Case Law Details

Case Name : Ravi Prakash Khandelwal Vs DCIT (ITAT Lucknow)
Appeal Number : ITA No.665/LKW/2017
Date of Judgement/Order : 08/11/2019
Related Assessment Year : 2014-15
Courts : All ITAT (7623) ITAT Lucknow (92)

Ravi Prakash Khandelwal Vs DCIT (ITAT Lucknow)

As per the assessment order, the case has been selected under Limited Scrutiny through CASS for scrutiny of (i) Large deduction claimed under section 54B, 54C, 54D, etc. and (ii) Large cash deposits in saving bank accounts.

Para 3 of the CBDT Instruction F.No. DGIT(Vig.)/HQ/SI/2017-18 dated 30/11/2017 states that the jurisdiction of the Assessing Officer while making assessments in Limited Scrutiny cases, by initiating inquiries on new issues has to comply with mandatory requirements of the relevant CBDT Instructions dated 09.2014, 29.12.2015 and 14.07.2016, i.e. the approval of the PCIT.

As is evident from the assessment order, in the present case, we find that the same is beyond the intent purpose and scope of the jurisdiction of the Assessing Officer, as the assessment has been made, exceeding his jurisdiction, because the case has been selected for limited scrutiny only on two issues, i.e. (i) Large deduction under section 54B, 54C, 54D etc., and (ii) Large cash deposits in savings account of the assessee; whereas the additions have been made on the indexed cost of acquisition at Rs. 17,59,545/- and indexed cost of improvement at Rs.20,90,319/-, which is covered under section 48 of the Act, and is outside the scope and purview of the reasons of limited Moreover, the approval of the PCIT is mandatorily required for converting the Limited Scrutiny to a Complete Scrutiny. So, the proper course for the AO before making these additional enquiries would have been to take approval from the administrative Commissioner to widen the scrutiny. This, however, was not done and therefore, the action of the AO is violative of the CBDT Instruction. Thus, the addition so made by the Assessing Officer, in gross violation of the CBDT Instruction, is liable to be deleted.

FULL TEXT OF THE ITAT JUDGEMENT

This is assessee’s appeal against the order of the ld. CIT(A), Bareilly, dated 11/8/2017 for assessment year 20 14-15, taking the following grounds:

1) That the lower Courts were not at all justified to adopt the rates of land @ Rs.45.10 per sq. Yard as against Rs.75/- per sq. Yard shown by the assessee and thus the addition towards indexed value of land at 17,59,545/- is uncalled for & unjustified.

2) That calculation mistake pointed out before learned CIT (A) towards valuation of land by DVO by Rs.73,542/- (Indexed value) should have been accepted by him.

3) That the lower courts should have accepted cost of improvement shown by way of mud filling at Rs. 4,00,555/- during four financial years as the land was having large pits and was much below normal ground level. In support of the same, an affidavit was duly filed before the A.O. Thus addition under this head at Rs.20,90,319/- (Indexed value of mud) is uncalled for & unjustified.

4) That the lower courts have erred to deny the claim u/s 54EC as claimed by the assessee. The assessee invested Rs.50,00,000/- on 31/05/2013 towards REC bonds (Rs.16,80,000/- for A.Y 2013-14 & 33,20,000/- for A.Y 2014-15). The sale value of plots prior to 31/05/2013 were at Rs.77,80,000 (Details were duly filed before A.O & learned CIT(A).

5) That the learned CIT(A) has not appreciated the above facts and confirmed the disallowance as mad by A.0 on the grounds that plots were sold after 31/05/2013. He has not considered the fact that sale of plots before 31/05/2013 were at Rs.77,80,000/- and thus the investment in bonds on 31/05/2013 is fully covered out of sale of plots. Total sale of plots were at Rs.2,05,34,000/-as under:-

Rs.77,80,000/- During April 2013 (Investment in REC bonds Rs. 33,20,000/- on 31/05/2013)

Rs.96,87,000/- During June & August 2013

Rs.30,64.000/-During Oct. 2013 (Investment in REC bonds Rs. 23,00,000/- on 23/04/2014)

Rs.2,05,34,000/-

2. The assessee, vide his application dated 11/3/2019, had raised the following additional grounds:

“6. On the facts and in the peculiar circumstances of the present case the Ld. CIT (A) was not at all justified in not allowing the deduction so claimed u/s 54F to the extent of Rs.41 ,76,800/- and which had been restricted by the AO to an amount of Rs .36,37,346/- thereby disallowing Rs. 5,39,454/- without any basis, wholly on whims and fancies, notions, conjecture and surmises and thus as additions were made under the head capital gains, the deduction should have been allowed and may now kindly be directed to be allowed.

