, copies of the ledger accounts of the lenders, etc., to substantiate the veracity of the subject loan transactions, not a single document had been referred to in the context of any of the lenders by the said first appellate authority.

30. We are of the considered view that, in the backdrop of the aforesaid circumstances, a detailed factual exercise in respect of each of the 52 lenders is required to be undertaken, viz. examining the individual confirmations, bank statements, ledger accounts, income-tax particulars, TDS details and repayment transactions. Considering the aforesaid facts, we, being the final fact-finding authority, in all fairness and in the interest of justice, deem it appropriate to direct the AO to undertake a detailed factual exercise in respect of each of the 52 lenders, examine the individual confirmations, bank statements, ledger accounts, income tax particulars, TDS particulars and repayment transactions, to the extent the same pertains to the addition of Rs. 4,08,89,926/- as had been sustained by the authorities below.

31. We, thus, in terms of our aforesaid observations, deem it apposite to set aside the matter in a limited manner, and not to provide the Revenue with an unrestricted second opportunity to improve its case. The AO shall examine the loans, lender-wise, with reference to the evidence furnished by the assessee company, in the backdrop of the settled position of law, as laid down by the Hon’ble High Courts and elucidated by us hereinabove. Also, the AO, while undertaking such examination, shall apply the provisions of Section 68 as they stood during AY 2014-15. The AO shall, in the course of examining the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the lenders, take due cognizance of the documentary evidence furnished by the assessee company to support its claim of having received genuine loans from the aforementioned parties. Also, the material fact that the loans had been repaid in the case of some of the lenders would also be considered by the AO in the course of the set-aside proceedings. We make it clear beyond any doubt that the aforesaid exercise shall be undertaken on a lender-wise basis, and the AO shall record specific reasons for accepting or rejecting the explanation furnished by the assessee company in respect of each disputed credit. Also, as a word of caution, we may herein observe that the explanation of the assessee company shall not be rejected merely on the basis of generalized observations, as had been so done in the impugned order by the CIT(Appeals), or solely on the ground that the assessee company has not established the source of source. Needless to say, the AO shall also consider the fact that, in respect of certain lenders, the assessee company has claimed to have furnished confirmations, bank statements, income-tax particulars, TDS statements and evidence of repayments through banking channels, which all material shall be considered cumulatively while determining the identity, genuineness and creditworthiness of the respective creditors.

32. We, therefore, restore the matter to the file of the AO for the limited purpose of carrying out the aforesaid factual verification and adjudication in accordance with law applicable to AY 2014-15. Accordingly, the addition of Rs. 4,08,89,926/- made under Section 68 of the Act is set aside to the file of the AO for fresh adjudication in terms of our aforesaid observations. Needless to say, the AO shall, in the course of the set-aside proceedings, afford a reasonable opportunity of being heard to the assessee company, which shall remain at liberty to substantiate its claim based on fresh documentary evidence, if any. The Ground of appeal No. 2 is allowed for statistical purposes in terms of our aforesaid observations.

33. The Grounds of appeal Nos. 1 & 4 being general are dismissed as not pressed.

34. In the result, the addition of Rs. 74,50,000/- made under Section 68 of the Act towards share premium is deleted, while the addition of Rs. 4,08,89,926/-made under Section 68 of the Act towards unsecured loans is set aside to the file of the AO for fresh adjudication in terms of our aforesaid observations.

35. Accordingly, the appeal of the assessee company is partly allowed/partly allowed for statistical purposes in terms of our aforesaid observations.

No Rectification Required When DVO Valuation Matches Stamp-Duty Value and Unadjudicated Acquisition Cost Remanded

Ashwani Kumar — Wed, 28 Oct 2026 07:51:07 +0000

No Rectification Required When DVO Valuation Matches Stamp-Duty Value and Unadjudicated Acquisition Cost Remanded

Issue

Whether the Assessing Officer can rectify an assessment order under Section 154 when the DVO’s valuation matches the stamp-duty value under Section 50C.
Whether the unadjudicated claim of total stamp duty incurred toward the cost of acquisition under Section 48 should be remanded to the Assessing Officer for verification.

Facts

The assessee-company sold an immovable property during Assessment Year 2017-18 but did not file a return of income.
The Assessing Officer (AO) observed the stamp-duty value at ₹3.20 crores and referred the property valuation to the DVO upon the assessee’s request.
As the DVO report was pending at the time of assessment completion, the AO adopted the stamp-duty value under Section 50C, noting that the order would be revised under Section 154 once the report arrived.
The DVO report was subsequently received and determined the fair market value to be identical to the stamp-duty value (₹3.20 crores).
For computing capital gains under Section 48, the assessee claimed total stamp duty of ₹19.82 lakhs (two payments of ₹9.91 lakhs) paid during purchase in 2013 as part of the cost of acquisition.
The AO allowed only ₹9.91 lakhs towards stamp duty without adjudicating the remaining balance claimed by the assessee.

Decision

Section 154 Rectification Unnecessary: Section 155(15) does not permit modification based on a DVO report; however, if the DVO’s valuation differs from the stamp-duty value, the AO may rectify under Section 154. Since the DVO’s valuation matched the stamp-duty value, no rectification under Section 154 was required.
Remand for Stamp Duty Verification: The matter was remanded to the AO for the limited purpose of verifying whether the assessee actually incurred the full ₹19.82 lakhs in stamp duty towards the cost of acquisition.

Key Takeaways

Prerequisites for Section 154 Adjustment: An assessment order cannot be rectified under Section 154 following a Section 50C reference if the DVO’s valuation report merely confirms the original stamp-duty value.
Duty to Adjudicate Cost Claims: Assessing Officers are required to explicitly verify and pass orders on all documented components of acquisition costs raised during assessment proceedings.

IN THE ITAT HYDERABAD BENCH ‘B’

Sel Resources Ltd.

ITO

Ravish Sood, Judicial Member
and MADHUSUDAN SAWDIA, Accountant Member

ITA No. 679 (HYD) OF 2025
[Assessment year 2017-18]

SEPTEMBER 11, 2026

Phaneendra Nag, CA for the Appellant. K. Prasad, Sr. AR for the Respondent.

ORDER

Ravish Sood, Judicial Member. – The present appeal filed by the assessee company is directed against the order passed by the CIT(A), NFAC, Delhi, dated 18/02/2025, which in turn arises from the order passed by the Assessing Officer (AO) under section 147 r.w.s 144B of the Income Tax Act, 1961 (for short, “the Act”), dated 29/03/2022 for Assessment Year (AY) 2017-18. The assessee company has assailed the impugned order on the following grounds of appeal before us:

“1. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in completing the assessment u/s 147 of Income Tax Act, 1961. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the entire assessment order which is passed in gross violation of natural justice.

2. (a) In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO in taxing a sum of Rs.1,84,99,000/- as Short Term Capital Gain in the hands of the assessee. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs.1,82,40,172/-.

(b) In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO and adopting the market value of Rs.3,20,20,000/-. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the addition being illegal and without following the prescribed procedure of law.

