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Income Tax Appellate Tribunal, [DELHI BENCH “E”: NEW DELHI]
Before: SHRI KULDIP SINGH & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is filed by the assessee against the order passed by principal Commissioner of income tax, Rohtak { ld PCIT ] u/s 263 of the income tax act, 1961 dated 13 February 2018 wherein he has held that the assessment order passed u/s 143 (3) of the act dated 31 December 2015 passed by the learned assessing officer accepting the returned income of the assessee is erroneous and prejudicial to the interest of the revenue.
2. The assessee has raised the following grounds of appeal:-
1. That on the facts and in the circumstances of the case, the order passed by the learned Principal Commissioner of Income Tax, Rohtak, u/s 263 of the Income Tax Act, 1961, setting aside the ordi passed u/s 143(3) by learned Asstt. Commissioner of Income Tax, Sonepat Circle, Sonepat, treated the same as erroneous and prejudicial to the interest of Revenue, is bad in law and the order s passed needs to be quashed. Page | 1
That the learned Principal Commissioner of Income Tax, Rohtak, has relied on erroneous, irrelevant and extraneous considerations in setting aside the order passed by learned Asstt. Commissioner of Income Tax, Sonepat Circle, Sonepat u/s 143(3) to be framed afresh.
3. That on the facts and circumstances of the case and in law, the learned Principal Commissioner of Income Tax, Rohtak, erred in exercising jurisdiction u/s 263 by setting aside the aforesaid issue i. large cash deposits in saving bank accounts even though the same had been discussed ar scrutinized by the learned Asstt. Commissioner of Income Tax, Sonepat Circle, Sonepat in limited scrutiny in detail while framing the assessment u/s 143(3). As this assessment was limited one, all the facts were examined by the learned Asstt. Commissioner of Income Tax, Sonepat Circle, Sonepat even than the learned Principal Commissioner of Income Tax, Rohtak holding the order of learned Asstt. Commissioner of Income Tax, Sonepat Circle, Sonepat as erroneous and prejudicial of interest on revenue that also questioning the other discussed & accepted issues which were not basis of the limited scrutiny assessment u/s 143(3). 4. That the appellant craves right to add, amend and /or delete any or all the grounds of appeal either before or at the time of hearing. “
Brief facts of the case shows that assessee is an individual who filed his return of income declaring taxable income of Rs 1 34,64,660/– on 3/6/2014. The case of the assessee was selected for limited scrutiny for verification of large cash deposit in saving Bank accounts. Notice u/s 143 (2) was issued on 28/8/2015.
The learned assessing officer passed an order u/s 143 (3) of the act on 31 December 2015 noting that assessee is an agriculturist. The assessee has submitted the details of cash deposits along with its documentary evidences. Therefore keeping in view the reply and information submitted by the assessee the returned income of Rs 1, 34,64,660 was accepted. 5. On perusal of the record the learned CIT – A found that the assessing officer had completed the assessment without carrying out necessary and proper enquiry, which he ought to have carried out. Therefore the order passed u/s 143 (3) of the act appeared to be erroneous and thus was prejudicial to the interest of revenue. Accordingly the notice u/s 263 was issued on 25/1/2017 for following reasons:- i. The statement recorded on oath of the assessee on 31 December 2015 it was stated that the capital gain was considered in the financial year 2012 – 13. This fact was not verified by the learned assessing officer Page | 2 from the concerned by and further this plea could not have been accepted, as assessee did not disclose income from capital gain in the original return of income filed on 30/6/2013. Assessee disclosed this income in the revised return filed on 3/6/2014. Thus, it was covering the lapse on part of the assessee. ii. The reason for selection of the scrutiny of the case was large cash deposit in savings bank account. On 31 December 2015 assessee, deposited ₹ 4,925,000 and source were stated to be explained in reply dated 28/12/2015. From that reply, it was found that only ₹ 17 lakhs was stated to be withdrawn from your account with the central bank of India and Canara Bank and ₹ 32 lakhs was stated to be received from sale of agricultural land apart from opening balance of ₹ 6 lakhs. Thus the document furnished by the assessee regarding agricultural sale of land was of 15/file/2012 which was the source of ₹ 1,641,000 stated to be received on 10th/12/4/2012 remains unexplained. Moreover, the source of opening cash balance was not explained. iii. The indexed cost in relation to financial year 88/89 and the land was stated to be parental one. The acquisition of land and basis of valuation for working out the capital gain requires to be verified iv. Deduction u/s 54B amounting to Rs. 161,56,190 has been erroneously claimed and allowed v. There was mismatch in the interest received from the Punjab National Bank and from central bank of India with respect to the tax deduction at source made by those banks. vi. The major part of capital gain of Rs 267,31,870/– pertains to the assessment year 2012 – 13 and therefore the medical action is warranted.
