SHRI VISHAL SETHI,RAIPUR vs. INCOME TAX OFFICER WARD-2(3), JABALPUR

ITA No.57/JAB/2019 Vishal Sethi vs. ITO (A.Y.2014-15) IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR BEFORE SHRI NRS GANESAN, JUDICIAL MEMBER & SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA No.57/JAB/2019 Assessment year: 2014-15

Vishal Sethi, vs. Income Tax Officer-2(3), 2ndFloor, Central Revenue c/o Sethi Opticals, Near Netaji Hotel, Katora Talab Chowk, Building, Napier Town, Raipur (CG) 492001 Jabalpur (MP)– 482 001 [PAN: ARUPS 0489G] (Appellant ) (Respondent)

Appellant by Shri R.B. Doshi, FCA Respondent by Shri Abhay Kr. Singh, CIT-DR Date of hearing 14/08/2020 Date of pronouncement 07/09/2020

ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee agitating the Order under section 263 of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 27.02.2019 by the Principal Commissioner of Income Tax-2, Jabalpur (‘Pr. CIT’ for short) qua his assessment u/s. 143(3) for assessment year 2014-15 vide order dated 6.10.2016. 2. At the outset, it was observed by the Bench that the instant appeal is time barred by limitation. In view of the assessee’s application dated 22/6/2019, filed along with the appeal memo on 28/6/2019, which was fairly not objected to by

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ITA No.57/JAB/2019 Vishal Sethi vs. ITO (A.Y.2014-15) the ld. CIT-DR, we condone the delay of 55 days in presenting this appeal before the Tribunal. 3.1 The assessee’s case is that the impugned order is bad in law inasmuch as the it travels beyond the scope of enquiry for which the assessee’s return of income for relevant year, filed on 6.9.2014, was selected for verification by the issue of notice u/s. 143(2) (PB pg. 27), i.e., as a limited scrutiny case through Computer Aided Scrutiny Selection (CASS). The same was only for verification of the sale consideration of the property sold by the assessee during the relevant year as it was below that reported in Annual Information Report (AIR). The ld. PCIT, however, has per the impugned order required the Assessing Officer (AO) to examine other computational aspects of the capital gain, viz. cost of construction; its indexation, as well, and which he could not. Toward the same, he would take us through the Board Instruction No.20/2015, dated 29.12.2015 (PB pgs. 28-29), para 2 whereof clarifies the scope of enquiry in a case selected under CASS. Only specific issue based enquiry is to be made in the cases selected under CASS. If the AO wishes to enquire or examine other aspects of the return, including the capital gain on the property under reference, the same would require him to, following the procedure in this regard, covert it into a complete scrutiny assessment, and which has not been done in the instant case. Inasmuch as the AO could not travel beyond the limited issue, i.e., verification of the sale consideration, being apparently below that required to be adopted u/s. 50C – and which he admittedly does, the ld. Pr. CIT, in exercise of his revisionary power, could not state, as he does, that the assessment order is erroneous and prejudicial to the interest of the Revenue for want of enquiry into another, even if related, aspects. The Tribunal, on such a transgression of power by the competent authority being shown, struck down the revision u/s. 263, and toward which reference was made to the following decisions: 2 | P a g e

ITA No.57/JAB/2019 Vishal Sethi vs. ITO (A.Y.2014-15) (i) Akash Ganga Promoters and Developers vs. Pr. CIT (ITA No. 164/Ctk/2019, dated 18.12.2019) (ii) Sanjeev Kr. Khenka vs. Pr.CIT (ITA No.1361/Kol/2016, dated 2.6.2017) (iii) Su-Raj Diamond Dealers P. Ltd. vs. Pr. CIT (ITA No. 3098/Mum/2019, dated 27.11.2019). 3.2 The ld. CIT-DR would, on the other hand, submit that the whole purport of an enquiry into the sale consideration of an immovable property is the correct determination of the capital gains arising on the transfer thereof. Section 45 creates a charge to tax on any profits or gains arising on the transfer of a capital asset by an assessee during the previous year. Section 48 provides for the computation of this capital gain, and is, thus, integral thereto, and required to be read along with. All the issues raised by the ld. Pr. CIT fall within the ambit of section 48, as is indeed the claim for sale commission disallowed in assessment. It was, therefore, perfectly within his competence to have required the AO to examine the pertinent issues coming to his notice qua the determination of capital gains chargeable u/s. 45 on the sale of the relevant property.