(c) In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO in applying the provisions of section 50C of the IT Act 1961, and adopting the sale consideration (stamp duty value) at Rs.3,20,20,000/- against the actual sale consideration of Rs.2,14,73,862/-. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by accepting the sale consideration at Rs.2,14,73,862/-.

3. AO erred in adding this income though the documentary evidence for sale of the property is for Rs.2,14,73,862 has been submitted during the scrutiny proceedings. Further Appellant has also requested the AO to refer the matter to valuation officer in order to obtain the fair value of the property on the plea of the property was lying closed for several years and was in very bad condition at the time of sale. AO erred in completing the assessment stating, the valuation report was not received till the date.

4. The AO for the same property assessed the value (cost) as Rs.1,98,09,900 in the AY2014-15 and issued the assessment order for which also the appellant is preferring an appeal. AO erred in arriving at the addition amount of capital gain also.

5. The AO ought to have appreciated that the Appellant’s request of referring the matter to valuation officer and would have completed the assessment upon receiving the fair value as per valuation officer.

6. The AO failed to appreciate that this was a case of distress sale wherein the sale consideration was pre-decided and was not as per the wishes of the seller and thus section 50C cannot be applied in such a scenario.

7. The Appellant submits that Section 50C cannot be applied in an automatic manner. Section 50C was introduced on to the statute to curb the inflow of cash on sale of any immovable property over and above the amount mentioned in the sale deed. However, wherein the surrounding circumstances are such that it could be established that there is no chance of assessee receiving any consideration in cash, as in the present case, then there cannot be applicability of Section 50C. In this regard, reliance is placed on the below mentioned judicial pronouncements: –

1. Wenceslaus Josoph D’Souza, ITA No. 4732/Mum/2017 [Mumbai – 1-7 ITAT]

2. KrithikaLingappan, ITA No. ITA No.2959/Chny/2018 [Chennai – 8-20 ITAT]

3. Hari Om Gupta (Lucknow – Trib.) 21-27

4. KrishiUtpanna Bazar Samittee, ITA No.2043/pN/2012 [Pune – 28-37 ITAT]

5. Southern Steel Ltd., ITA No. 1220/Hyd/2016 [Hyd – ITAT] 38-46 Even otherwise, A specific request was made to the lower authorities, during the course of assessment proceedings, to refer the case for valuation to DVO as prescribed in u/s 50C (2) of the Income Tax Act, 1961.

8. However, ld. AO though referred it to the DVO but completed the assessment even before receiving the report from the DVO stating that the case was getting barred by time.

9. Thereafter ld. AO calculated the capital gain by taking the sale consideration (stamp duty value) as Rs.3,20,20,000/-.

10. Ld. AO has referred the case to the valuation officer. Ld. AO, discharging the quasi-judicial function, was duty bound to refer the matter to the valuation officer u/s 50C(2) based on the claim made by the assessee . Reliance is placed on the Order of the Hon’ble Calcutta High Court in the case of Sunil Kumar Agarwal (Calcutta) in which it was held that

” …….. For the aforesaid reasons, we are of the opinion that the valuation by the departmental valuation officer, contemplated under Section 50C, is required to avoid miscarriage of justice. The legislature did not intend that the capital gain should be fixed merely on the basis of the valuation to be made by the District Sub Registrar for the purpose of stamp duty. The legislature has taken care to provide adequate machinery to give a fair treatment to the citizen/taxpayer. There is no reason why the machinery provided by the legislature should not be used and the benefit thereof should be refused. Even in a case where no such prayer is made by the learned advocate representing the assessee, who may not have been properly instructed in law, the assessing officer, discharging a quasi-judicialfunction, has the bounden duty to actfairly and to give a fair treatment by giving him an option to follow the course provided by law…..”

11. Hon’ble ITAT Jaipur Bench in the case of Smt. Kamlesh Tiwari, ITA No. 587/JP/2013 followed the rational laid down by the Hon’ble Calcutta High Court in the case of Sunil Kumar Agarwal (supra) and held that even though the assessee simply challenged the sale consideration on the basis of the Stamp Valuation Authority but had not requested to refer this issue to the Valuation Officer, the Assessing Officer should have referred the matter to the Valuation Officer.

12. Further reliance is also placed on the following judicial pronouncements the extracts of which have been set out for the sake of convenience: –

12.1 Appadurai Vijayaraghavan v. JCIT (Madras)

“…..Head Notes – Section 50C of the Income-tax Act, 1961 – Capital gains -Special provision for computation of full value consideration (Reference to Valuation Officer) – Assessment year 2007-08 – Whether where assessee made an objection with regard to adoption of market value under section 50C(1), Assessing Officer should have referred valuation of capital asset to Valuation Officer under section 50C(2) – Held, yes

12.2 . Anil Kumar Jain v. ITO (Delhi – Trib.)

“…..Head Notes – Section 50C of the Income-tax Act, 1961 – Capital gains – Special provision for computation of full value of consideration in certain cases [Reference to Valuation Officer] – Assessment year 2009-10 – Assessee earned short term capital gain on sale ofproperty – Assessee made a claim before Assessing Officer that value adopted or assessed by stamp valuation authority was higher than fair market value – Value adopted by stamp valuation authority had not ever been disputed by assessee in any appeal or revision or otherwise to any other authority or Court as referred to in section 50C(2) – Whether it was incumbent upon Assessing Officer to refer matter for valuation to a Valuation Officer as provided in section 50C(2)- Held, yes”

13. Without prejudice to the foregoing, the Appellant submits that as per explanation (iia) to section 153B of the Income Tax Act, 1961, in computing the period of limitation of assessment u/s 153A the following period shall be excluded:

“The period commencing from the date on which the Assessing Officer makes a reference to the Valuation Officer under sub-section (1) of section 142A and ending with the date on which the report of the Valuation Officer is received by the Assessing Officer”

Hence, the contention of the Assessing Officer that the assessment proceedings will become time barred due to reference being made to Valuation Officer was not valid in law.

14. AO erred in not appreciating the various documents and submissions made by the Appellant.

15. The Appellant therefore prays that the Hon’ble ITAT may be pleased to Quash the Assessment Order dated 29/03/2022 in its entirety as the same is against the principles of natural justice.

16. The Appellant craves leave to add to and/or/amend/or/alter any of the grounds taken in appeal.”

Also, the assessee appellant has raised the following additional grounds of appeal before us:

“17 . As per the ratio laid down by the Hon’ble Supreme Court of India in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), the Hon’ble ITAT has jurisdiction to examine the question of law which has been taken before the Hon’ble ITAT for the first time though not taken before the first appellate authority.

18. The appellant submits that Section 155(15) does not encompass rectification/amendment based on DVO’s report.

19. The appellant submits that DVO’s report received after completion of assessment proceedings cannot trigger action u/s 154.

20. The learned Assessing Officer erred in law in passing a provisional and contingent assessment order without awaiting the valuation report after making reference to the Valuation Officer.

21. The appellant humbly prays that the additional evidence now filed, including financial statements, ledger accounts, stamp duty challans and other supporting documents, may kindly be admitted and taken on record, as the same could not be produced earlier before the learned AO and learned CIT(A), NFAC, due to non-availability of old records and the company being non-operational. The said evidence is material for proper adjudication of the issues involved in the appeal.