7. That without prejudice to the grounds above that the assessment order so passed is beyond the intent purpose and scope of the jurisdiction of the AO as assessment has been made by exceeding his jurisdiction as same was picked up for limited scrutiny case only on the aspect of large deduction u/s 54B, 54C, 54D etc. and large cash deposits in savings account of the assessee and additions have been made on cost of acquisition and cost of improvement which is covered u/s 48 and is outside the scope and purview of reasons of limited scrutiny and thus the additions so made illegally without following the settled norms and laws that too only on the basis of an illegal reference to DVO and thus the order so passed suffers from an inherent illegality which be ordered to be quashed and additions so made be ordered to be deleted.

3. The ld. A.R. of the assessee submitted that the additional grounds taken by the assessee are purely a legal grounds, which do not necessitate any verification of additional facts and all the facts are already on record, therefore, the same may be admitted for hearing. In this regard, the ld. A.R. of the assessee placed reliance on the judgment of the Hon’ble Supreme Court in the case of ‘National Thermal Power Co. Ltd. vs. CIT’, 229 ITR 383.

4. Since the additional grounds taken by the assessee are purely legal grounds and go to the root of the matter, after hearing both the parties, we admit the additional grounds in view of the decision of Hon’ble Supreme Court in the case of ‘National Thermal Power Co. Ltd. vs. CIT’ (SC) (supra).

5. On the issue relating to chargeability of capital gain under section 54EC of the Act, raised in the additional ground No.7, the ld. A.R. of the assessee submitted that in the present case the Limited Scrutiny is on two issues. Firstly, on account of large deduction under section 5B, 54C, 54D etc. and secondly, large cash deposits in savings bank account; that the AO has made addition on account of indexed cost of acquisition Rs. 17,59,545/- and indexed cost of improvement of Rs.20,90,319/-; that this addition has been made by exceeding the jurisdiction, as the same was outside the purview of limited scrutiny by making an illegal reference to the DVO; that the limited scrutiny means, scrutiny on point raised and not the entire issues; that the computation of capital gains is separate from deduction claimed under sections 54B, 54C, 54D etc.; and that the deduction claimed under section 48 is a separate issue and its working is not under challenge. In this regard, the assessee has relied on CBDT Instruction F.No. DGIT(Vig.)/HQ/SI/2017-18 dated 30/11/2017. The ld. A.R. of the assessee further submitted that the approval of the Principal CIT is mandatorily required for scrutiny and in this case, there was no such approval. In support of his argument, the ld. A.R. of the assessee placed reliance on the following case laws and submitted that the addition made by the Assessing Officer being outside the purview of the scope of assessment, is liable to be deleted:

(i) Shashi Kant Garg vs. CIT, 285 ITR 158.

(ii) CIT vs. Rajeev Sharma, 336 ITR 678.

(iii) Khemka vs. Pr. CIT in ITA No.1361/KOL/2016 (ITAT Kolkata).

(iv) Gurpreeet Kaur vs. Income Tax Officer in ITA No.87/Asr/2016 (ITAT Amritsar)

6. The ld. D.R., on the other hand, has placed reliance on the order of the ld. CIT(A).

7. The question is whether, firstly, the AO is bound by the CBDT Instruction F.No. DGIT(Vig.)/HQ/SI/20 17-18 dated 30/11/2017 and as to whether in the present case, while computing capital gain and denying benefit of section 54EC to the assessee, the AO has contravened the said instructions, thereby rendering the assessment order invalid; and secondly, as to whether the ld. CIT(A) is correct in upholding the assessment order.

