SHRI C. THANGARAJ,,TIRUPUR vs. PCIT-3, , COIMBATORE

The appeal filed by the assessee is delayed by 264 days in filing the appeal before the Tribunal. The assessee has filed an application for condoning delay and in support of it, an affidavit has also been filed, which states as under: The original assessment of Sri C. Thangaraj (PAN: ABTPT5217E) for the assessment year 2014-15 was passed on 22.12.2016 by Income Tax Officer 2(1) wherein the sale of agricultural lands stated to be situated beyond 7 kms. from (AY 2014-15 ) Mr. C. Thangaraj Tirupur Municipal Corporation limits was not taxed. The above order was subjected to revision u/s 263 by the Principal Commissioner of Income Tax – 3, Coimbatore for the reason that the guideline value of the agricultural lands were not adopted by the assessing officer and has set aside the assessment order with the direction to redo the assessment as per law considering the facts of the case. The above order of Principal Commissioner of Income Tax dtd. 27.03.2019 was received by the assessee on 30.03.2019. Since in the original assessment, there was no assessment of capital gains on sale of agricultural lands and as the Principal Commissioner of Income tax has directed to redo the assessment as per law, I was under the impression that even if guideline value is adopted as deemed sale consideration the same would be out of tax net, being the agricultural lands situated beyond the limits contemplated u/s 2(14) of the Income Tax Act. I was also under the impression when the guideline value is substituted for the sale consideration, the purchase value also to be substituted by guideline value in which case there would not be any taxable gain but it would result in loss only. Because of the above facts I have not advised for appeal against the order of Principal Commissioner of Income Tax u/s 263. In the assessment order passed on 11.12.2019, the officer has simply taken the guideline value as sale consideration and levied huge tax on short term capital gain, without verifying the distance of agricultural lands and without taking the guideline value towards purchase consideration. I have advised to file appeal against the order of Principal Commissioner of Income Tax u/s 263 though it is delayed.

By referring to the contents of the duly notarized affidavit as well as application for condonation of delay, the Ld. AR has submitted that there was reasonable cause for the delay and the delay in filing the appeal is neither willful nor wanton. It was prayed for condoning the delay. Against the above averments of the assessee, the Ld. DR couldn’t contradict the same. Considering the contents of the application filed and affidavit in support, for condoning the delay, we find reasonable cause, and condone the delay and admit the appeal for adjudication. in firms and prop: of Key Tex Hosieries, filed his return of income on 26.05.2015 admitting an income of ₹.6,40,230/-. The case was selected for limited scrutiny under CASS i.e. in respect of cash-deposit and notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] was issued on 27.07.2016 and thereafter, considering the details furnished by the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Act dated 22.12.2016, making an addition of ₹.4,90,100/- as unexplained cash credit.

Subsequently, the Ld. PCIT, by exercising powers conferred under section 263 of the Act issued notice dated 07.03.2019 to the assessee conveying his desire to interfere with the assessment order passed under section 143(3) of the Act dated 22.12.2016 alleging it to be erroneous as well as prejudicial to the interest of Revenue by pointing out the following:

In response to the notice issued by the Ld. PCIT, the assessee has submitted before him that the Ld. PCIT was wrong to state that original assessment was selected for complete scrutiny and pointed out that the case of the assessee was selected for “limited scrutiny” for verification of the cash deposits (refer page 1 of paper book viz. notice u/s 143(2) of the Act dated 27.07.2016) and that the AO has conducted detailed enquiry about it and pursuant to it, the assessee filed bank statement of all 4 bank accounts, cash flow statement, agricultural land sale-deed and other documents (refer page 2 of paper book) and thereafter, the AO made addition of ₹.4.90 lakh on this score. So far as details of agricultural land sale was concerned, the assessee submitted before Ld PCIT that copies of sale-deeds in question were furnished to the Assessing Officer and also contended that the sale consideration from sale of agricultural land wer exempt from capital gains and therefore, proposed revisional proceedings should be dropped. held that the order passed by the Assessing Officer under section 143(3) of the Act dated 22.12.2016 was erroneous and prejudicial to the interest of the Revenue and accordingly, he set aside the assessment order and gave directions to the Assessing Officer to redo the assessment as per law and also directed the AO to verify the taxability in the hands of buyers under section 56 of the Act after hearing the assessee.

Aggrieved by the aforesaid action of the Ld. PCIT, the assessee is in appeal before us. At the outset, the Ld. AR of the assessee pointed out to us that the Ld. PCIT erred in exercising his jurisdiction under section 263 of the Act against the assessment order passed by the Assessing Officer dated 22.12.2016.

Assailing the action of the Ld. PCIT, the Ld. AR submitted that the return of income of the assessee was selected for scrutiny for “limited purpose” and drew our attention to page No. 1 of the paper book, wherein, it is noted that the issue for which the Assessing Officer issued notice under section 143(2) of the Act dated 27.07.2016 was only for a single issue i.e., cash deposits. Pursuant to which, the assessee filed his reply dated 19.12.2016 regarding cash deposits and the Assessing Officer, after considering the explanation/documents of the assessee, has taken adverse (AY 2014-15 ) Mr. C. Thangaraj view regarding the cash deposited on 13.05.2013 of an amount of ₹.3,00,000/- at Punjab National Bank and an amount of ₹.1,90,100/- on 19.04.2013 at Axis Bank totaling to ₹.4,90,100/-, which were treated as unexplained cash credit by passing assessment order dated 22.12.2016.

