Chaitanya Bansibhai Nagori Vs PCIT (ITAT Ahmedabad)
Facts- The appellant is a Gynecologist doctor running a hospital in Ahmedabad. The assessee had purchased an immovable property through a registered sale deed for a total sale consideration of Rs.1,42,27,200/-The jantri value as per the stamp duty authority has been worked out to Rs.2,59,34,694/- and the appellant paid the stamp duty of Rs.12,70,800/-. There was a difference of Rs.1,17,07,495/- between the jantri value of Rs,2,59,34,694/- The Assessing Officer taxed this difference as income by the provisions of section 56(2)(vii)(b) of the I.T. Act.
The appellant contended that this matter was selected by the AO for limited scrutiny purposes as per notice under s.142 of the Act dated 26.07.2016, but the issue like interest expenses; income from heads of income other than business profession mismatch, details of asset and liabilities, etc. was also identified for examination. It is pertinent to mention here that point relating to verification of purchase and sale of property was not covered/mentioned in the said notice.
Conclusion- In the matter of Shri Narendrakumar Rameshbhai Patel vs. DCIT in ITA No. 981/Ahd/2019 order dated 20.03.2020, the co-ordinate bench held that the jurisdiction of the Assessing Officer in such cases where the notices are issued for limited scrutiny is confined to the claims he has set out in the notice for verification. Further held that the entire issue should have been limited to the extent of the dispute raised in the notice under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction.
Held that as the present case was selected for limited scrutiny, in our considered opinion, learned PCIT has exceeded his power for requiring the details of sales and purchase of the immovable property. Thus, in parity with the above said Tribunals orders, we allow the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The appeal has been preferred by the assessee against the order of the Principal Commissioner of Income Tax, Ahmedabad-4 (‘PCIT’ in short) dated 25.03.2020 arising in the assessment order dated 10.08.2017 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY. 2015-16.
2. The ground of appeal raised by assessee reads as under:
“1. On the facts & in the circumstances of the case it is most respectfully submitted that the Ld. Principal Commissioner of Income Tax-4 has erred in Law and on Facts in holding that the order passed u/s 143(3) of The Income Tax Act, 1961 dated 10/08/2017 as erroneous and prejudicial to the interest of revenue and direction of the Ld. Assessing Officer to make fresh assessment, by passing the Order U/s 263 of The Income Tax Act, 1961 dated 25/03/2020.”
3. The brief facts of the case are that the assessee is a doctor (Gynecologist) by profession and has been running a hospital in Ahmedabad. The assessee had purchased an immovable property being sub-plot No. A/23 admeasuring 1371 sq.mtrs along with 194.07 sq.mtrs undivided share in the land used for internal common roads and common plots. Thus, the plot area has been worked out to 1565 sq. mtrs located in the scheme known as “Gala Auram”. The said plot has been purchased by the assessee through registered sale deed bearing No.AHD-04-PLD/3042 of 2014 dated 02.05.2014 for a total sale consideration of Rs.1,42,27,200/-. The jantri value as per the stamp duty authority has been worked out to Rs.2,59,34,694/- as the assessee has paid the stamp duty of Rs.12,70,800/-on the jantri value. Thus, there has been difference of Rs.1,17,07,495/-between the jantri value of Rs,2,59,34,694/- and the apparent sale consideration of Rs. 1,42,27,200/-. The Assessing Officer ought to have taxed this difference as income by virtue of the provisions of section 56(2)(vii)(b) of the I.T. Act. It appears that this omission on the part of the A.O. has resulted in passing an erroneous assessment order which also appeared to be prejudicial to the interest of Revenue. It is also noticed that the assessee had furnished a copy of sale agreement executed on 07.07.2010 wherein he has agreed for the sale consideration of Rs.1,42,27,200/-. Further, he was required to deduct the tax at source as per the provisions of section 194-IA of the Act and mentioned such deduction of tax in the said sale agreement. However, surprisingly, it has also been noticed that there was no provision of section 194IA of the Act existed as on the date of making the sale agreement i.e. on 07.07.2010 as the said provision has been brought in the Statute Book w.e.f. 01.03.2013. Further, it has also been noticed that the sale agreement was made on the stamp paper of Rs.100/- and was not registered before the concerned registering authority. Thus, it is noticed that this sale agreement so made and produced in the assessment proceedings was an afterthought so that the application of provisions of section 56(2)(vii)(b) be avoided in his case. Further, it has been noticed that the payments for the purchase of the said house property had been made from the overdraft account No.474 maintained with Bank of Baroda and the assessee had charged interest of Rs.2,20,524/- in the profit & loss account which was otherwise not to be allowed as business expenditure. However, while making the assessment order, the A.O. has allowed the interest of Rs.2,20,524/- as Revenue expenses (which were those of personal nature- for the purchase of house property- a personal asset). Thus, it appeared that there was an error on the part of A.O. which resulted in passing an erroneous assessment order that appeared to be prejudicial to the interest of Revenue.