Assessee replied to the above notice as Under:- i. there is no lapse in showing the income for assessment year 2012 and 13 and no afterthought is shown in assessment year 2013 – 14 because basically the sale of some agricultural land was sold in assessment year 2012 – 13 but given the possession in assessment year 2013 – 14. The revision of the return of income is also in time the revision of the return has arisen in because of the sale of parental agricultural land of ₹ 30,317,000. ii. A cash of ₹ 4,924,000 was deposited in the savings bank account during the assessment year 2013 – 14. This amount was deposited from withdrawal from the banks and the sale proceeds of the parental agricultural land. The opening balance of ₹ 578,750 is part of the sale proceeds of parental agricultural land and other income. iii. The index value of the property sold has been taken for financial year 98 – 99 in view of 1981 – 1988 to due to know collector at rate is available for that year for calculation of capital gains iv. with respect to the claim u/s 54B amounting to Rs 161,56,190, assessee sold the parental agricultural land for ₹ 30,317,000 in which agricultural loan was partly sold in assessment year 2012 – 13 but given the possession in assessment year 2013 – 14. On 25/7/2013 assessee has purchased the land through agreement for one month due to health problems and purchase the agricultural land of ₹ 7,899,065/– and ₹ 8,257,125/– on 20/8/2013 which was registered on 4/9/2013. v. Interest income of ₹ 2,898,975 received from the banks is declared in the income tax return. vi. All the matters have been explained to the assessing officer during the course of assessment proceedings and they were duly enquired. The assessee also submitted the various correspondences as well as other information.
Thus, assessee submitted that there is no error in the order of the learned assessing officer.
The learned PCIT rejected the contention of the assessee and held that the order passed by the learned assessing officer is erroneous and prejudicial to the interest of revenue on 5 different accounts. i. Land sold in assessment year 2012 – 13 pertains to assessment year 12 – 13 irrespective of the date of possession given. The details of the buyer has not been furnished and therefore the issue needs further verification to know the exact year of taxability of capital gain
ii. With respect to the cash deposit of ₹ 4,925,000 except the submission, no documentary evidence whatsoever has been submitted by the assessee to substantiate his claim. iii. With respect to the year of indexed cost, to know the correct cost of acquisition and year of acquisition, the issue needs further examination as the assessee is mentioning different years for it at various stages. It was noted that financial year 88 – 89 in computation of income and financial year 98-99 during remand proceedings were stated iv. Deduction u/s 54B, it was noted that the nature of land sold a residential one and it were sold in March 2011 – 12. The assessee purchased agricultural land in the month of August/September 2013 only. Apparently deduction u/s 5 4B is not allowable v. With respect to the mismatch between deduction of tax at source and bank interest income, it was stated that tax deduction at source on approximate interest of ₹ 22 lakhs was not deducted by banks therefore, it needs verification.
Accordingly, the order u/s 263 of the income tax act was passed holding that the order passed by the learned assessing officer is erroneous and prejudicial to the interest of revenue. The assessing officer was directed to make fresh assessment after making proper enquiry/investigation in the light of discussion made in the order.