22. The appellant may add or alter or amend or modify or substitute or delete and or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”

2. Before proceeding with the subject issue, we deem it apposite to observe that the present appeal was earlier disposed of by the Tribunal vide its order passed in ITA No.679/Hyd/2025, dated 20/08/2025. However, the aforesaid matter was recalled on a Miscellaneous Application filed by the Revenue in ITO v. SEL Resources Ltd. [MA No. 4 (Hyd) of 2026, dated 6-5-2026], for the reason that though the Tribunal had disposed of the appeal based on the premise that the AO had while framing the assessment made a reference to the Valuation Cell under section 142A of the Act, but the fact remained that the said reference was made under section 50C r.w.s 55A of the Act. Accordingly, the order passed by the Tribunal in ITA No.679/Hyd/2025, dated 20/08/2025 was recalled for fresh adjudication in accordance with law, after considering the correct statutory provisions and affording due opportunity to both parties.

3. Coming to the facts of the case, we find that the AO, observing that the assessee company had during the subject year sold immovable property for a consideration of Rs. 2,14,73,862/-, but had failed to file its return of income, initiated proceedings under Section 147 of the Act. Notice under Section 148 of the Act, dated 30.03.2021, was issued to the assessee company.

4. During the assessment proceedings, the A.O. observed that the assessee company had not carried out any commercial activities in the subject year. The A.O. observed that the assessee company had, during the year under consideration, sold an immovable property, i.e., Office No. 1410 on the 14th floor in Dalamal Tower, situated at 211, Nariman Point, Mumbai, on 24.11.2016, for a consideration of Rs. 2,14,73,862/-. On a perusal of the record, the A.O. observed that the said property was purchased by the assessee company on 06.12.2013.

5. The A.O. observed that the fair market value (FMV) of the subject property as on the date of transfer was Rs. 3,20,20,000/-. The assessee company, on being confronted with the aforesaid fact, submitted vide its reply dated 17.03.2022 that as the subject property had remained closed and was in a very bad condition at the time of sale, therefore, the stamp duty value fixed by the Valuation Authority for the said property was very high as compared to its actual realizable market price. The assessee company requested the A.O. to refer the matter to the Valuation Officer to determine the fair market value of the subject property, keeping in view its condition.

6. The AO acted upon the aforesaid request of the assessee company and made a reference to the Technical Unit (TU) for determining the fair market value of the subject property on the date of sale, i.e., on 24-11-2016.

7. As the valuation report from the valuation cell was not received by the A.O. prior to culmination of the assessment proceedings, therefore, he, as per Section 50C of the Act, adopted the stamp duty value of the subject property of Rs. 3.20 crore (supra), as the deemed sale consideration with a specific observation that as and when the valuation report is received after the completion of the assessment proceedings, then the value so reported would be revised as per the amendment/rectification/revision provisions of Section 154 of the Act. Accordingly, the A.O., based on his aforesaid observation, after inter alia, taking the deemed sale consideration of the subject property at Rs. 3.20 crore (as against the actual consideration of Rs.2,14,73,862/-), determined the short-term capital gain on the transfer of the same at Rs. 1,82,40,172/-.

8. Aggrieved, the assessee company carried the matter in appeal before the CIT(A). However, as the assessee company, despite having been afforded sufficient opportunity, failed to participate in the proceedings before the CIT(A), the latter, finding no infirmity in the view taken by the A.O., dismissed the appeal vide an ex parte order.

9. The assessee company, being aggrieved with the order of the CIT(A), has carried the matter in appeal before us.

10. We have heard the learned Authorized Representatives of both parties, perused the orders of authorities below and the material available on record.

11. Shri Phaneendra Nag, CA, Learned Authorized Representative (for short, “Ld. AR”) for the assessee company, at the threshold of hearing of the appeal, submitted that as section 155(15) of the Act does not encompass rectification/amendment of the assessment order based on the DVO’s report received subsequent to culmination of the assessment proceedings, therefore, the DVO’s report thereafter cannot be given effect under the said statutory provision. Apart from that, it was submitted that the DVO’s report received after completion of the assessment proceedings cannot trigger an action under section 154 of the Act. Accordingly, the Ld. AR based on his aforesaid contention submitted that the AO in the present case had erred in framing the assessment without waiting for the valuation report after having made a reference to the Valuation Officer.

12. We have given thoughtful consideration to the aforesaid contentions of the Learned Authorized Representative. Although we principally concur with the Ld. AR that the provisions of sub-section (15) of section 155 of the Act contemplates that where the AO had computed the capital gains arising from the transfer of a capital asset being land or building or both, by taking the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty, as the full value of the consideration received or accruing as a result of transfer in accordance with sub-section (1) of section 50C of the Act, and subsequently such value is revised in any appeal or revision or reference before any authority, Court or the High Court as referred in Clause (b) of sub-section (2) of section 50C of he Act, the AO shall amend the order of the assessment so as to compute the capital gains by taking the full value of the consideration to be the value as so revised in any such appeal or revision or reference, and the provisions of section 154 shall so far as may be applied thereto. We concur with the Ld. AR that section 155(15) of the Act can only be triggered by the AO for revising the full value of the consideration that was adopted based on the value assessed by any authority of a State Government for the purpose of payment of stamp duty, which, thereafter, has been revised in any appeal or revision or a reference by any authority, Court of High Court. Admittedly, the aforesaid amendment does not take within its meaning any such modification in the value based on the report received by the AO from a Valuation Officer. We say so, for the reason that section 50(2)(b) of the Act envisages a situation where the assessee is divested from seeking a reference of the value of the capital asset to a Valuation Officer in a case where he had either filed an appeal or revision or reference before any authority, Court or High Court. In our view, the very fact that the AO cannot make a reference to the Valuation Officer if the assessee has assailed the value adopted by the stamp valuation authority by way of an appeal or revision or reference before any authority, Court or High Court, in itself would be rendered as meaningless and otiose if the reference before any authority is allowed to take within its sweep a reference made by the AO to the valuation cell. We may herein clarify that as the conditions contemplated under section 50(2)(b) of the Act in itself preclude the AO from making a reference to the valuation cell, then it would be incomprehensible that the same could in any manner also include reference to the valuation officer.

13. Be that as it may, we are of the view that though the effect of the DVO’s report received after culmination of the assessment proceedings cannot be given under section 155(15) of the Act, we are unable to persuade ourselves to subscribe to the Ld. AR’s contention that the same cannot be done under section 154 of the Act. In our view, if the valuation determined by the DVO as per the valuation report received after the framing of the assessment is not in parity with the value adopted by the stamp valuation authority for payment of stamp duty, which value was adopted by the AO for computing the capital gains at the time of framing of the assessment, then the same would render the order passed by the AO as suffering from a mistake apparent from record, as a result whereof he would be statutorily bound to take the value determined by the Valuation Officer as the deemed sale consideration. We thus are of the view that the AO, on receipt of the report from the Valuation Officer, remains well within his jurisdiction to rectify his order and bring the same in parity with the value determined by the Valuation Officer, and thus, adopt the said value as the deemed sale consideration for determining the capital gain on transfer of the subject property.

