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Facts
The assessee filed an appeal against the order of the CIT(A) which arose from an assessment order. The Assessing Officer disallowed the claim for deduction under Section 54F, treating the transaction of land transfer as adventure in trade or an excessive claim. The assessee contended that the matter was identical to his brother's case, where a similar disallowance was deleted by the Tribunal.
Held
The Tribunal noted that the Assessing Officer had travelled beyond the scope of limited scrutiny, which was the basis for the assessment. The Tribunal followed its earlier decision in the assessee's brother's case, which dealt with identical facts and issues. Consequently, the disallowance and addition made by the Assessing Officer and sustained by the CIT(A) were deleted.
Key Issues
Whether the Assessing Officer exceeded the scope of limited scrutiny by disallowing the claim under Section 54F and treating the land transaction as adventure in trade.
Sections Cited
250, 143(3), 54F, 54B, 54C, 54D, 54G, 54A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & DR. DINESH MOHAN SINHA
आदेश /ORDER Per, Dr. A. L. Saini, AM:
Captioned appeal filed by the assessee, pertaining to Assessment Year 2015-16, is directed against the order passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by National Faceless Appeal Centre (NFAC), Delhi / Commissioner of Income-tax (Appeals) (in short ‘Ld. CIT(A)’), dated 23.07.2025, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Act on 22.11.2017.
1. The CIT(A) has erred in not holding that the assessment order is passed after making disallowance of claim u/s. 54F of the Act which was beyond the scope of limited scrutiny.
2. The CIT(A) has erred in confirming the disallowance of Rs. 66,16,518/- u/s. 54F of the Act by treating the transaction of transfer of land as adventure in nature of trade.
3. The CIT(A) has erred in confirming the disallowance of Rs. 33,84,507/- by treating it as an excessive claim u/s 54F of the Act.”
3. When this appeal was called out for hearing, learned Counsel for the assessee invited our attention to the order dated 30.06.2025, passed by the Division Bench of the Tribunal in assessee’s brother’s case in for assessment year (AY) 2015-16, on identical and similar facts, whereby the issue relating to disallowance of claim u/s.54F of the Act and treating the transaction of transfer of land, as adventure in the nature of trade, has been discussed and adjudicated in favour of the assessee. The assessee under consideration is co-owner/joint owner of property and in assessee’s brother’s case, the addition made by the assessing officer was deleted by the Tribunal. Therefore, in assessee’s case, the addition made by the assessing officer should also be deleted, as the property is same and there is no change in facts and circumstances. The learned Counsel for the assessee submitted that the present appeal is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench.
Learned Departmental Representative for the Revenue (‘Ld. DR’), relied upon the orders of the authorities below.
We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in the case of assessee’s brother Shri Dushyant Bharatbhai Mehta, in vide order dated
Page 2 of 5 30.06.2025 and the assessee under consideration is co-owner/joint owner of the same property. In this order, the Tribunal has inter alia observed as follows:
“11. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld. CIT(A) and other materials brought on record. Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication. The assessee had sold the plot at Mavadi area in piecemeal in two years, viz., A.Y. 2014-15 and 2015-16. The assessee had claimed deduction of Rs. 1,01,04,063/-. Against this, as per the balance sheet, he had made investment of Rs. 1,34,94,760/- (Rs 81,29,500 + Rs 53,65,260). Against this, Rs. 48,75,463/- was already claimed last year against capital gain which arose in that year and thus reduced his capital gain to that extent last year. Therefore, the net investment made was only Rs. 86,19,297/-. Thus, the claim of Rs. 1,01,04,063/- u/s 54F during the year is excessive to the externt of Rs 14,84,766/- (Rs. 1,01,04,063 – Rs. 86,19,297). Therefore, the assessing officer held that the assessee has wrongly worked out the claim of deduction. Therefore, the claim of deduction u/s 54F was fully disallowed in two parts. Out of the total claim of Rs 1,01,04,063/-, Rs. 14,84,766/- was disallowed by the assessing officer as it is anyway not invested and the remaining sum of Rs. 86,19,297/- was disallowed as the assessee is not eligible for deduction u/s. 54F of the Act, as the asset in question is business stock in trade and the same was treated as adventure in the nature of trade.
