In Tax Appeal No. 568 of 2023 -GUJ HC- Gujarat High Court dismisses PCIT’s appeal, says tax authorities cannot make presumptions about property sale transactions
Justice Biren Vaishnav & Justice Bhargav D. Karia [02-09-2023]

Read Order: The Principal Commissioner of Income Tax - 1 V. Yogeshkumar Shantilal Mehta

Chahat Varma

New Delhi, September 11, 2023: The Gujarat High Court has upheld an order passed by the Income Tax Appellate Tribunal (ITAT), dismissing a tax appeal filed by the Principal Commissioner of Income Tax (PCIT). The court's ruling affirmed that it was not acceptable to make an assumption or inference from the circumstances surrounding a property sale transaction that the purchaser of the property must have paid more than what was officially recorded in their accounting books.

In summary, the case involved an individual assessee who had declared his income. However, the case was later reopened under Section 147 of the Income Tax Act. Subsequently, an assessment order was passed. The PCIT reviewed the assessment order and believed that the Assessing Officer (AO) had not adequately examined the issues that led to the reopening of the case. The revisional authority noted that the assessee had not provided a satisfactory source of income for the purchase of land with other co-owners. The assessee had only accounted for Rs. 15,00,000 as the source of funds, even though the full purchase value of the land was Rs. 70,00,000. Consequently, there was an unexplained amount of Rs. 55,00,000 regarding the source of investment in the immovable property. The AO had failed to conduct a thorough investigation and provide an explanation for this discrepancy before finalizing the assessment. In response to the PCIT's decision, the assessee appealed to the ITAT. Ultimately, the ITAT set aside the order passed by the PCIT under Section 263 of the Income Tax Act.

The division bench of Justice Biren Vaishnav and Justice Bhargav D. Karia reviewed the order passed by the ITAT and observed that the PCIT had attempted to revise the assessment order solely relying on presumptions.

The bench referred to the case of Gayatri Enterprise v. The Income Tax Officer Ward 1(2)(4) [LQ/GujHC/2019/1100], where a Division Bench of the court had ruled that it is not permissible to make an inference or presumption about a transaction involving the sale of property based solely on the circumstances surrounding the transaction. Specifically, the court emphasized that it is not valid to assume that the purchaser of the property must have paid more than what was officially recorded in their books of accounts. It was clarified that no presumption can be drawn in this regard.

Consequently, the division bench concluded that there was no substantial question of law at issue in the appeal and the tax appeal was dismissed.