Brief of the case:
- The ITAT Amritsar bench in the above cited case held that the scrutiny of cases selected on the basis of information received through Annual Information Return (AIR) would be limited only to the aspects of information received through AIR. Therefore, any enquiries made beyond verifying the AIR transaction would result in crossing the scope of limited scrutiny which is not allowed unless there is a potential escapement more than 10 lacs and prior approval of the Commissioner is sought in this behalf.
- Therefore, when in AIR transaction was reported that assessee made cash deposit of Rs. 25 lacs in her bank account , the AO’s scope is limited to verify only the source of such deposit and therefore, examination made relating to calculation of capital gain is not allowed as the same is beyond the scope of limited scrutiny.
Facts of the case:
- AO issued a notice u/s 143(2) APB-8 dated 21.09.2012 to the assessee, seeking information in connection with the return of income submitted by the assessee on 17.10.2011, for the year under consideration. The said notice is marked “AIR only”.Thereafter, the AO issued to the assessee, a notice (APB-9) dated 15.07.2013 under section 142(1) of the Act in which a detailed questionnaire was issued to assessee to be answered with the necessary documents.
- Assessee objected the questionnaire stating that the scrutiny was picked on the basisof AIR information, therefore, AO cannot ask for any details beyond the transaction reported in AIR.
- In response to the AO’s query, (Question no.11 of the Questioner), regarding the source of the alleged cash deposit of Rs. 25 lakhs in the assessee’s savings bank account with O.B.C, the assessee stated that she had sold her residential house for Rs.32.25 lakhs on 15.05.2010 and the proceeds thereof, i.e., Rs. 7 lakhs received by cheque and Rs.25.25 lakhs by cash were deposited in her savings bank account with O.B.C. In support, she filed a copy of the sale deed (APB 13-14) and a copy of her saving bank account with OBC.
- AO also examined the tax treatment made by assessee of the above sale and observed that assessee has claimed an exemption of Rs.11.92 lacs on acquisition of plot of land acquired on 28.07.2009.AO denied such exemption observing that investment in plot of land not allowed as exemption u/s 54.
- CIT(A) also upheld the order of AO denying exemption u/s 54 and observed the AO has not violated the instructions issued by the CBDT governing AIR cases in any way as he has limited his enquiries to the source of cash deposits in the bank account of the assessee and further logical conclusion because the cash deposits in the bank account of the assessee were found to be explained with the help of sale proceeds of house property but the AO is also duty bound to see whether the assessee has correctly declared taxable value of the long term capital gains from the sale of her residential house while filing the return of income.
- Aggrieved assessee is in appeal before ITAT.
Contention of the Assessee:
- The learned counsel for the assessee submitted that as per CBDT instructions in case of AIR scrutiny cases the scope of scrutiny is limited to verify only the transaction reported in AIR. Any check beyond that is not permissible. Therefore, in the present case the addition made by AO disallowing exemption u/s 54 was as a result of enquiries made beyond the AIR transaction.
- As such enquiries are in violation of CBDT instructions and therefore addition made with such violations cannot be sustained.
Contention of the Revenue:
- It was contended that the AO has not violated the CBDT instructions governing AIR cases, since he has limited his enquiries to the source of cash deposits in the in the bank account of the assessee and it is further a logical conclusion because the AO was duty bound to see as to whether the assessee has correctly declared taxable value of the long term capital gains from the sale of her residential house; and long term capital gain was correctly computed by the AO in accordance with law.
Held by ITAT Amritsar:
- ITAT observed that as per Sec 119(1) all the persons involved in the execution of the Income Tax Act shall observe and follow such orders, instructions and directions of the CBDT .Further, in the case of ‘Crystal Phosphates Ltd. vs. ACIT’, 34 CCH 136 ITAT Delhi bench held that once the CBDT had issued instructions, the same have to be followed in letter and spirit by the AO.
- In the present case, the assessee’s case was picked up for scrutiny on the basis of AIR information. The scrutiny notice dated 21.09.2012 was a stamped with ‘AIR only’, in compliance with para 3 of the CBDTinstruction (supra) dated 08.09.2010.
- CBDT Instruction states that the scrutiny of cases selected on the basis of information received through AIR returns would be limited only to the aspects of information received through AIR.
- In the present case AIR information was regarding the cash deposits of Rs. 25 lakhs by the assessee in her savings bank account with OBC. Therefore, assessee was required to explain the source of such cash deposits. The assessee explained the same as sale proceeds of her residential house amounting to Rs.32.25 lakhs received from Smt. Naunihal Kaur, the purchaser. Her this assertion was duly supported by a copy of the concerned sale deed.
- As per assessment order, assessee had purchased a plot for Rs.11,92,500/- plus stamp duty of Rs.83,475/- on28.07.2009. The AO held that the plot purchased is not eligible for exemption u/s 54 and thus, the assessee had wrongly claimed exemption under section 54 of the Act. The AO made an addition of Rs.11,92,000/- in the calculation of the assessee’s long term capital gains.
- But unfortunately such findings made by AO does not come within the AIR information, which was, only with regard to the cash deposits of Rs. 25 lakhs.So, these latter enquiries by the AO are not aspects of the information received through AIR. The only aspect of such information was the source of the cash deposits, which stands adequately explained by the assessee, as above.
- In fact, what the AO did was to widen the scrutiny which as per CBDT instruction can be done in AIR picked scrutiny cases only when there is potential escapement of income more than Rs. 10 lakhs with the prior approval of the administrative Commissioner.
- Therefore, in the present case the AO before making these additional enquiries was required 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.
- Therefore, the additions made by AO are incorrect and ordered to be deleted. In result the appeal of assessee was allowed.