14. Coming to the facts involved in the present case, we are of the view that as the DVO vide his report, dated 04/12/2023, had determined the value of the subject property at Rs.3,20,20,000/- as was adopted by the AO for determining the capital gains based on the stamp duty value, thus, as there is no variance in the value adopted by the AO as the deemed sale consideration for computing the capital gain and that determined by the DVO, there would be no need or occasion for the AO to rectify his order under section 154 of the Act. The Ground of appeal No. 18 is allowed for statistical purposes and additional grounds of appeal No.19 and 20 being devoid and bereft of any substance are dismissed.

15. Apropos the additional ground of appeal No.21, we find that as the assessee appellant had itself stated that the same would require to be adjudicated by considering the additional evidence which has now been filed, therefore, the same cannot be admitted for the reason that it would require looking into certain facts not available on record. The additional ground of appeal No.21 is dismissed.

16. The additional grounds of appeal Nos. 17 and 20 being general are dismissed as not pressed.

17. We shall now deal with the Ld. AR’s contention that the DVO in the course of the valuation proceedings had not afforded sufficient opportunity to the assessee company as a result whereof, the latter remained divested of an opportunity to substantiate its valuation. We have perused the record and are unable to concur with the aforesaid claim raised before us. We say so, for the reason that the AO had made reference to the Valuation Officer on 24/03/2022, and pursuant thereto, the DVO-1, Mumbai had issued notice, dated 28/03/2022 wherein the assessee company was called upon to furnish certain documents and arrange the inspection of the subject property. Subsequently, reminders were issued to the assessee company on 26/04/2022, 08/08/2022, and 26/08/2022. Also, the DVO had issued a final notice vide his letter No.DVO-1/MUM/CGT/2023-24/763, dated 23/11/2023 wherein the assessee company was called up to furnish certain documents as mentioned in the final valuation report, i.e., Sl. No. I to X. However, we find that the assessee company had not responded to the aforesaid notice and failed to submit the requisite documents.

18. We further find that the DVO taking cognizance of the fact that the assessee company had failed to respond and provide the requisite details, had therein proceeded and based on the details submitted by the AO, enquiry done for inspection, relevant information gathered by him and after giving due consideration for the factors affecting the value of the subject property such as site, location, situation determined the fair market value (FMV) of the said property, viz., “Office No.1410, 14^th Floor, Dalamal Towers, Plot No.211, Nariman Point, Mumbai” as on 24/11/2016 at Rs.3,20,20,000/-. Ostensibly, the AO had issued a show-cause notice to the assessee company to put forth its objections, either in person or in writing, on or before 30/11/23, if any, but the assessee company did not respond to the preliminary valuation. Accordingly, the DVO, taking cognizance of the fact that the assessee company had neither responded to the notice nor furnished any objection, determined the fair market value of the subject property vide his final valuation report at Rs. 3,20,20,000/-.

19. We have given thoughtful consideration and are of the view that though the DVO-1, Mumbai had afforded sufficient opportunity to the assessee company vide his notice, dated 28/03/2022 followed by reminders, dated 26/04/2022, 08/08/2022, 26/08/2022 and 21/11/2022, but the assessee company had neither responded nor furnished the requisite details as were specifically called for by the Valuation Officer. Also, as observed herein above, the DVO vide his preliminary valuation report had sought to determine the fair market value of the subject property at Rs.3,20,20,000/-, and had specifically called upon the assessee company to state his objections on or before 30/11/2023, if any, but the assessee company for the reasons best known to it had had failed to file any objections, as a result whereof the valuation officer had proceeded with and determined the final valuation at the same figure as was proposed by him vide his preliminary valuation. In the backdrop of the aforesaid facts, we find no substance in the Ld. AR’s contention that the DVO had failed to afford the assessee company sufficient opportunity to put forth its case and object to the valuation as was sought to be adopted by him for the property under consideration as on 24/11/2016 at Rs.3,20,20,000/-.

20. We shall now deal with the Ld. AR’s contention that both the authorities below had erred in not allowing the claim regarding the cost of acquisition of the subject property which was purchased vide a registered deed, dated 06/12/2013 by the assessee company from M/s. Sankalp Energy Limited, inter alia, to the extent of its claim of having incurred the stamp duty charges of Rs.9,91,000/-twice, viz., (i) on 14/06/2013: Rs.9,91,000/-; and (ii) on 04/12/2013: Rs.9,91,000/-. Elaborating on his contention, the Ld. AR submitted that the assessee company had initially incurred the stamp duty expenses of Rs.9,91,000/-on 14/06/2013 for executing the registered purchase deed of the subject property, but thereafter, as the sale deed could not be executed, therefore, he was on 04/12/2013 constrained to once again pay the registration charges/stamp duty of Rs.9,91,000/- and the sale deed was executed on 06/12/2013. The Ld. AR had drawn our attention to the assessment order wherein, at Page-6/para-3.8, the aforesaid contention was raised before the AO. The Ld. AR submitted that the AO had grossly erred in law and facts of the case in not addressing the aforesaid issue.

21. The Ld. AR submitted that considering the fact that the assessee company for purchasing/acquiring the subject property had incurred stamp duty charges of Rs.19,82,000/- (supra), the AO ought to have allowed the same instead of restricting the claim to an amount of Rs.9,91,000/-.

22. We have given thoughtful consideration to the aforesaid contention raised by the Ld. AR before us. Admittedly, it is a matter of fact borne from the assessment order that the assessee company had submitted before the AO that it had incurred the stamp duty charges towards acquisition of the subject property aggregating to Rs.19,82,000/-, viz., (i) on 14/06/2013: Rs.9,91,000/-; and (iii) on 04/12/2013: Rs.9,91,000/-. As observed hereinabove, it is the Ld. AR’s claim that though the assessee company had incurred the stamp duty charges of Rs.9,91,000/- on 14/06/2013, the sale deed could not be executed, therefore, the assessee company was compelled to incur the stamp duty expenses of Rs.9,91,000/- on 04/12/2013 for executing the registered sale deed for purchase of the subject property on 06/12/2013.

23. We have given thoughtful consideration and are of the view that as per Section 52B of the Maharashtra Stamp Act, 1958, stamps purchased on or after the relevant commencement date which remained unused for six months from the date of purchase are rendered invalid. However, we find that as it is the claim of the Ld. AR that the assessee company had initially incurred stamp duty charges on 14/06/2013; thus, as the registered deed was executed on 06/12/2013, the aforesaid stamp papers purchased on 14/06/2013, being within the statutory sixmonth period, were apparently valid.

24. Be that as it may, we are of the view that as the AO had failed to address the aforesaid specific claim of the assessee company despite referring to the same in the assessment order, therefore, the matter requires to be set aside to his file for the limited purpose of verifying the veracity of the said claim as was raised by the assessee company before him and adjudicate the same based on a speaking order. Needless to say, the AO shall afford a sufficient opportunity to the assessee company to substantiate its aforesaid claim, and the latter shall produce the necessary documentary evidence in the course of the set aside proceedings to the satisfaction of the AO.