8. Section 119(1) of the Act reads as follows:

“The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board.”

9. In ‘Crystal Phosphates Ltd. vs. ACIT’, 34 CCH 136 (Del. ), it has been held that once the CBDT had issued instructions, the same have to be followed in letter and spirit by the AO.14.

10. In ‘Amal Kumar Ghosh vs. Addl. CIT’, 361 ITR 458 (Cal.), it has been held that when the department has set down a standard for itself, the department is bound by that standard and it cannot act with discrimination.

11. No decision contrary to the above decisions has been

12. Thus, evidently, the Income Tax Authorities are bound to observe and follow the instructions of the Board. The operative word in section 119(1) is ‘shall’. Judicial decisions have recognized this position.

13. In the present case, the assessee’s case was picked up for limited scrutiny through CASS for the reasons (i) Large deduction claimed under section 54B, 54C, 54D, etc. and (ii) Large cash deposits in saving bank accounts.

14. The CBDT Instruction F.No. DGIT(Vig.)/HQ/SI/2017-18 dated 30/11/2017, for facility, is reproduced as under:

“F. No. DGIT(Vig.)/HQ/SI/201 7-18
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

New Delhi-110001

Dated: 30th November, 2017

Subject: Unauthorized expansion of the scope of limited scrutiny — instructions — reg.,

CBDT has issued detailed guidelines/ directions for completion of cases of limited scrutiny selected through CASS module. These guidelines postulate that an Assessing Officer, in limited scrutiny cases cannot travel beyond the issues for which the case was selected. The idea behind such stipulations was to enforce checks and balances upon powers of an AO to do fishing and roving inquiries in cases selected for limited scrutiny.

2. Further, the guidelines for proper maintenance of order sheets have been given in the Manual of Office Procedure issued by the Directorate of Organisation and Management Services. The Manual clearly lays down: –

A. The minutes of the hearing must be entered with date, in the order-sheet.

B. Make proper order-sheet entries for each posting, hearing and seeking and granting of adjournments.

C. If nobody attends a hearing or the request for adjournment comes after the hearing date, enter the facts in the order-sheet.

Maintenance of a cursory and cryptic order sheet shows irresponsible, ad hoc and undisciplined working of any officer.

3. Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension.

4. In view of discussion in the preceding paragraphs it is once again reiterated that the Assessing Officers should abide by the instructions of CBDT while completing limited scrutiny assessments and should be scrupulous about maintenance of note sheets in assessment folders.

(Rakesh Gupta)
ADO (V) HQ-I
New Delhi”

15. As per the assessment order, the case has been selected under Limited Scrutiny through CASS for scrutiny of (i) Large deduction claimed under section 54B, 54C, 54D, etc. and (ii) Large cash deposits in saving bank accounts.

16. Para 3 of the CBDT Instruction (supra) dated 30/11/2017 states that the jurisdiction of the Assessing Officer while making assessments in Limited Scrutiny cases, by initiating inquiries on new issues has to comply with mandatory requirements of the relevant CBDT Instructions dated 09.2014, 29.12.2015 and 14.07.2016, i.e. the approval of the PCIT.

17. As is evident from the assessment order, in the present case, we find that the same is beyond the intent purpose and scope of the jurisdiction of the Assessing Officer, as the assessment has been made, exceeding his jurisdiction, because the case has been selected for limited scrutiny only on two issues, i.e. (i) Large deduction under section 54B, 54C, 54D etc., and (ii) Large cash deposits in savings account of the assessee; whereas the additions have been made on the indexed cost of acquisition at Rs. 17,59,545/- and indexed cost of improvement at Rs.20,90,319/-, which is covered under section 48 of the Act, and is outside the scope and purview of the reasons of limited Moreover, the approval of the PCIT is mandatorily required for converting the Limited Scrutiny to a Complete Scrutiny. So, the proper course for the AO before making these additional enquiries would have been to take approval from the administrative Commissioner to widen the scrutiny. This, however, was not done and therefore, the action of the AO is violative of the CBDT Instruction. Thus, the addition so made by the Assessing Officer, in gross violation of the CBDT Instruction, is liable to be deleted.

