AO cannot increase the scope of scrutiny without prior approval of the CIT
Pleaders engaged in the case:
The Appellant was represented by Sh. J.S. Bhasin, Advocate and the Respondent was represented by Shri Tarsem Lal, DR.
Date of hearing:
The hearing was concluded on 22.3.2016
Date of judgment:
The judgment was passed on 24.3.2016 by the bench of A.D. Jain, Judicial Member.
Grounds for appeal:
The assessee raised the following grounds of appeal before the Tribunal:
1. That the ld. CIT (A) was wrong in rejecting the stand of the assessee that the ITO passing the impugned assessment had violated the Instructions dated 08.09.2010 passed by the CBDT to govern AIR cases, as such, the impugned order should be quashed.
2. That the ld. CIT (A) was wrong in holding that the order passed by the ITO was not in violation of instructions of the CBDT dated 08.9.2010 and it did not violate the principles of natural justice.
3. That the ld. CIT(A) also erred in sustaining the addition of Rs.3,00,000/- which made by the ITO by treating the advance received by the assessee against agreement for sale of property to have been forfeited.
4. That the ld. CIT (A) was wrong in not believing the ‘compromise deal’ as an afterthought of the assessee.
5. That the ld. CIT(A) also erred in confirming the disallowance of exemption under section 54 amounting to Rs.11,92,500/- being the cost of property purchased on an erroneous interpretation of the provisions of section 54 and 54F of eth Income Tax Act.
6. That the ld. CIT has erred in rejecting all contentions raised by assessee.
7. That the assessee has suffered undue harassment of the authorities for which appropriate costs should be awarded in the matter.
Backgrounds of the case:
The assessee filed the appeal before the Tribunal challenging the order dated 12.1.2016 passed by the ld. CIT (A), Jalandhar for the assessment year 2011-12.
The assessee was asked to produce documents and other evidence on which she might rely in support of her return.
Thereafter the AO issued a notice dated 15.7.2013 to the assessee under section 142(1) of the Act, asking her to produce accounts and/or documents as per the questionnaire accompanying the notice.
The assessee was asked to produce the details of the education expenses of her children, Electricity meter no. and details of electricity expenses, details of expenses on telephones, bank accounts, Post Office Account, etc. and details of properties sold or purchased including agreements, if any.
By means of a reply dated 21.8.2013, the assessee stated that the questionnaire required information with evidence on some issues that were not covered by the AIR information, though the first notice was marked “AIR only”.
The assessee further stated that as per CBDT Instruction No.226/26/2006-ITA.11 (Pt.), scrutiny of cases selected upon information received through the AIR returns would be limited to information received through AIR.
In response to the alleged cash deposit in the assessee’s savings bank account the assessee stated that she had sold her house on 15.05.2010 and the proceeds received by cheque and cash were deposited in her savings bank account. In support, she filed a copy of the sale deed and her saving bank account.
In the assessment order, the AO observed that the assessee purchased a plot for Rs. 11, 92,500/- and she also purchased stamp duty of Rs.83, 475/-. She also invested some amount in the Capital Gain Scheme with the Bank.
During the assessment proceedings, the assessee filed another agreement for sale in connection with the same property. The assessee also received Rs.3, 00,000/- at the time of agreement as advance. The balance amount had to be received at the time of registration deed which was fixed 5.10.2010.
The counsel of the assessee explained that as per CBDT guidelines scrutiny was limited only to the aspect of information received by means of AIR.
The current proceedings were limited to extent of AIR information. Keeping in view the reply of the assessee, it was clear that the assessee was not ready to give the information.
It was clear that the plot purchased earlier had no relation with the residential house sold in the Financial Year 2010-11 and the exemption claimed under section 54 of the Income Tax Act, 1961, has wrongly been claimed, as it can be only allowed for purchasing or constructing a residential house.
As the plot did not qualify for exemption under section 54 of the Income Tax Act, 1961, the claim of the assessee was rejected.
The AO made the addition of Rs.11, 92,000/- as LTCG of the assessee. The copy of agreement of the assessee where she had had received Rs.3 lacs on 15.03.2009 was also examined.
The assessee was asked to produce the vendees of the agreement for their examination but she failed to clarify the same.
In the absence of assessee’s compliance to produce the vendees it was presumed that this agreement did not gain finality and the amount of advance taken by the assessee still remained with the assessee and it forms part of the assessee’s total receipt towards sale consideration as per section 51 of the Income Tax Act, 1961.
The ld. CIT (A) upheld the assessment considering many judicial pronouncements relied upon by the assessee.
The judgment:
The Tribunal held that the judicial decisions relied upon by the assessee had different facts from the facts of the case and had no application in her case. As a result the grounds No. 1, 2 and 3 of appeal were dismissed.
It was observed that the assessee’s case was picked up for scrutiny based on AIR information. The notice dated 21.09.2012 was a stamped with ‘AIR only’.
It has been decided that the scrutiny of such cases would be limited only to information received through AIR. However, a case may be taken up for wider scrutiny only with the prior approval of the Commissioner where it is felt that there is an escapement of income of more than Rs. 10 Lacs.
The AIR information in the case was regarding cash deposits of Rs. 25 lakhs by the assessee in her savings bank account. The assessee explained the same as sale proceeds received from Smt. Naunihal Kaur who was the purchaser.
Her assertion was supported by a copy of the sale deed. As per the CBDT Instruction, nothing further was to be gone into by the AO as the information received through AIR was relating to the cash deposits.
So, the proper action of the AO before making the additional enquiries would have been to take approval from the Commissioner to increase the scope of scrutiny. Prior approval of the Commissioner was however not done and therefore, the action of the AO was held to be violative of the Instruction of CBDT.
For the above, finding merit in the grievance sought to be raised by the assessee it was held that the assessment order, passed ex-parte by the AO was not legally sustainable. The order was accordingly reversed. The appeal was allowed without costs.