The Ld. AR pointed out that the Ld. PCIT has interfered with the ibid assessment order on an issue which was not picked up for limited scrutiny i.e., regarding sale of immovable property for a sale consideration of ₹. 3,23,05,500/- to Shri K. Vasudevan and another property to Smt. V. Karpagam for a sale consideration of ₹.92,38,900/-. On this issue, the Ld. PCIT has noted that the value of the properties were adopted at ₹.3,23,500/- ₹.92,38,500/- ₹.6,10,99,200/- and instead of and ₹.1,98,00,000/- respectively. Further, the Ld. PCIT noted that the assessee has registered the sale of the aforesaid properties and paid stamp duty for ₹.6,10,99,200/- and ₹.1,98,00,000/- respectively. According to the Ld. PCIT, as per the provisions of section 50C(1) of the Act, the guideline value of ₹.6,10,99,200/- and ₹.1,98,00,000/- adopted by the registration department was not considered by the Assessing Officer. Hence, the Ld. PCIT observed that the assessment order passed under section 143(3) of the Act dated 22.12.2016 is erroneous and prejudicial to the interests of the Revenue to the extent of ₹.3,33,97,443/-, which was omitted to be that in any case, the gains, if any, from sale of agricultural land was not taxable since lands in question were beyond seven (7) kilometers from local limits. However, according to Ld AR, the Ld. PCIT without contradicting the relevant facts brought to his notice has erroneously set- aside the assessment order and directed the Assessing Officer to redo the assessment as well as to verify the taxability in the hands of buyers under section 56 of the Act.

According to the Ld. AR, the Assessing Officer’s action for not enquiring and adjudicating the aforesaid issue [sale of immovable properties to both the persons noted supra] was not an issue which was flagged for scrutiny and therefore, the Assessing Officer cannot be faulted for not making enquiring/adjudicating on the issue. And hence the assessment order in question cannot be held to be erroneous as well as prejudicial to the interest of Revenue and cited the decision of the Hon’ble Madras High Court in the case of CIT v. Smt. Padmavathi in TCA No. 350 of 2020 dated 06.10.2020 filed at page 1 to 6 of the paper book, which according to him squarely covers the case in hand.

Per contra, the Ld. DR submitted that even though the return of income of the assessee was selected for limited scrutiny, that doesn’t do complete scrutiny and therefore, the Assessing Officer failed to enquire about this issue which he was supposed to do. Therefore, he supported the action of Ld PCIT and doesn’t want us to interfere with the order of the Ld. PCIT passed under section 263 of the Act.

Having heard both the sides and after perusal of the material available on record, we don’t agree with the contention of the Ld. DR and find substance in the contention of the Ld. AR that Ld PCIT erred in wrongly assuming that assessee’s return was selected for complete scrutiny [refer first paragraph of notice u/s 263 reproduced at para 5 supra] whereas, we note that the return of income of the assessee was selected only for limited scrutiny viz to enquire about the cash deposits made by the assessee, which fact is discernable from perusal of notice issued by AO under section 143(2) of the Act dated 27.07.2016 found placed at page 1 of paper book & first para of assessment order 27.12.2016; and note that the Assessing Officer has carried out detailed enquiry regarding the cash deposits made by the assessee and has made addition to tune of ₹.4,90,100/- as unexplained cash credit and thereafter passed the assessment order dated 22.12.2016. Thus we find that Ld PCIT on wrong assumption of fact that assesse’s return was selected for complete scrutiny agricultural lands in question and proceeded to invoke jurisdiction u/s 263 of the Act. And even though the assessee pointed out to Ld PCIT, that his return was selected for limited scrutiny, and the issue regarding sale of agricultural lands was never a subject matter of scrutiny, and therefore the AO cannot be faulted for not enquiring about it, we note that Ld PCIT didn’t bother to address this crucial fact and passed the impugned order, which action cannot be countenanced.

As noted, the Ld. PCIT has flagged the impugned issue regarding sale of two (2) immovable agricultural properties by finding that the Assessing Officer didn’t enquire about the same, which omission on the part of AO has resulted in assessment order being erroneous and prejudicial to the interests of the Revenue. We do not agree with Ld PCIT for the simple reason that the AO was bound by law to enquire about the issue for which he was directed by CASS to enquire i.e, cash deposits. And the AO has carried out such an exercise as noted supra. Therefore, the action of the AO cannot be faulted. And it is not the case of Ld PCIT that there is any nexus between the cash deposits and the sale of two (2) immovable agricultural properties flagged by him in the impugned order. In such an event, the action of AO not to enquire about the sale consideration assessment order framed by AO cannot be held to be erroneous as well as prejudicial to revenue. The Ld. AR drew our attention to a similar case, which was decided by the Hon’ble Madras High Court in the case of CIT v.