25. Considering the aforesaid facts, we herein set aside the aforesaid matter to the file of the AO for the limited purpose of verifying the claim of the assessee company that it had incurred stamp duty of Rs.19.82 lakhs as against that allowed by the AO at Rs.9,91,000/- incurred on 04/12/2013.

26. In the result, the appeal filed by the assessee company is partly allowed for statistical purposes in terms of our aforesaid observations.

Reassessment Completed Without Mandatory Section 143(2) Notice Is Without Jurisdiction and Void

Ashwani Kumar — Wed, 14 Oct 2026 05:26:59 +0000

Reassessment Completed Without Mandatory Section 143(2) Notice Is Without Jurisdiction and Void

Issue

Whether a reassessment completed under Section 147 read with Sections 144 and 144B is valid and sustainable when the Assessing Officer fails to issue a mandatory notice under Section 143(2) after the assessee specifically adopts an earlier filed return as the return furnished in response to a subsequent Section 148 notice.

Facts

The assessee filed their original return of income for Assessment Year 2013-14 on 18-10-2013, claiming long-term capital gains as exempt under Section 10(38).
Pursuant to the substituted reassessment regime following the Supreme Court judgment in Ashish Agarwal, reassessment proceedings were initiated, and a fresh notice under Section 148 was issued on 31-07-2022.
In response to an earlier notice under Section 148 issued under the erstwhile provisions, the assessee had already filed a return on 29-05-2021.
On 01-03-2023, the assessee made a formal communication requesting the Assessing Officer to treat the return filed on 29-05-2021 as the return furnished in response to the subsequent Section 148 notice dated 31-07-2022.
The Assessing Officer denied the Section 10(38) exemption, added the entire sale consideration as taxable income, and completed the reassessment under Section 147 read with Sections 144 and 144B on 09-05-2023.
The Assessing Officer completed the scrutiny assessment and made additions without issuing any notice under Section 143(2).

Decision

Adoption of Return: In favor of Assessee. Once the assessee specifically adopted the return filed earlier (on 29-05-2021) as the return furnished in response to the subsequent Section 148 notice, the Assessing Officer was legally required to issue a notice under Section 143(2) before scrutinizing the return and making additions.
Jurisdictional Requirement: In favor of Assessee. The requirement to issue a notice under Section 143(2) is not an empty procedural formality; it goes to the root of the Assessing Officer’s assumption of jurisdiction to make a scrutiny assessment.
Inapplicability of Finance Act, 2023 Amendment: In favor of Assessee. The third proviso to Section 148 (inserted by the Finance Act, 2023 w.e.f. 01-04-2023)—which states that a return furnished beyond the allowed period shall not be deemed to be a return under Section 139—did not apply because the assessee had already made a specific, valid request on 01-03-2023 to treat the previously filed return as the response.
Invalidity of Assessment: In favor of Assessee. The reassessment completed by the Assessing Officer without issuing the mandatory notice under Section 143(2) was without jurisdiction and could not be sustained.

Key Takeaways

Mandatory Nature of Section 143(2): Issuing a notice under Section 143(2) is a mandatory jurisdictional prerequisite before proceeding with a scrutiny assessment or reassessment; omitting it vitiates the entire proceeding.
Adoption of Prior Returns: When an assessee explicitly requests that an already-filed return be treated as the response to a newly issued Section 148 notice, that return stands validly adopted for the reassessment proceedings.
Procedural Safeguards Protect Taxpayers: Courts continue to strictly enforce statutory procedural safeguards, ruling that failures to follow foundational assessment steps cannot be brushed aside as mere procedural irregularities.

IN THE ITAT HYDERABAD BENCH ‘SMC’

Pankaj Kumar Baheti

Income-tax Officer

VIJAY PAL RAO, Vice President
and MADHUSUDAN SAWDIA, Accountant Member

IT Appeal No. 1564 (Hyd) OF 2026
[Assessment year 2013-14]

SEPTEMBER 16, 2026

Siddharth Toshnival, Adv. for the Appellant. B. Laxmi Kanth, Sr. AR for the Respondent.

ORDER

Madhusudan Sawdia, Accountant Member.-This appeal is filed by Shri Pankaj Kumar Baheti (“the assessee), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 20.03.2026 for the A.Y.2013-14.

2. The assessee has raised the following grounds of appeal:

3. The brief facts of the case are that the assessee is an individual who had filed his return of income for the assessment year 2013-14 on 18.10.2013, declaring a total income of Rs. 11,38,610/-. The Assessing Officer observed that during the year under consideration, the assessee had sold shares amounting to Rs. 26,27,400/- and had claimed the resultant long-term capital gain as exempt under section 10(38) of the Income-tax Act, 1961 (“the Act”). Accordingly, reassessment proceedings were initiated in the case of the assessee and notice under section 148 of the Act was issued on 31.07.2022 after following the procedure pursuant to the judgment of the Hon’ble Supreme Court in the case of Union of India v. Ashish Agarwal 444 ITR 1 (SC), dated 04.05.2022. After considering the submissions of the assessee, the Assessing Officer denied the exemption claimed under section 10(38) of the Act in respect of the long-term capital gain arising from the sale of shares and added the entire sale consideration of Rs. 26,27,400/- to the income of the assessee. Accordingly, the Assessing Officer completed the assessment under section 147 read with sections 144 and 144B of the Act vide order dated 09.05.2023, assessing the total income of the assessee at Rs. 37,66,010/-.

4. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A), who confirmed the addition made by the Assessing Officer and dismissed the appeal of the assessee.

5. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal. The Learned Authorized Representative (“Ld. AR”) submitted that the ground no. 5 raised by the assessee involves a legal issue challenging the validity of the reassessment order on the ground that the Assessing Officer completed the reassessment without issuing the mandatory notice under section 143(2) of the Act. In this regard, the Ld. AR submitted that the assessee had specifically intimated the Assessing Officer vide reply dated 01.03.2023, placed at page no. 40 of the paper book, that the return of income filed by him on 29.05.2021 in response to the notice issued under section 148 under the erstwhile provisions of the Act may be treated as the return of income filed in response to the subsequent notice issued under section 148 under the amended provisions of the Act. Despite such specific intimation, the Assessing Officer proceeded to complete the reassessment without issuing any notice under section 143(2) of the Act. The Ld. AR, therefore, submitted that issuance of notice under section 143(2) of the Act being a mandatory jurisdictional requirement, the assessment framed without issuance of such notice is invalid and liable to be quashed.

6. Per contra, the Learned Departmental Representative (“Ld. DR”) submitted that the assessee had not filed any fresh return of income in response to the notice issued under section 148 under the amended provisions of the Act. According to the Ld. DR, a mere request made by the assessee that the return filed earlier in response to the notice issued under the erstwhile provisions may be treated as the return in response to the subsequent notice under section 148 cannot be equated with the filing of a return pursuant to the subsequent notice. The Ld. DR further submitted, in the alternative, that even if the assessee’s communication dated 01.03.2023 is considered as a request to treat the earlier return as the return filed in response to the subsequent notice under section 148 of the Act, the same was beyond the period prescribed in the notice dated 31.07.2022. Inviting our attention to the third proviso to section 148 of the Act, the Ld. DR submitted that a return furnished beyond the period allowed for furnishing the return shall not be deemed to be a return under section 139 of the Act. Therefore, according to the Ld. DR, once the return cannot be regarded as a return under section 139 of the Act, there was no requirement for the Assessing Officer to issue a notice under section 143(2) of the Act. Accordingly, the Ld. DR prayed that the legal ground raised by the assessee be dismissed.