18. In this view of the matter, finding merit in the grievance sought to be raised by the assessee by way of additional Ground No. 7, the same is accepted, resultant to which ground Nos. 1 to 3 originally raised by the assessee become infructuous, requiring no specific adjudication.

19. With regard to ground Nos.4 & 5 raised by the assessee, relating to disallowance of claim made under section 54EC of the Act, the facts, in brief, are that the assessee had invested Rs.50 lakhs in REC bonds on 3 1/5/2013 (Rs.16.80 lakhs pertaining to assessment year 2013-14 and Rs.33.20 lakhs pertaining to assessment year 2014-15). The Assessing Officer did not allow the same and the ld. CIT(A) too confirmed the order of the Assessing Officer, on this issue.

20. Before us, the ld. A.R. of the assessee submitted that the AO has disallowed this deduction under section 54EC of the Act on frivolous grounds, i.e., firstly, that deduction cannot be made in excess of Rs.50 lakhs in one particular year, secondly, the investment in bulk is not required to claim deduction in piecemeal in different years, and thirdly, that most of the plots have been transferred after the investment made in specified

21. We find that firstly, the objection of the Assessing Officer that investment in excess of Rs.50 lakhs is not permitted in a year was introduced in the statute by the Finance (No. 2) Act, 2014 w.e.f. 1/4/2015 i.e. relevant to assessment year 2015-16. The case under consideration relates to assessment year 2014- 15, hence the same is not applicable to the facts of the present Secondly, the objection that the investment in bulk is not required and piecemeal is not permitted also does not hold good, as the assesse purchased Bonds of Rs.50 lakhs on a particular date and claimed deduction of Rs. 16.80 lakhs in assessment year 2013-14 and Rs.33.20 lakhs in ay 2014-15. There is no bar in the act that the Bonds for two different assessment years cannot be purchased en masse and that they should be purchased separately. The restriction is only to the extent that the bonds in excess of Rs.50 lakhs cannot be purchased in one single financial year. Since the assessee has not exceeded the limit of Rs.50 lakhs, this ground taken by the Assessing Officer is not a valid ground.

22. Lastly, the objection of the Assessing Officer that the plots were sold after the investment made in specified Bonds also is not correct, as all the sale deeds (APB:620 to 195) were duly filed before the Assessing Officer by the assessee along with a chart (APB:51) depicting the sale of plots for the year under The assessee has also filed the calculation of capital gains accrued prior to the date of investment in REC Capital Gain Bonds on 3 1/5/2013 (APB:61), which shows long term capital gain upto 31/5/2013 at Rs.60,03,31 1/- thus, deduction of Rs.33,20,000/- was rightly available to the assesse.

23. The findings of the Ld. CIT (Appeals) too is vitiated, as he has held that the Assessing Officer has further given a finding that the plots were sold after 31/05/2013 and that this fact has not been denied by the assessee. The assessee had written a letter (APB:44-46), dated 10/8/2017, to the Ld. CIT (A), categorically stating therein that the plots to the extent of 77,83,000/- have been sold upto 22/04/2013, whereas the investment in REC Bond was made on 31/05/2013 and also furnished the chart depicting the sale of plots for the year under consideration along with copies of sale deeds. Therefore, in our opinion, the disallowance of claim made by the assessee under section 54EC of the Act at Rs.33.20 lakhs is not justifiable. We, therefore, set aside the order of the ld. CIT(A) on this issue and accept ground Nos.4 & 5 raised by the assessee.

24. With regard to the additional ground No.6 raised by the assessee relating to deduction under section 54F of the Act, we find that the assessee had claimed deduction of Rs.28,54,707/- against the investment of Rs.4 1,76,800/- made in construction of house. The Assessing Officer, however, allowed deduction under section 54F of the Act at Rs.36,37,346/-, which has been confirmed by the ld. CIT(A). Since we have set aside the orders of the authorities below relating to the claim under section 54EC of the Act, we set aside the orders of the authorities below on the issue relating to allowabiity of claim under section 54F of the Act and restore the same to the file of the Assessing Officer for final computation of the capital gains.

25. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 08/11/2019.

Download Judgment/Order

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