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 Mr. C. Thangaraj :: 2 ::

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. Mr. C. Thangaraj :: 3 ::

Brief facts of the case are that the assessee is an individual, partner 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:

On verification of the assessment records, it is noticed that the order passed u/s. 143(3) of the Income Tax Act, 1961 appears to be erroneous in so far as it is prejudicial to the interest of the revenue due to the following reasons.

1 You have sold an immovable property during the year relevant to the assessment year 2014-15 for a sale consideration of ₹.3,23,05,500/- to Shri K. Mr. C. Thangaraj :: 4 ::

2 On verification of the records and the order u/s. 143(3) dated 22.12.2016, it is seen that the value of the properties are adopted at ₹.3,23,500/- and ₹.92,38,500/- instead of ₹.6,10,99,200/- and ₹.1,98,00,000/- respectively. You have registered the property and paid stamp duty for ₹.6,10,99,200/- and ₹.1,98,00,000/-. As per the provisions of section 50C(1) of the Income-tax Act, 1961, 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.[ Emphasis given by us]

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. Mr. C. Thangaraj :: 5 ::

After considering the explanation of the assessee, the Ld. PCIT has 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 juri iction under section 263 of the Act against the assessment order passed by the Assessing Officer dated 22.12.2016. 9. 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 Mr. C. Thangaraj :: 6 ::

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 Mr. C. Thangaraj :: 8 ::

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 Mr. C. Thangaraj :: 9 ::

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 Mr. C. Thangaraj :: 10 ::

Whether on the facts and in the circumstance of the case the Income tax Appellate Tribunal was right in holding that invoking of Section 56(2)(vii)(b) of the Income Tax Act 1961 is beyond the purview of the Assessing officer when the reason for limited scrutiny is 'purchase of property' and the same issue is very much related to the purchase of property?

Whether on the facts and in the circumstance of the case the Income Tax Appellate Tribunal was right in concluding that while completing the assessment under limited scrutiny the Assessing Officer cannot look beyond the issue for which the case was selected for scrutiny without noting that the CBDT instruction No.20/2015 has exception clause in 3(d) to convert the same into a complete scrutiny?"

The Hon’ble High Court has answered the above question of law, by holding as under: 15. The substantial question nos.1 and 2 are interconnected namely, the power of the PCIT under Section 263 of Act and whether he could have set aside the assessment on the ground that the assessing officer did not invoke Section 56(2)(vii)b(ii). The reading of the assessment order shows that the case was selected for limited scrutiny only on this aspect regarding the sale consideration paid by the assessee for purchase of the immovable property and the source of funds. The assessing officer has noted that the sale Mr. C. Thangaraj :: 11 ::

The only reason for setting aside the scrutiny assessment was on the ground that the guide line value of the property, at the relevant time, was higher than the sale consideration reflected in the registered document. The question would be as to what is the effect of the guideline value fixed by the State Government. There are long line of decisions of the Hon'ble Supreme Court holding that guideline value is only an indicator and the same is fixed by the State Government for the purposes of calculating stamp duty on a deal of conveyance. Therefore, merely because the guideline was higher than the sale consideration shown in the deed of conveyance, cannot be the sole reason for holding that the assessment is erroneous and prejudicial to the interest of revenue.

The assessing officer in his limited scrutiny, has verified the source of funds, noted the sale consideration paid, the expenses incurred for stamp duty and other charges. Furthermore, the assessee in their reply dated 11.01.2019 to the show cause notice dated 26.10.2018 issued by the PCIT has specifically stated that the assessment was getting time barred, assessing officer took upon himself the role of a valuation officer under Section 50(C)(2) and found that the guideline value was not actual fair market value of the property and the actual consideration paid was the fair market value and therefore, he did not choose to make any addition under Section 50(C) of the Act.

The PCIT, has not dealt with this specific objection, but, would fault the assessing officer for not invoking Section 56(2)(vii)(b)(ii) merely on the ground that the market value was higher. As point out earlier, the guideline value is only an indicator and that will always not represent the fair market value of the property and therefore, the invocation of the power under Section 263 of the Act by the PCIT is not sustainable in law.

In the light of aforesaid decision of the Hon’ble Juri ictional High Court and the relevant facts noted by us supra, we are of the view that the Mr. C. Thangaraj :: 12 ::

In the result, appeal of the assessee is allowed.