7. We have heard the rival submissions and perused the material available on record. We have also gone through the relevant statutory provisions and the material placed in the paper book. There is no dispute before us that the Assessing Officer has completed the reassessment without issuing any notice under section 143(2) of the Act. The principal controversy is whether, in the facts of the present case, the assessee can be regarded as having furnished a return in response to the notice issued under section 148 of the Act dated 31.07.2022 so as to attract the mandatory requirement of issuance of notice under section 143(2) of the Act. It is an admitted position that the assessee had already filed a return of income on 29.05.2021 in response to the earlier notice issued under section 148 under the erstwhile provisions of the Act. Pursuant to the judgment of the Hon’ble Supreme Court in Ashish Agarwal (supra), the proceedings were thereafter continued under the substituted reassessment regime and a fresh notice under section 148 was issued on 31.07.2022. In this regard, we have gone through the submission of the assessee, dated 01.03.2023 placed at page no. 40 of the paper book, which is to the following effect:

8. On perusal of the above, we find that the assessee, vide its communication dated 01.03.2023, specifically requested the Assessing Officer to treat the return already filed on 29.05.2021 as the return filed in compliance with the subsequent notice under section 148 of the Act. It is pertinent that under section 148 of the Act, as it then stood, the provisions of the Act were to apply to a return furnished pursuant thereto, so far as may be, as if such return were a return required to be furnished under section 139 of the Act. In our considered view, the objection of the Ld. DR that such communication cannot amount to furnishing a return in response to the subsequent notice under section 148 of the Act cannot be accepted in the peculiar facts of the present case. Once a return of income for the very same assessment year was already available with the Assessing Officer and the assessee specifically and unequivocally communicated that such return should be treated as the return furnished in response to the subsequent notice under section 148 of the Act, there was no requirement in law for the assessee to mechanically upload an identical return once again merely for the purpose of completing a procedural formality. The substance of the assessee’s communication was clear and unambiguous, namely, that the return already furnished should constitute its return in response to the subsequent notice. Once such request was made and the Assessing Officer proceeded with the reassessment on that basis, the return already on record was required to be treated as the return furnished in response to the subsequent notice under section 148 of the Act. Consequently, if the Assessing Officer intended to scrutinize such return and make additions to the income returned therein, compliance with the mandatory requirement of section 143(2) of the Act was necessary.

9. We also do not find merit in the alternative contention of the Ld. DR based upon the third proviso to section 148, which is to the following effect:

10. On perusal of the above, it is evident that the third proviso providing that a return furnished beyond the period allowed shall not be deemed to be a return under section 139 of the Act, was introduced by the Finance Act, 2023 with effect from 01.04.2023. In the present case, the assessee had already made the specific request on 01.03.2023 to treat the return earlier filed on 29.05.2021 as the return furnished in response to the subsequent notice under section 148 of the Act. Thus, on the date on which the assessee made the said request, the third proviso relied upon by the Revenue was not on the statute book. Therefore, a substantive consequence introduced by the Finance Act, 2023 with effect from 01.04.2023, namely, that a return furnished beyond the permitted period would not be deemed to be a return under section 139 of the Act, cannot be invoked to retrospectively alter the legal character of the assessee’s return/request made on 01.03.2023. We are, therefore, unable to accept the contention of the Ld. DR that, by virtue of the subsequently inserted third proviso to section 148 of the Act, the return of the assessee should be treated as a non est return and consequently no notice under section 143(2) of the Act was required to be issued. Once the return filed earlier by the assessee was specifically adopted by him as the return in response to the subsequent notice under section 148 of the Act, the Assessing Officer, before proceeding to scrutinize the return and make additions thereto, was required to issue notice under section 143(2) of the Act. The requirement of issuance of such notice is not an empty procedural formality but goes to the assumption of jurisdiction to make a scrutiny assessment. Admittedly, no notice under section 143(2) of the Act was issued in the present case.

11. In view of the foregoing discussion, we hold that the reassessment completed by the Assessing Officer without issuance of the mandatory notice under section 143(2) of the Act is without jurisdiction and, therefore, cannot be sustained. Accordingly, the assessment order passed under section 147 read with sections 144 and 144B of the Act dated 09.05.2023 is hereby quashed. Consequently, ground no. 5 raised by the assessee is allowed.

12. Since we have quashed the reassessment itself on the aforesaid jurisdictional ground, the other grounds raised by the assessee challenging the addition on merits have become academic and, therefore, do not require separate adjudication.

13. In the result, the appeal filed by the assessee is allowed.

Assessment Order Cannot Be Revisioned Under Section 263 for Issues Beyond Limited Scrutiny Scope

Ashwani Kumar — Mon, 12 Oct 2026 06:32:10 +0000

Assessment Order Cannot Be Revisioned Under Section 263 for Issues Beyond Limited Scrutiny Scope

Issue

Whether a Principal Commissioner can invoke revisionary powers under Section 263 on an issue beyond the scope of limited scrutiny when the Assessing Officer did not examine it during assessment.

Facts

Limited Scrutiny Selection: For Assessment Year 2020-21, the assessee-company’s return was selected for limited scrutiny strictly on two specific grounds:
1. High liabilities as compared to low income.
2. Agricultural income.
Accounting Treatment: The assessee had debited a loss on the sale of assets to its Profit and Loss account.
Assessment Completion: The Assessing Officer (AO) completed the assessment under Section 143(3) read with Section 144B, confining inquiries solely to the two identified limited scrutiny issues.
Section 263 Revision: The Principal Commissioner invoked Section 263, holding the assessment order erroneous and prejudicial to the interests of the revenue on the ground that the AO failed to examine the allowability of the capital loss on the sale of assets.
Lack of Nexus: The revenue failed to establish any connection or nexus between the loss on the sale of assets and either of the two selection criteria for limited scrutiny.

Decision

AO Restricted to Limited Scrutiny Scope: The AO was required to confine inquiries to the specific issues identified for limited scrutiny, and failure to examine an unselected, unrelated issue does not render the assessment order erroneous.
Absence of Nexus: Since the loss on the sale of assets had no nexus with high liabilities or agricultural income, the AO could not be faulted for not examining it.
Section 263 Order Quashed: The assessment order was neither erroneous nor prejudicial to the interests of the revenue, and the revisionary order passed by the Principal Commissioner under Section 263 was set aside [In favour of assessee].

Key Takeaways

Scope of Limited Scrutiny: An Assessing Officer cannot travel beyond the specific issues selected for limited scrutiny without obtaining proper authorization to convert the case into full scrutiny.
Limits on Section 263 Powers: The Principal Commissioner cannot invoke Section 263 for non-examination of an issue that was legally outside the scope of the limited scrutiny assessment conducted by the AO.

