S.263 jurisdiction invalid if AO examined issue via specific queries and evidence before accepting claim.

ORDER

Per Rajesh Kumar, AM

The present appeals filed by the assessee arise from order dated 20.08.2025 passed u/s 263 of the Income Tax Act, 1961 (hereafter referred to as “the Act”) by the Ld. Principal Commissioner of Income Tax (Central), [hereafter referred to as “the Ld. PCIT]. Since both appeals having common issue, therefore they are heard together and are being disposed of through a common order.

ITA No. 1964/Kol/2025

2. The only issue raised by the assessee is against the invalid exercise of jurisdiction u/s 263 of the Act and consequently passing revisionary order u/s 263 of the Act thereby setting aside the assessment framed by the AO u/s 143(3) of the Act dated 02.03.2024.

3. The facts in brief are that the assessee filed the return of income on 29.07.2023 declaring total income at Rs. 8,86,86,869/-. The case was selected for scrutiny and accordingly assessment was completed u/s 143(3) of the Act vide order dated 02.03.2024 accepting the returned income. Thereafter, the Ld. PCIT upon perusal of the assessment records observed that the company M/s Produce and Textiles Pvt. Ltd. held 2 bigha 5cottah, 9 chhittak and 29 sqft of land which was situated at 98, Tollygunge Circular Road, Alipore. The Ld. PCIT also observed that Mr. Ravi Modi and Mrs Shilpi were shareholders of the company in the ratio of 74% and to 26% but the said company went into the liquidation and at the time of liquidation, there was a G+2 storey main building and G+1 staff quarter on the said land. This deed of conveyance was executed on 18.09.2017 in FY 2017-18 relevant to the assessment year 2018-19. The Ld. PCIT noted that the Hon’ble Court liquidated the company vide order dated 30.11.2018. The stamp duty value of the property as on the date of execution of deed was Rs. 32,32,13,108/- for the land and Rs. 70,62,750/- for the structure. The Ld. PCIT noted that Mr. Ravi Modi had shown full value of consideration of Rs. 45,62,83,506/- and cost of acquisition of Rs. 86,38,98,998/- in the ITR for the AY 2018-19 thereby declaring a Short-Term Capital Loss of Rs. 40,76,15,492/-. Thereafter, Mr. Ravi Modi sold 25 cottahs and Mr. Mehul Mohanka through a conveyance deed dated 08.10.2021 in FY 2021-22 along with structure measuring 10531 square meter. The sale value of the property was 54.55 lacs. Mr. Ravi Modi entered into an agreement with PS Group Realty Pvt. Ltd. on 26.08.2021 in FY 2021-22 for purchase of total land of 325.16 decimals along with 24 two storied incomplete residential building structures having a collective build-up area of 1452 square meter in Rajarhat. Mr. Ravi Modi paid Rs. 20,20,00,000/- as advance against the total cost of Rs. 53,26,50,652/- to be paid by Mr. Ravi Modi and Smt. Shilpi Modi. The deed of conveyance executed on 29.09.2022 to PS Group Realty Pvt. Ltd. Mr. Ravi Modi has claimed deduction u/s 54 of the Act amounting to Rs. 23,03,35,491/- in his return of income filed on 29.07.2022 along showing LTCG on sale of immovable property at Rs. 23,03,35,491/- before taking deduction u/s 54 of the Act in respect of property sold on 08.10.2021. The assessee showed full consideration in the return of income of Rs. 40,33,00,000/- and the cost of acquisition of Rs.14,35,10,898/-without indexation (after indexation Rs. 16,72,53,510/-). According to the Ld. PCIT the land and structure comprising the property sold did not qualify to the residential house as ascertained from the verification report of the departmental Inspector and therefore deduction claimed u/s 54 of the Act should have been at Rs. 23,03,35,491/- and should have been disallowed. The Ld. PCIT observed that the AO has not examined and verified the issue in the assessment proceedings thereby rendering the assessment framed to be the erroneous and prejudicial to the interest of