Case Law Details
Kintukumar Ambalal Patel Vs DCIT (ITAT Ahmedabad)
The issue raised by the assessee in additional ground is that the learned CIT-A erred in confirming the order of the AO by expanding the scope of limited scrutiny assessment to complete scrutiny without necessary approval.
Ld. AR further claimed that the Assessing Officer has converted the “Limited Scrutiny” to the normal/regular scrutiny u/s 143(3) of the Act, on the basis of document received from Revenue authority without taking necessary approval from the appropriate authority.
On the other hand the Ld. DR submitted that the AO has examined the property sold during the year and arrived at the conclusion that the assessee is carrying out the business of property development. Hence he has not traveled beyond the scope of limited scrutiny.
On perusal of the notice for “Limited Scrutiny” we find that there was no mentioning/whisper about examination of the fact whether the assessee was engaged in the business of property development. Accordingly, we hold that the Assessing Officer has exceeded his jurisdiction by denying the deduction claimed under section 54 of the Act on the reasoning that the assessee is engaged in the business of property development as the same was not mandated under the ‘L’imited Scrutiny ” notice issued under section 143(2) of the Act.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals), Gandhinagar (CIT-(A) in short) dated 16/01/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year (A.Y) 2015-16.
2. The Assessee has raised the following grounds of appeal:
1. The impugned order passed by the Ld.CIT(A) is bad in law, illegal and arbitrary, the same deserves to be quashed/annulled and set aside.
2. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) has, grossly erred in firstly holding the ground no.2 of the appeal as technically allowed and then turning & twisting in rejecting the assessee’s claim of deduction u/s.54F the Act for Rs.36,69,626/- when he ought to have allowed the same in favour of the assessee.
3. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) has grossly erred in sustaining addition of Rs.88,22,585/- made by the A.O as business income u/s.28 of the Act, rejecting the claim of the assessee of long term capital gain, when he ought to have upheld the same as LTCD & thereby deleted the impugned addition.
2.1 The assessee has also raised the Additional ground of appeal as reproduced below:
On the facts and in the circumstances of the case, as well as in law, the ld.A.O. has grossly erred in expanding the scope of the limited scrutiny to a complete scrutiny by going beyond the issues of verification which were mere technical issues of mismatch and expanded the scope to change the head of income, without taking necessary approval of higher authority as required by the CBDT’s Instruction No.20/2015 dated 29.12.2015.
In the eventuality, if additional legal ground no.1 above is deleted in favour of the appellant, then when no addition on the basis of such notice dated 19.09.2016 survives, all other additions so made by the AO and sustained by the Ld.CIT(A) may kindly be deleted in full.
3. The issue raised by the assessee in additional ground is that the learned CIT-A erred in confirming the order of the AO by expanding the scope of limited scrutiny assessment to complete scrutiny without necessary approval.
4. Brief fact is that the assessee is an individual and claimed to have earned income under the head capital gain and other sources. The assessee during the year under consideration along with 4 other co-owners sold a piece of land admeasuring 4234 square meters in which he held his share for 7.5% only. The assessee declared capital gain of Rs. 48,35,416/- after claiming deduction of Rs. 36,11,780/- under section 54 of the Act.
5. Subsequently, the return of the assessee was selected for limited scrutiny and the notice was issued under section 143(2) of the Act for examining certain issues as detailed under:
(i) Income/Capital gain on sale of land or building
(ii) Sale of property mismatch
(iii) Derivative (Futures) Transaction.
(iv) Mismatch in income/capital gain on sale of land or building
6. During the proceedings, the AO observed from the submission of the assessee and information received from the Revenue authority that the impugned land was purchased by the assessee along with co-owner as agricultural land bearing 3 different survey numbers. Later on such land was converted as NA and different survey numbers were merged as single survey number. Thereafter, the assessee and co-owner made application for plotting of the land which was approved. The assessee with co-owners further initiated residential as well as commercial building project on the impugned land. Accordingly the AO held that the activity carried out by the assessee along with other co-owner amounts to business activity. Thus the AO held the impugned sale proceeds on the transfer of the impugned land as business receipt and disallowed the deduction claimed under section 54 of the Act.