3.3 The ld. counsel for the assessee, Shri Doshi, would, in rejoinder, submit that it could not be said that the computer selecting the assessee’s case for limited scrutiny had these related aspects, i.e. as referred to by the ld. PCIT, in its ‘mind’. The only issue, and to which, therefore, enquiry under a limited scrutiny assessment could be directed, is as stated in the reason/s recorded, i.e., ‘sale consideration of the property in ITR is less than the sales consideration of property reported in AIR.’ (pg.8 of the impugned order) There are specific templates under CASS, as (say) for verification of a claim u/s. 54F, whereby what is contemplated is the examination of all the relevant

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ITA No.57/JAB/2019 Vishal Sethi vs. ITO (A.Y.2014-15) aspects in relation to the said claim. The reason in the instant case is restricted to the verification of returned sale consideration vis-a-vis that referred to in sec. 50C, being apparently inconsistent therewith, and in respect of which due enquiry has been made by the AO in assessment. Further on, the scope of enquiry stated in Instruction 20/2015, referred to earlier, is per CASS-2014, while what would apply in the assessee’s case is CASS-2015 as the notice u/s. 143(2) stand issued on 29.8.2015. Para 3 of the Instruction No.20/2015, which relates to CASS-2015, was also gone through during hearing. On a query by the Bench, Sh. Doshi would though admit that the sale consideration as assessed (Rs.147.50 lacs) was short of the consideration u/s.50C (AIR), i.e., Rs.147.66 lacs, and to that extent, also directed for correction by the ld. PCIT per the impugned order, he had no grievance, though would add that the same could also have been made by way of a rectification u/s.154. 4. We have heard the parties and have perused the material on record. 4.1 Admittedly, the sale consideration adopted in assessment is short by Rs.0.16 lacs and, therefore, even an acceptance of the assessee’s plea would result in a part allowance of his appeal, i.e., the impugned order would stand to be upheld to that extent. 4.2 As regards the principal issue, the assessee’s argument is per se un- exceptional, and which also found favor with Tribunal in the cited cases, i.e., what cannot be considered by the assessing authority could not possibly be a ground for regarding his order as erroneous. The first thing that therefore needs to be ascertained is the scope of the enquiry in a limited scrutiny assessment selected under CASS. The same stands stated in Instruction No.20/2015, relevant part of which is reproduced as under:

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ITA No.57/JAB/2019 Vishal Sethi vs. ITO (A.Y.2014-15)

‘1. The Central Board of Direct Taxes (‘CBDT’), vide Instruction No. 7/2014 dated 26.09.2014 had clarified the extent of enquiry in certain category of cases specified therein, which are selected for scrutiny through CASS. Further clarifications have been sought regarding the scope and applicability of the aforesaid instruction to cases being scrutinized. 2. In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid instruction, following clarifications are being made: i. Year of applicability: As stated in the instruction No. 7/2014, the said instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014. ii. Whether the said instruction is applicable to all cases selected under CASS: The said instruction is applicable where the case is selected for scrutiny under CASS only on the parameter(s) of AIR/CIB/26AS data. If a case has been selected under CASS for any other reason(s) parameter(s) besides the AIR/CIB/26AS data then the said instruction would not apply. iii. Scope of enquiry: Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s) of AIR/CIB/26AS data. In such cases, the Assessing Officer, shall also confine the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in these cases can only be conducted as per the guidelines and procedures stated in instruction No. 7/2014. iv. Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data, the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned. 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two types of cases have been selected for scrutiny in the current Financial Year - one is ‘Limited Scrutiny’ and the 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 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. 5 | P a g e