4. Considering the above facts, a detailed show cuase notice dated 13.01.2020 has been issued and served on the assesse through ITBA on 14.01.2020. This notice has also been served on the assessee by the Assessing Officer on 23.01.2020. In response to this notice, the assessee has filed a letter dated 24.01.2020 seeking adjournment of 10 days. Vide letter dated 25.01.2020, the assessee has intimated the new residential address. Vide this office notice dated 29.01.2020, the assessee has been asked to attend the hearing on 03.02.2020 either in person or through an authorized representative. In response to this notice, the reply to the show cause notice was submitted as under:
(i) The/tfasd was selected for limited scrutiny purpose as per the first notice issued u/s 142(1) of the Act dated 26.07.2016 for verification of 7 different issues listed in the said notice and the points relating to verification of “purchase & sale of immovable property” was not covered or mentioned in the said notice. Therefore, the A.O. was not supposed to verify the said details. He could have examined these issues only after taking due permission from the CIT/Pr. CIT which was not done.
(ii) The assessee had agreed to purchase the residential plot of 1565.07 sq. mtrs (i.e. 1,872 sq. yards) for which an agreement to sale was made on 07.07.2010 and reference to this agreement has also been made in the registered sale deed dated 02.05.2014.
(iii) The assessee had already paid an amount of Rs.1,42,27,200/-towards purchase consideration through various cheques during the period 06.07.2010 to 15.10.2011 for which complete details had also been furnished to the A.O. vide letter dated 19.07.2017.
(iv) The first proviso to section 56(2)(b)(ii) of the I.T. Act stipulates that-where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purpose of section 56(2)(b)(ii) of the Act. In view of this proviso, the assessee’s case is not covered u/s 56(2)(b)(ii) of the Act.
v) The original booking letter dated 07.07.2010 was not available to the assessee and therefore, the assessee requested the builder/organizer i.e. Aqua Infrastructures for issuing copy of letter and it issued the duplicate copy of booking letter in new format which included the clause of TDS @ 1%. This was nothing but a clerical error of the concerned person of Aqua Infrastructures. The original purchase agreement dated 02.05.2014 exhibits the reference of booking letter dated 07.07.2010 at page 7 of the said agreement.
vi) It has been further contended that no payments have been made from the O.D. bank account no. 474 maintained with Bank of Baroda and no interest of Rs.2,20,524/- has been paid for the purchase of the said property and the entire amount of Rs. 1,42,27,200/- had been paid between the period 06.07.2010 to 15.10.2011 and not during the previous year ending on 31.03.2015.
vii) The interest on housing loan of Rs.9,52,006/- had already been disallowed in the statement of total income out of interest paid of Rs.20,57,926/- against the receipt of gross interest of Rs.1,00,87,887/- as per the accounts.
viii) The overdraft facility has been enjoyed by the assessee for running the hospital against the TOD/FDOD. This fact has also been reported in the tax audit report at Annexure-B.”
5. We have heard both the parties at length. This matter was selected by the AO for limited scrutiny purposes as per notice under s.142 of the Act dated 26.07.2016, but the issue was identified for examination:
i. Interest expenses
ii. Income from heads of income other than business/ profession mismatch
iii. Details of Asset and Liabilities
iv. Sales Turnover Mismatch
v. Expenditure of personal nature
vi. Salary Income mismatch
It is pertinent to mention here that point relating to verification of purchase and sale of property was not covered/mentioned in the said notice.
5.1 In the case of Balvinder Kumar vs. PCIT [2021] 125 taxmann.com 83 (Delhi-Trib.), it was held as under:
Section 263 of the Income-tax Act, 1961 – Revision – Order prejudicial to interest of revenue (Scope of) – Assessment year 2015-16 – Assessee’s return was selected for limited scrutiny through CASS on issue of substantial increase in capital – Assessing Officer after considering requisite details filed by assessee, passed assessment order without finding any discrepancy on issue under consideration Subsequently, Principal Commissioner held that Assessing Officer accepted computation of capital gains by assessee without considering any details related to working of indexed cost of acquisition – Principal Commissioner invoked section 263 and passed revisionary order setting aside matter to Assessing Officer for making fresh assessment – Whether in view of CBDT Instruction No. 7/2015, 20/2015 and 5/2016 and CBDT letter dated 30-11-2017, it was established that Assessing Officer could not go beyond reason for selection of matter for limited scrutiny – Held, yes – Whether thus, it would not be open for Principal Commissioner to pass revisionary order and remit matter to Assessing Officer on other aspects by rendering assessment order as erroneous and prejudicial to interest of revenue – Held, yes [Para 11] [In favour of assessee]
5.2 In the matter of Spotlight Vanijya Ltd. vs. PCIT in ITA No.353/Kol/2020 for A.Y. 2015-16 order dated 09.04.2021, it was held by ITAT, Kolkata Bench as under:
“6. After hearing both parties and perusal of records, we are of the opinion that the Ld. PCIT could not have exercised his revisional jurisdiction on the issue on which he found fault with the action/omission on the part of AO because in the first place the AO could not have been faulted for not conducting any enquiry on the issue of Insurance Premium (Keyman Policy) of Rs.10,00,000/-, since the assessee’s case was selected for scrutiny only for limited purpose under CASS and the issue of Insurance Premium (Keyman Policy) of Rs.10,00,000/- was not the reason for selection of the case for limited scrutiny. Therefore, as per the CBDT circular (supra) the AO could not have initiated enquiry on the issue of Insurance Premium (Keyman Policy) of Rs.10,00,000/- and it is settled law that CBDT circulars are binding on income tax authorities. Therefore in such a scenario, the Ld. PCIT could not have invoked jurisdiction u/s 263 of the Act because he could not have held the AO’s order to be erroneous because the AO was justified in not enquiring in to the issue of Insurance Premium (Keyman Policy) of Rs.10,00,000/-, since the AO has gone as per the dictum of CBDT circular on the subject. Therefore, the AO’s action/ omission of not looking into the issue of Insurance Premium (Keyman Policy) of Rs.10,00,000/- cannot be termed as erroneous . And, therefore, the Ld. PCIT could not have invoked revisional jurisdiction since AO’s omission not to look into the issue of keyman policy was in consonance with the CBDT dictum on the subject and so it cannot be termed as erroneous and prejudicial to Revenue; and the impugned action of Ld. PCIT is akin to do indirectly what the AO could not have done directly. Thus it is noted that Ld. PCIT has ventured to exercise his revisional jurisdiction by issuing SCN dated 13.01.2020 without satisfying the essential condition precedent to invoke the jurisdiction u/s 263 of the Act. Therefore the very initiation of jurisdiction by issuing SCN itself is bad in law and therefore it is quashed. Consequently all further actions/proceeding including the impugned order of Ld. PCIT is non-est in the eyes of law. For this we rely on the decision of this Tribunal in Sanjib Kumar Khemka in ITA No. 1361/ Kol/2016 for AY 2011-12 dated 02.06.2017 wherein it has been held that:
“Now coming to the facts of the instant case, we find that the instant case was selected on the basis of AIR Information as evident from the order of AO under section 143(3) of the Act. There is also no whisper in the order of the AO for expanding the scope of limited scrutiny after obtaining the permission from the Administrative CIT. The ld. DR has also failed to bring anything contrary to the argument of the ld. AR. Therefore in our considered view the scrutiny should have been limited only to the information emanating from the AIR. Admittedly, the assessee has claimed to have filed an appeal before Ld. CIT(A) challenging the jurisdiction exceeded by the AO while framing the assessment order u/s 143(3) of the Act. We find that the impugned issue being legal in nature and goes to the root of the matter therefore we are inclined to proceed with this issue first by holding that, from the above submission and after examining of the records, we find that the Ld. CIT in his impugned order u/s 263 of the Act has exceeded his jurisdiction while holding the order of AO as erroneous in so far prejudicial to the interest of Revenue. In view of the above we hold that the ld. CIT has in his order u/s. 263 of the Act exceeded the jurisdiction by holding the order of AO as erroneous in so far as prejudicial to the interest of Revenue on those items which are not emanating from the AIR. Thus, we are inclined to adjudicate only those matters which are emanating from the AIR as discussed above.”
7. And to the decision of this Tribunal in the case of M/s Chengmari Tea Co. Ltd. in ITA NO. 812/Kol/2019 for AY 2014-15 dated 31.01.2020 which is placed at page 62 to 70 wherein the Tribunal held as under:
“8. Next comes the assessee’s second substantive argument that since the Assessing Officer had framed his regular assessment involving limited scrutiny on the above stated issues not including sec. 33AB deduction to the purpose of the impugned withdrawals. We find that the same is duly covered in its favor as per this tribunal’s co-ordinate bench’s decision in ITA No.1361/Kol/2016 in Sanjeev K. Khemka vs. Pr. Commissioner of Income-Tax-15, Kolkata decided on 02.06.2017 as under:-
“4. We have heard the rival contentions of the parties and perused the materials on record. The primary issue in the case on hand revolves whether it is a case selected under CASS for limited scrutiny or regular scrutiny. It can be seen from the grounds of appeal that the assessee wants to contend that the very initiation of proceedings u/s 143(3) of the Act on the basis of regular scrutiny under the Act was bad in law. The proceedings under section 143(3) of the Act should have been limited to the extent of the information gathered through AIR. Accordingly the proceedings u/s 263 of the Act cannot be expanded beyond the issue raised in AIR. Thus the order u/s 143(3) of the Act beyond the points of AIR is invalid in law and so the same is with the order passed u/s 263 of the Act. It is the further contention of the assessee that in the items which are not subject matter of AIR cannot subject matter of scrutiny. Such matters include salary of the assessee, loans & interest on loans, payment of LIC, Commission & brokerage income etc. It is the case of the assessee that in the assessment order passed u/s 143(3) of the Act, the AO has travelled beyond the points of the AIR on the basis of which the case of scrutiny was selected under CASS module. It is the plea of the assessee that when no addition/disallowance can be made beyond the points mentioned in AIR in the assessment proceedings then same is the case with proceedings initiated u/s 263 of the Act.