7. Aggrieved, assessee preferred an appeal before learned CIT (A) who rejected the appeal of the assessee and confirmed the order of the AO.
8. Being aggrieved by the order of the Ld. CIT(A) the assessee is in appeal before us.
9. The Ld.AR before us filed 2 paper books namely paper book-I, and II running from pages 1 to 201, and 201 to 306 and drew our attention on page 4 to 5 of the paper book-I where the notice for “Limited Scrutiny” issued u/s 143(3) of the Act was placed. The Ld. AR further claimed that the Assessing Officer has converted the “Limited Scrutiny” to the normal/regular scrutiny u/s 143(3) of the Act, on the basis of document received from Revenue authority without taking necessary approval from the appropriate authority.
10. On the other hand the Ld. DR submitted that the AO has examined the property sold during the year and arrived at the conclusion that the assessee is carrying out the business of property development. Hence he has not traveled beyond the scope of limited scrutiny. The learned DR vehemently supported the order of the authorities below.
11. We have heard the rival contentions of both the parties and perused the relevant materials available on record before us. At the outset we note that the similar issue has been decided in the case of co-owner namely Shri Narender Kumar Nareshbhai Patel in ITA No. 981/AHD/2019 dated 20-03-2020 in favor of assessee. The relevant extract of the order is reproduced as under:
“We have heard the rival contentions of both the parties and perused the relevant materials available on record before us. Admittedly, the case of the assessee was selected under “Limited Scrutiny” scheme as evident from the notice u/s 143(2) of the Act, placed on page 1 of the paper book-I. As per the CBDT instruction No.20/2015 dated 29/12/2015 and instruction no 05/2016 dated 14-07-2016 the Assessing Officer in case of “Limited Scrutiny” can only examine those issues for which the case has been selected or the issue mentioned therein. If the AO of the view that there is a potential escapement of income, he may convert the “Limited Scrutiny” into “Complete Scrutiny ” but such view should be reasonable view based on credible information or materia l available on record. Furthermore, there should be direct nexus between such view and information/material. The relevant portion of the instruction stands as under:
“3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-one is ‘Limited Scrutiny’ and other is ‘Complete Scrutiny’. The assessees concerned have duly been intimated about their cases falling either in ‘Limited scrutiny’ or ‘Complete Scrutiny’ through notices issued under section 143(2) of the Income-tax Act, 1961 (‘Act)’. The procedure for handling ‘Limited Scrutiny’ cases shall be as under:
a. In ‘Limited Scrutiny’ cases, the reasons/issues shall be forthwith communicated to the assessee concerned.
b. The Questionnaire under section 142(1) of the Act in ‘Limited Scrutiny’ cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope o f enquiry shall be restricted to the ‘Limited Scrutiny’ issues? “
c. These cases shall be completed expeditiously in a limited number of hearings.
d. During the course of assessment proceedings in l’imited Scrutiny ‘ cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantia l verification on any other issue(s), then, the case may be taken up for ‘Complete Scrutiny’ with the approval of the Pr.CIT/CIT concerned. However, such an approval shall be accorded by the Pr.CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating ‘Complete Scrutiny’ in that particular case. Such cases shall be monitored by the Range Head concerned.
“2. In order to ensure that maximum objectivity is maintained in converting a case falling under ‘Limited Scrutiny’ into a ‘Complete Scrutiny ‘ case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up ‘Complete Scrutiny’ in a case which was originally earmarked for ‘Limited Scrutiny’, the Assessing Officer (‘AO’) shall be required to form a reasonable view that there is possibility of under assessment o f income if the case is not examined under ‘Complete Scrutiny’. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para ?(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable.
3. Further, while forming the reasonable view, the Assessing Officer would ensure that:
a. there exists credible material or information available on record for forming such view;
b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and
c. there must be a direct nexus between the available materia l and formation of such view. ”
13. However, on perusal of the notice for “Limited Scrutiny” we find that there was no mentioning/whisper about examination of the fact whether the assessee was engaged in the business of property development. Accordingly, we hold that the Assessing Officer has exceeded his jurisdiction by denying the deduction claimed under section 54 of the Act on the reasoning that the assessee is engaged in the business of property development as the same was not mandated under the ‘L’imited Scrutiny ” notice issued under section 143(2) of the Act.