IN THE ITAT HYDERABAD BENCH ‘A’

Vivessa Industries (P.) Ltd.

Income-tax Officer

Ravish Sood, Judicial Member
and MADHUSUDAN SAWDIA, Accountant Member

IT Appeal No. 611 (Hyd) of 2025
[Assessment year 2020-21]

SEPTEMBER 16, 2026

P. Murali Mohan Rao, CA for the Appellant. Smt. Seema Meena, CIT (DR) for the Respondent.

ORDER

Madhusudan Sawdia, Accountant Member. – This appeal is filed by M/s. Vivessa Industries Private Limited (“the assessee”), feeling aggrieved by the order passed by the Learned Principal Commissioner of Income Tax-2, Hyderabad (“Ld. PCIT”) dated 20.02.2025 for the A.Y. 202021.

2. The assessee has raised the following grounds of appeal:

S. No	Particulars	Tax effect
1.	The order u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) dated 20.02.2025 passed by the Ld. Pr. Commissioner of Income Tax is erroneous both in law and on facts.	General Ground
2.	Hie Ld. Pr. CH erred in invoking provisions u/s 263 of the Act and passing the order under section 263 of the Act without considering the submissions made by the appellant during the course of proceedings u/s 263 of the Act.	Technical Ground
3.	The Ld. Pr. CIT has grossly erred in passing the revisionary order without satisfying the twin conditions that the order should be both erroneous and prejudicial to the interests of the revenue.	Technical Ground
4.	The Ld. Pr. CIT erred in passing the revisionary order by forming different opinion from that of the Assessing Officer taken during the course of assessment proceedings.	Technical ground
5.	The Ld. Pr. CH erred in rejecting the submissions of the appellant merely on tire presumption that neither the Assessing Officer examined the issue in question nor the appellant furnished any explanation on the issue during the course of scrutiny proceedings.	Technical Ground
6.	The Ld. Pr. CIT ought to have appreciated the fact that the appellant furnished every information in support of its return and the Assessing Officer passed order u/s 143(3) of the Act after examining the same.	Technical Ground
7.	The Ld. POT has erred in appreciating the fact that during the course of scrutiny proceedings, the AO vide notice u/s 142(1) dated 03.12.2021 has specifically called for the details of sale of immovable property during the FY 2019-20 and the computation of income which contains the details of the impugned loss on sale of asset (land) and that the assessee has given satisfactory explanation in this regard.	Technical Ground
8.	The Ld. PCIT ought to have appreciated that the AO vide questionnaire dated 02.03.2022 via point no. 2 asked all the details with respect to the fixed assets sold, copy of purchase deed, sale deed and assessee furnished the replies to it and that it fortifies the fact of A.O’s enquiries with regard to the issue in question.	Technical Ground
9.	The Ld. Pr. CIT ought to have appreciated the fact that the recourse to revision u/s 263 of the Act is not justified because the Assessing Officer has examined the issues extensively and has taken one of the courses permissible in law whereas the Pr. CIT revised the assessment onchange of opinion.	Technical Ground
10.	The Ld. Pr. CIT ought to have appreciated the fact that tlie Assessing Officer had completed the assessment u/s. 143(3) of the Act, after duly examining the explanations and submissions on all issues including the issue in question placed before him during the course of assessment proceedings.	Technical Ground
11.	Tlie assessee may add, alter, or modify or substitute any other points to the grounds of appeal at any time before or at the time of hearing of the appeal.	General ground

3. The brief facts of the case are that the assessee is a private limited company which had filed its return of income for the assessment year 2020-21 on 11.02.2021, declaring total Income of Rs. 29,72,220/- and agricultural income of Rs. 56,47,508/-. The case of the assessee was selected for limited scrutiny under CASS and, accordingly, notice under section 143(2) of the Income-tax Act, 1961 (“the Act”) was issued by the Assessing Officer. After considering the submissions of the assessee, the Assessing Officer was not satisfied with the claim of agricultural income of Rs. 56,47,508/- and treated the same as non-agricultural income. Accordingly, the Assessing Officer completed the assessment under section 143(3) read with section 144B of the Act vide order dated 19.09.2022, making an addition of Rs. 56,47,508/-and assessing the total income of the assessee at Rs. 86,19,728/-. Subsequently, the Ld. PCIT, invoking the revisional jurisdiction under section 263 of the Act, observed that the assessee had debited an amount of Rs. 23,41,200/-towards loss on sale of assets in the profit and loss account. According to the Ld. PCIT, the said loss was in the nature of capital loss and was not an allowable expenditure. The Ld. PCIT observed that the Assessing Officer had neither verified nor examined the claim of the assessee in respect of the aforesaid loss on sale of assets. Accordingly, the Ld. PCIT held that the assessment order was erroneous insofar as it was prejudicial to the interests of the Revenue within the meaning of Explanation- 2(a) and (b) to section 263(1) of the Act. The Ld. PCIT, vide order dated 20.02.2025, set aside the issue to the file of the Assessing Officer with a direction to disallow the amount of Rs. 23,41,200/- claimed towards loss on sale of assets and enhance the income of the assessee by the said amount.

4. Aggrieved by the order passed by the Ld. PCIT under section 263 of the Act, the assessee is in appeal before the Tribunal. The Learned Authorized Representative (“Ld. AR”) submitted that the only issue arising out of the grounds of appeal is regarding the validity of the revisional jurisdiction exercised by the Ld. PCIT under section 263 of the Act. Inviting our attention to para no. 1 of the assessment order, the Ld. AR submitted that the case of the assessee was selected for limited scrutiny for verification of two specific issues, namely, (i) high liabilities as compared to low income, and (ii) agricultural income. Thus, the case was not selected for complete scrutiny and the scope of enquiry of the Assessing Officer was restricted to the issues for which the case had been selected for limited scrutiny. The Ld. AR further submitted that the issue on which the Ld. PCIT has invoked jurisdiction under section 263 relates to the alleged failure of the Assessing Officer to verify the assessee’s claim of Rs. 23,41,200/- towards loss on sale of assets, which, according to the Ld. PCIT, was capital in nature and not allowable as expenditure. He submitted that the first issue for which the case was selected for limited scrutiny was “high liabilities as compared to low income”. The claim of loss on sale of assets had no nexus with the verification of liabilities and, therefore, examination of the allowability of such expenditure did not fall within the scope of the first issue selected for limited scrutiny.

4.1 With regard to the second issue, namely, verification of agricultural income, the Ld. AR invited our attention to para no. 3.5 of the assessment order wherein the Assessing Officer had specifically recorded that the assessee had claimed expenditure of Rs. 4,72,260/- against the agricultural income. He submitted that this itself demonstrates that the expenditure of Rs. 23,41,200/- towards loss on sale of assets was not related to the agricultural activity or agricultural income of the assessee. The scope of enquiry of the Assessing Officer under the second issue was confined to verification of the agricultural income and the expenditure relatable thereto. Therefore, the claim of Rs. 23,41,200/-towards loss on sale of assets was also outside the scope of the second issue selected for limited scrutiny. He further submitted that the Assessing Officer has not accepted the claim of the assessee for agricultural income of Rs.56,47,508/- and has added the same in the hands of the assessee.