We note that in the ground No.3, the assessee has challenged the jurisdiction of the Assessing Officer in rejecting the claim of exemption u/s 54F of the Act, while completing the proceedings, under the limited scrutiny assessment. The ground No.3, raised by the assessee, is reproduced below for ready reference: “(3). The Learned CIT(A) has erred in upholding the validity of disallowance of claim under section 54F of the Act, made by the Assessing officer which is beyond the scope of limited scrutiny under CASS.”
We have gone through the assessment order. As it is evident from the recital of the Assessing Officer, on page no. 1 of his order, stating that : “the case was selected for limited scrutiny assessment on the issues of (i) Large deduction u/s 54B, 54C, 54D, 54G, 54A (ii) sale consideration of property in ITR is less than consideration reported in Form 26QB and (iii) substantial increase in capital in a year.” The above issues of the limited scrutiny assessment have also been communicated to the assessee, vide letter of the Assessing Officer, dated 09-01-2017, the deduction claimed by the assessee u/s 54B, 54C, 54D, 54G or 54A of the Act. However, we note that no any such disallowance has been made by the Assessing Officer. Besides, there is no addition on account of sale consideration or increase in capital, in the assessment order. The Assessing Officer has, rather, rejected the assessee`s claim of exemption u/s 54F of the Act. Thus, the Assessing Officer has travelled beyond the scope of his jurisdiction and hence his action is required to be set aside on this ground itself. We note that Assessing Officer could have enlarged the scope of assessment after converting the case from 'limited scrutiny' to 'full scrutiny', after taking necessary administrative approval, however, no such action has been taken by the Assessing Officer. Therefore, the action of the Assessing Officer, being in violation of provisions of the Act, and binding CBDT circulars. In support of the above submissions, the Ld. Counsel for the assessee has relied upon the following judicial
Page 3 of 5 2015-16 Paras Mehta vs. ITO pronouncements wherein it has been held that the assessing officer cannot travel beyond the scope of limited scrutiny issues: (a) Balvinder Kumar v. PCIT [125 Taxmann.com 83 (Del)] (b) Smt. Gurpreet Kaur v. ITO (ITA No: 87/Asr/2016) dated 24.03.2016 (c) Shashi Bhushan Majoor v ITO (ITA No: 1589/Pun/2018) dated 04.04.2019 (d)CBS International Projects P. Ltd v ACIT (ITA No: 144/Del/2019) dated 28.02.2019 (e) Lokesh Sadashiv Shetty v. ITO (FTA No: 741/Pun/2018) dated 20.02.2019. (f) Suresh Jugraj Mutha v. Addl. CIT (ITA No: 05/Pun/2016) dated 04.05.2018 (g) Garen Chandramouli Khammam v. ITO (ITA No: 429/Hyd/2018) dated, 03.04.2019 14. Therefore, we find that if a case is taken for limited scrutiny by the assessing officer, he cannot exceed the jurisdiction beyond the one which he has carved out himself in the notice issued for limited scrutiny. In the present case, the Assessing Officer has travelled beyond his jurisdiction and made addition on the issues which are not part of the reasons for limited scrutiny. Therefore, both the assessing officer as well as Ld. CIT(A) has committed an error in making the addition/disallowance and sustaining the same which requires to be set-aside. Accordingly, the addition made by the assessing officer and sustained by the Ld. CIT(A) is hereby deleted.”
We have heard both the parties and noted that since, the issue is squarely covered in favour of the assessee by the judgment of the ITAT, Rajkot Bench, in the case of assessee’s brother Shri Dushyant Bharatbhai Mehta (supra) and there is no change in facts and law and the Revenue is not able to distinguish the decision of the ITAT Rajkot. Therefore, respectfully following the binding precedent of the jurisdictional Tribunal, in the case of assessee’s brother, Shri Dushyant Bharatbhai Mehta (supra), we allow the appeal of the assessee.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 11/03/2026.