SHRI DILRAJ SINGH DHALIWAL,CHANDIGARH vs. PR.CIT-1, CHANDIGARH

Briefly the facts of the case are that the assessee filed his return of income declaring total income of Rs. 22,51,260/- which was selected for limited scrutiny and after issuing notices under section 143(2) and 142(1) calling for necessary information/documentation, the assessment was completed by the Assessing officer under section 143(3) vide order dt. 14/09/2017 accepting the returned income. Subsequently, the assessment records were called for and examined by the Ld. Pr. CIT and a show cause was issued to the assessee and thereafter, after taking into consideration the submissions filed by the assessee but not found the same acceptable, the assessment order passed by the AO was held

It was submitted by the Ld AR that in the show cause notice, the Ld. Pr. CIT has raised the two issues regarding cash amounting to Rs. 92,00,000/- received from M/s Gilco Exports Limited and secondly, regarding receipt of cash of Rs. 82,00,000/- for sale of land in village Bardar. It was submitted that the case of the assessee was selected for limited scrutiny and one of the issues relates to cash deposits made by the assessee. It was submitted that during the course of assessment proceedings, notices and detailed questionnaire were issued by the AO from time to time vide notices dt. 19/09/2016, 19/01/2017, 05/09/2017 and also through various order sheet entries and in response, the assessee filed written submission vide letter dt. 25/07/2017, 28/08/2017, 05/09/2017 and 14/09/2017 and thereafter after carrying out detailed enquiry/verification, the assessment order was passed by the AO accepting the returned income.

Per contra, the Ld. CIT DR vehemently argued the matter and supported the findings of the Ld. Pr. CIT. Regarding receipt of advance against sale of land of Rs. 92,00,000/- from M/s Gilco Exports Limited, it was submitted that the AO accepted the contention of the assessee merely basis copy of a ledger account which is unsigned, unstamped account on a plain paper and not even on letter head. Further, no sale deed or sale agreement was called for by the AO and it was accordingly submitted that the Ld. Pr.CIT has rightly held that receipt of Rs. 92,00,000/- in cash claimed to be on account of sale of land remained unverified even though the cash deposits was one of the issue for which the matter was selected for limited scrutiny.

We have heard the rival contentions and purused the material available on record. We find that the case of the assessee was selected for limited scrutiny for examining sales turnover mismatch, cash deposits and purchase of property. Therefore, as far as the issues on which the jurisdiction u/s 263 has been invoked by the ld PCIT which relates to cash deposits and purchase of property, the same is within the scope of limited scrutiny and it is therefore not a case where the ld PCIT has expanded the scope of limited scrutiny by invoking his powers u/s 263 of the Act.

Having said that, what needs to be examined is whether the ld PCIT is right in holding the assessment order so passed as erroneous in so far as prejudicial to the interest of the Revenue. The first transaction which has been identified by the ld PCIT relates to receipt of Rs. 92,00,000/- from M/s Gilco Exports Limited. It has been submitted by the assessee during the assessment proceedings that the said amount was received as advance against sale of agricultural land from M/s Gilco Exports Limited and in support, copy of ledger account of the assessee in the books of M/s Gilco Exports Limited has been submitted. Thereafter, the AO has asked the assessee to file confirmation from M/s Gilco Exports Limited which has thereafter been obtained and filed by the assessee along with copy of ITR before the Assessing officer and basis thereof, no adverse finding has been recorded by the AO and the cash deposit of Rs 92,00,000/- has been accepted by the AO. As per the ld PCIT, the AO accepted the contention of the assessee

In our view, once the cash deposits was one of the issue for which the matter was selected for limited scrutiny, the AO is expected to verify the nature and source of such cash deposits and call for the explanation from the assessee along with appropriate documentation to prove the identity, genuineness of the transaction and credit worthiness of the said company. The identity of the person from whom the amount has been received is only one of the requirements but the same is not sufficient enough to explain the nature and source of such deposits. The nature of the transaction as so claimed in the instant case as that of sale of land is not demonstrated in the instant case as to whether the assessee is the owner of the land at the relevant point in time when the advance has been claimed to be received and secondly, before advancing the money to the assessee, what was the mutual understanding between the parties in terms of any agreement to sell laying down the terms and conditions and ultimate transfer/sale of land. Similarly, merely submitting a copy of ITR for A.Y 2015-16 showing NIL income is clearly not demonstrative of creditworthiness of the said company. Therefore, we find that it is a clear case of lack of enquiry by the AO where the AO has failed to make necessary enquiry and verification and to this extent, the order so passed have been rightly held by the ld PCIT to be erroneous in so far as prejudicial to the interest of the Revenue.

The second transaction which has been identified by the ld PCIT relates to receipt of cash of Rs. 82,00,000/- for sale of land at Village Bardar. Admittedly, the receipt of cash of Rs. 82,00,000/- is part of total consideration of Rs. 2,00,00,000/- for the sale of land at Village Bardar which has been sold by the

A related and connected issue that has been raised by the ld PCIT is the taxability of the sale consideration including the cash consideration towards the sale of land. As per ld PCIT, the nature of land sold as per sale deed was “Gair Mumkin Pahad” and not an agriculture land and the same qualify as an capital asset liable for capital gains taxation which the AO fails to verify including assessee’s eligibility for exemption u/s 54F of the Act. In this regard, it was submitted by the ld AR that during the course of assessment proceedings, this matter was raised by the AO and in response, the assessee vide submission dated 14.09.2017 submitted that “had the asset not been considered as rural agricultural land but a capital asset, the assessee would be entitled to capital gains exemption u/s 54F of the Income Tax Act 1961 as the whole proceeds had been utilized for purchase of residential house within a stipulated period even before the due date for filing the ITR for A.Y 2015-16. Moreover, the assessee doesn’t own any house on the date of transfer of the original asset (i.e, rural agricultural land). Copy of sale deed had already been submitted vide our earlier reply dated 5.09.2017 to substantiate the facts stated above.”

We therefore agree with the contention of the ld AR that the matter relating to nature of land sold by the assessee and its taxability and assessee’s eligibility u/s 54F was examined by the AO and thereafter, no adverse finding has been recorded by him. Where the matter has been examined by the AO, it is a settled legal proposition that the ld PCIT has to record specific finding as to how he is of the opinion that the order so passed is erroneous and prejudicial to the interest of the Revenue and in the instant case, how the assessee’s claim u/s 54F is not sustainable under law. We find that there is no discussion or finding by the ld PCIT as to how the assessee is not eligible for claim of exemption u/s 54F. During the course of hearing as well, nothing has been brought to our notice as to how the assessee is not eligible for claim of exemption u/s 54F of the Act. In the facts of the present case where the assessee has demonstrated that the matter was raised by the AO and discussed during the course of assessment proceedings and written submissions were filed which are part of the assessment records, we find that merely holding that the AO has failed to verify is not sufficient to hold the order so passed as erroneous and prejudicial to the interest of the Revenue and to this extent, the findings of the ld PCIT are hereby set- aside.

In light of aforesaid discussions and in the entirety of facts and circumstances of the case, we hereby modify the directions of the ld PCIT and the order of the AO is set-aside to verify the nature and source of cash deposit of Rs 92 lacs taking into consideration the aforesaid discussion and decide as per law after providing reasonable opportunity to the assessee.