4.2 The Ld. AR thus submitted that when the Assessing Officer was not required or authorized, in the course of limited scrutiny, to examine an issue falling outside the specified scope of scrutiny, his failure to examine such an issue could not render the assessment order erroneous merely on the ground that an enquiry contemplated under Explanation-2(a) or verification contemplated under Explanation-2(b) to section 263(1) of the Act had not been made. He, therefore, submitted that there was no lapse on the part of the Assessing Officer in not examining the claim of Rs. 23,41,200/- towards loss on sale of assets and, consequently, the conditions prescribed under section 263 of the Act were not satisfied. Accordingly, he prayed that the order passed by the Ld. PCIT under section 263 of the Act be set aside.

5. Per contra, the Ld. DR relied upon the order passed by the Ld. PCIT and submitted that the claim of Rs. 23,41,200/- towards loss on sale of assets was required to be verified by the Assessing Officer and such verification was covered within the scope of the limited scrutiny relating to high liabilities as compared to low income and agricultural income. The Assessing Officer having failed to make the necessary enquiry and verification, the assessment order was erroneous insofar as it was prejudicial to the interests of the Revenue within the meaning of Explanation-2(a) and (b) to section 263(1) of the Act. Accordingly, the Ld. DR submitted that there was no infirmity in the exercise of revisional jurisdiction by the Ld. PCIT and prayed that the appeal of the assessee be dismissed.

6. We have heard the rival submissions and perused the material available on record. We have gone through para no. 1 of the assessment order, which is to the following effect:

“The assessee company filed its return of income for the A Y 2020-21 on 11.02.2021 declaring income of Rs. 29,72,220/-. The assessee also claimed agriculture income for Rs. 56,47,508/-. The case was selected for limited scrutiny under CASS and the reason for selection of this case for scrutiny is for verification of

(i) High liabilities as compared to low income.

(ii) (ii) Agriculture Income.”

7. On perusal of the above, we find that the case of the assessee was selected for limited scrutiny and the scope of verification by the Assessing Officer was restricted to the following two issues: (i) high liabilities as compared to low income; and (ii) agricultural income. Thus, admittedly, the case of the assessee was not selected for complete scrutiny and the enquiry to be conducted by the Assessing Officer was confined to the aforesaid issues. The Ld. PCIT has invoked jurisdiction under section 263 of the Act on the ground that the Assessing Officer failed to examine the allowability of Rs. 23,41,200/-debited by the assessee in its profit and loss account towards loss on sale of assets. According to the Ld. PCIT, such loss was capital in nature and, therefore, could not have been allowed as an expenditure while computing the taxable income of the assessee. The question before us, therefore, is whether the Assessing Officer, in the course of the aforesaid limited scrutiny assessment, was required to examine this issue and whether his failure to do so could render the assessment order erroneous and prejudicial to the interests of the Revenue for the purpose of section 263 of the Act.

8. So far as the first issue of limited scrutiny, namely, “high liabilities as compared to low income”, is concerned, we find substance in the submission of the Ld. AR that examination of the allowability of loss on sale of assets does not fall within the ambit of verification of high liabilities. The issue identified for scrutiny required the Assessing Officer to examine the liabilities disclosed by the assessee vis-a-vis its income. The allowability or otherwise of a loss arising on sale of a capital asset is distinct from the verification of liabilities appearing in the accounts. Nothing has been brought before us by the Revenue to establish any nexus between the impugned loss on sale of assets and the liabilities which were required to be examined under the first issue of limited scrutiny.

9. Similarly, we find that the impugned expenditure does not fall within the scope of the second issue, namely, verification of agricultural income. In this regard, para no. 3.5 of the assessment order assumes significance, which is to the following effect:

“3.5 The main expenditure incurred for carrying on agriculture activity is Fertilizers, Manure and labour. For 281 acres of agriculture land the assessee has shown expenditure as low as of Rs. 4,72,260/-. The assessee was asked to furnish books of accounts and other documents in support of expenditure incurred. The assessee has filed balance sheet and P&L a/c. The assessee did not furnish any ledger account of fertilizers, sales registers, copies of sale bills, bank statement etc. to substantiate his claim.”

10. On perusal of the above, we find that the Assessing Officer has specifically recorded therein that the assessee had claimed expenditure of Rs. 4,72,260/- against its agricultural income. Thus, the expenditure pertaining to the agricultural activity was separately identified and examined by the Assessing Officer. There is nothing on record to suggest that the amount of Rs. 23,41,200/- representing loss on sale of assets had any connection with the agricultural activity or the agricultural income of the assessee. Therefore, examination of the allowability of the said loss cannot be regarded as forming part of the verification of agricultural income merely because the case of the assessee was selected for limited scrutiny on that issue. Further, we observed that the Assessing Officer has not accepted the claim of the assessee for agricultural income of Rs.56,47,508/- and has added the same in the hands of the assessee.

11. It is settled that in a case selected for limited scrutiny, the scope of enquiry of the Assessing Officer is ordinarily confined to the specific issues identified for scrutiny unless the limited scrutiny is converted into complete scrutiny in accordance with the prescribed procedure. Consequently, an assessment order cannot be held to be erroneous merely because the Assessing Officer did not conduct an enquiry into an issue which was outside the permissible scope of the limited scrutiny assessment. The revisional jurisdiction under section 263 of the Act cannot be exercised on the premise that the Assessing Officer ought to have examined an issue which he was not required to examine within the limited scope of scrutiny assigned to him. The reliance placed by the Ld. PCIT upon Explanation-2(a) and (b) to section 263(1) of the Act also does not advance the case of the Revenue. The deeming provisions contained therein regarding failure to make enquiries or verification which should have been made cannot be read in isolation from the lawful scope of the assessment proceedings before the Assessing Officer. Where the Assessing Officer was confined to specified issues in a limited scrutiny assessment, the enquiry or verification contemplated by Explanation 2 must necessarily be understood with reference to matters falling within such permissible scope. An enquiry into an issue falling wholly outside the scope of limited scrutiny cannot be regarded as an enquiry which the Assessing Officer “should have made” for the purpose of invoking Explanation 2(a) or 2(b) to section 263 (1) of the Act. In the present case, the issue relating to the allowability of Rs. 23,41,200/- towards loss on sale of assets was neither one of the issues identified for limited scrutiny nor shown to have any nexus with either of the two issues selected for verification. There is also nothing on record to show that the limited scrutiny was converted into complete scrutiny in accordance with the prescribed procedure. Therefore, the Assessing Officer cannot be faulted for not examining the allowability of the said loss while completing the limited scrutiny assessment.

12. In view of the above, we hold that the assessment order cannot be regarded as erroneous and prejudicial to the interests of the Revenue on account of the Assessing Officer’s failure to examine an issue which was beyond the scope of the limited scrutiny assessment. Consequently, the jurisdiction assumed by the Ld. PCIT under section 263 of the Act on the aforesaid issue is not sustainable. We, accordingly, set aside the impugned order passed by the Ld. PCIT under section 263 of the Act and restore the assessment order passed by the Assessing Officer.

13. In the result, the appeal of the assessee is allowed.