14. We are also conscious about the fact that this tribunal in the case of the co-owner namely Shri Harshadkumar Amrutlal Patel in ITA No. 361/AHD/2019 has decided the issue against the assessee on merit. Accordingly, the question arises once the issue involved in the case of the co-owner has been decided against the assessee, then can the Bench take of contrary view from the case of other co-owners. However, we find that the technical issue raised by the assessee in the case on hand was not there in the case of co-owner namely Shri Harshadkumar Amrutlal Patel. Thus we are adjudicating the present appeal from altogether a different perspective. Thus, the question of taking the contrary view does not arise.
15. In the case of the other co-owner namely Shri Harshadkumar Amrutlal Pate l there was the regular assessment under section 143(3) of the Act, whereas in the present case, it is the case of the Limited Scrutiny. Accordingly, we hold that the facts of the case on hand are different with the facts of the case in the case of Shr i Harshadkumar Amrutlal Patel. As the issue involved is different, then the bench is not bound to follow the decision of the coordinate bench taken in the case of the co-owner.
16. The Ld.DR before us has not brought anything on record justifying that the “Limited Scrutiny” was converted by the Assessing Officer under normal scrutiny after obtaining necessary approval from the appropriate authority.
17. We are also not convinced with the argument of the learned DR that the issue raised by the AO is limited to the activity of the sale of the property only. It is because if we admit the contention of the learned DR then the head of income from capital gain will also get change to the business income despite the fact that there was no question raised in the notice issued for the limited scrutiny under section 143(2) of the Act. The right course of action for the AO was to take the approval from the competent authority for expanding the scope of Limited Scrutiny to the regular assessment but he failed to do so. Thus, in our considered view inaction of the AO should not cause any harassment to the assessee.
18. In holding so we draw support and guidance from the order of the Hon’ble Chandigarh Tribunal in case of Rajesh Jain vs. ITO reported in 162 taxman 212 where it was held as under:
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. This position of law was further elaborated by the CBDT in its Circular No. 8/2002, dated 27-8-2002.
The CBDT Circular clarifies that the Assessing Officer does not have the powers to make the entire assessment of income in limited scrutiny cases. Now question had to be decided when the Assessing Officer does not have the powers while making limited scrutiny assessment to decide such issues which are not covered by the limited scrutiny notice, the Commissioner (Appeals) on appeal against limited scrutiny assessment can exercise the powers in excess o f the power vested with the Assessing Officer. There is no doubt that the power of the Commissioner (Appeals) is co-terminus with the power of the Assessing Officer. So, however, in the instant case, when the Assessing Officer did not have the power to make a full-fledged assessment in limited scrutiny cases, the Commissioner (Appeals)’s power could not be enlarged beyond the power o f the Assessing Officer in limited scrutiny cases. So, it was considered appropriate to remit the issue relating to allowance of depreciation in respect o f the plinth to the file of the Assessing Officer for the purpose of fresh decision in accordance with law. Since the notice under section 143(2)(i ) was issued for limited scrutiny, the Assessing Officer was precluded from considering any other issue while making the assessment under section 143(3) under limited scrutiny. The decision of the Commissioner (Appeals) in considering the other claim of the assessee not covered in the notice issued under section 143(2)(i) for limited scrutiny was contrary to the provisions of the Act and, accordingly, was set aside.
In view of the above and after considering the facts in totality as discussed above, we are not convinced with the finding of the authorities below. As such 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 as discussed above. Thus the ground of appeal of the assessee is allowed.
12. Before us, no material has been placed on record by the Revenue to demonstrate that the decisions of Tribunal in the case of the co-owner has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case on hand viz a viz that of co-owner nor has placed any contrary binding decision in its support. Accordingly, we set aside the finding of the ld. CIT-A and direct the AO to allow the exemption to the assessee under 54 of the Act. As the assessee is succeeded on the technical issue raised by him, we refrain ourselves from adjudicating the other issues raised on merit. Accordingly, the issues raised by the assessee on merit become infructuous. Hence we dismiss the same as infructuous.
13. In the result, the appeal of the assessee is partly allowed.
This Order pronounced in Open Court 31/05/2022
