Gujarat HC Quashes Income Tax Dept's Revision Notice, Holds Assessing Officer's Decision Based on DVO Valuation Was "Plausible" [Read Order]

The High Court of Gujarat at Ahmedabad held that the Principal Commissioner of Income Tax (PCIT) erred in initiating revision proceedings under Section 263 of the Income TaxAct, 1961, quashing the notices on the grounds that the Assessing Officer had adopted a "plausible" view regarding property valuation and lacked jurisdiction to initiate the alleged penalty proceedings.

Dilip Patel, the Petitioner, challenged the notices issued for AY 2019-20. During a search action, an MoU indicating a land deal of Rs. 39.32 Crores was recovered, though the land was actually sold for Rs. 12 Crores. The Assessing Officer (AO), acting under Section 153C, relied on a Departmental Valuation Officer's (DVO) report which valued the land at Rs. 28.50 Crores, thereby making an addition of Rs. 8.25 Crores. The Revenue sought revision, arguing the AO should have adopted the higher MoU value and that the AO failed to initiate penalty proceedings for cash transactions.

The Petitioner contended that the AO had made a thorough inquiry and the decision to rely on the DVO rather than the unexecuted MoU was a plausible view. They argued that the PCIT could not substitute his own opinion for that of the AO merely because he disagreed with the methodology. Additionally, it was submitted that the AO had no jurisdiction to impose penalties under Section 271D at the relevant time.

The Bench of Justice A.S. Supehia and Justice Pranav Trivedi observed that the jurisdiction under Section 263 is contingent on the assessment order being both "erroneous" and "prejudicial to the interests of the Revenue." Relying on precedents like Malabar Industrial Co. Ltd., the Court held that if the AO has taken a plausible view based on material on record, the PCIT cannot intervene merely to improve the order or apply a different methodology.

The Court observed:

“In case it is found that the view adopted by the Assessing Officer is a plausible view taken after considering the relevant material on record, the Commissioner would not substitute his opinion with that of Assessing Officer... In our opinion, powers under section 263 of the Act are not meant for improving an order of assessment.”

Addressing the contention regarding the failure to initiate penalty proceedings under Section 271D, the Court noted that the Assessing Officer was empowered to impose such penalties only on or after April 1, 2025. Since the assessment order was passed in June 2023, the AO's omission was legally correct, and the PCIT's grievance regarding this was erroneous and illegal.

The Court found the revisional notice to be without jurisdiction. The High Court allowed the writ petitions, quashing and setting aside the show-cause notices issued under Section 263 of the Income Tax Act.

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