ITA No.57/JAB/2019 Vishal Sethi vs. ITO (A.Y.2014-15) Further, the scope of enquiry shall be restricted to the ‘Limited Scrutiny’ issues. c. …… d. …… (emphasis, ours) The reference in the opening sentence (of the para 2) is to Instruction 7/2014, As apparent, Instruction 20/2015 is applicable both to cases selected for limited scrutiny under CASS-2014 as well as under CASS-2015, where-under the assessee’s return, selected in 2015, falls. It is, rather, Instruction No.7/2014 which is only applicable to CASS-2014 cases. The scope of enquiry in a limited scrutiny case under CASS-2015 is to be, as for CASS-2014 cases, confined to the reasons/issues for which the case has been taken up for scrutiny (para 3(b)). The enquiry, therefore, is to be issue-based, and only specific issues pertaining to the AIR/CIB/26AS data could be enquired into. Further, this limitation, as it appears, shall not apply where a return is selected for assessment, though under CASS, but not with reference to AIR/CIB/26AS data, even as the selection in the instant case is, without doubt, based on AIR data. The various returns, as the Annual Information Report (AIR), TDS returns, etc., are fed into the computer along with the related parameters, viz. mismatch in the stated sale consideration of an immovable property and the value adopted/assessed by the stamp valuation authority; the expenditure claimed per the return of income and that on which tax stands deducted at source, etc. These, then, are the parameters with reference to which the computer picks up/selects cases for limited scrutiny. The mismatch/discrepancy, etc. constitutes the reason/s for which an assessee’s case stands selected under the limited scrutiny regime, which is required to be intimated thereto (paras 2(iv), 3(a) of the Instruction). It is this reason that stands stated at para 8 of the impugned order, reproduced at para 3.3 above. All aspects pertaining to this matter could be validly examined in a limited scrutiny 6 | P a g e

ITA No.57/JAB/2019 Vishal Sethi vs. ITO (A.Y.2014-15) assessment that is to follow. The cost of construction, or its indexation, though related to the computation of capital gains, cannot be said to be specific issues arising in the verification of the sale consideration, i.e., the specific area or field qua which the enquiry could only be directed. This is as the Board Instruction is u/s.119 binding on an income tax authority. The reference to section 48, and of it being an integral part of s.45, as argued by the ld. CIT-DR, is misdirected, even as the statement is per se valid. The AO, where he intends to verify the areas of income determination, even if related to capital gains, is to get the scope of enquiry enhanced by converting it into a complete scrutiny case, following the requisite procedure in its respect. 5. In view of the forgoing, we, subject to the upward adjustment of the sale consideration by Rs.0.16 lacs, i.e., to Rs.147.66 lacs, conceded to before us, uphold the assessee’s claim. A clarification, though, may be in order here. The computer does not formulate or enumerate the issues arising, but only throws up the areas, based on defined parameters, for being examined in a limited scrutiny assessment. The said formulation would require consideration of the relevant facts; related aspects; explanation/s furnished, etc., and due application of mind by the assessing authority. It was, thus, fully open for the AO in the present case to have considered and, upon so, reject the assessee’s claim of commission on the sale of property, stated at Rs.4.60 lacs, deducted from the sale consideration, which was the reason for the same being reported at a lower figure. Likewise, for the short assessment by Rs.0.16 lacs. It is, therefore, incorrect to say, as Sh. Doshi does before us, that only issues in the contemplation of the ‘mind’ of the computer could be examined under a limited scrutiny case. Needless to add, our order is principally in agreement with that by the Tribunal cited before us. We decide accordingly.

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ITA No.57/JAB/2019 Vishal Sethi vs. ITO (A.Y.2014-15) 6. In the result, assessee’s appeal is allowed on the aforesaid terms. Order pronounced under Rule 34(4) of the ITAT Rules on September 07, 2020 by placing the details on the notice board Sd/- Sd/- (N.R.S.Ganesan) (Sanjay Arora) Judicial Member Accountant Member Dated: 07/09/2020 /Aks(PS)

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