The assessee is in appeal before us. The main contention of the assessee are :- i. The power u/s 263 was assumed to authorize enquiry on the issue for which the AO was not empowered for passing the order under revision. The learned authorised representative submitted that the scrutiny of the case of the assessee was picked up for the limited scrutiny for verification of the large cash deposit. Therefore accept the above issue, no powers were available to the assessing officer, and therefore he could not have examined the same. It was further stated that the learned principal Commissioner of income tax is not entitled to expand the scope of enquiry beyond the limitation on the AO at the time of passing of the order under revision. He supported the above argument with several judicial precedents. He also referred to the central board of direct taxes in instruction number 7/2014 dated 26/9/2014 as well as the board circular F.number.225/26/2006 – ITA dated 8/9/2010. ii. With respect to the cash deposit, he submitted that assessee has submitted a letter dated 28/12/2015 along with the copies of the bank statement, a cash flow statement, and the copies of the registered sale agreements, which clearly explain the source of cash deposit in the bank account of the assessee. The statement u/s 131 was also recorded wherein the assessee explained the source of cash deposit. The learned assessing officer accepted the same after due application of mind. iii. The land sold is an agricultural land and the payment by and large was received in cash even in assessment order passed u/s 263 on 6/12/2018 u/s 143 (3) of the act PS learned assessing officer has accepted the explanation of the appellant regarding the source of cash deposit. In view of the consequential, order the finding of the learned principal Commissioner of income tax holding that the order is erroneous and prejudicial to the interest of revenue does not survive. iv. Even after the insertion of explanation 2 to Section 263, it was incumbent on revisionary authority to conduct necessary enquiry to prove that the order under revision was erroneous and prejudicial to the interest of revenue. He submitted that no enquiry was carried out by the adjudicating authority. He relied upon the decision of the coordinate bench in case of 70 taxmann.com 227 to hold that said explanation cannot be said to have over ridden the duty of the revisional authority. v. The insertion of explanation 2 to Section 263 of the act was prospective in nature and therefore would not apply in assessment years prior to assessment year 2015 – 16. He submitted that the present assessment year is 2013 – 14. He relied upon the several judicial precedents of the coordinate benches.
vi. He also referred to his paper book. He referred to the copy of reasons for selection of the case of the assessee under the limited scrutiny. He also referred to the copy of note [order sheet] proceedings before the learned assessing officer as well as the copy of the statement of the assessee-recorded u/s 131 of the income tax act. He further referred to the copy of reply dated 6/10/2015 filed with the learned assessing officer in the original assessment proceedings. He also referred to the reply dated 26/12/2015 before the assessing officer. He also took us through the copy of the bank statement for assessment year 2013 – 14 and the copy of the cash account, which are also placed in the paper book. He also submitted the copies of the sale deed in support of the cash deposits placed at page number 23 – 80 of the paper book. In view of this he submitted that the case was selected for the limited scrutiny of the large cash deposit in the bank account which is been explained to the assessing officer in detail.
Thus, he submitted that the order of the learned principal Commissioner of income tax is not sustainable in law.
The learned CIT DR vehemently supported the order of the learned principal Commissioner of income tax and submitted that the assessing officer has passed the very cryptic order accepting the returned income of the assessee. Therefore, it was stated that the failure of the learned assessing officer to make the necessary enquiry makes the order of the learned assessing officer erroneous and prejudicial to the interest of revenue. 13. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case, the case of the assessee was selected for scrutiny on the limited scrutiny basis. The reasons recorded for the selection of the case is “verification of large cash deposits in the savings bank accounts”. Thus during the course of assessment proceedings the learned assessing officer was not required to enquire on any other issue except the reason for which the case of the assessee was selected/picked up for limited scrutiny. For this purpose, the assessee has submitted a letter dated 26/12/2015 before the learned assessing officer. We find that the learned assessing officer pursuant to the order passed u/s 263 of the income tax act by the learned principal Commissioner of income tax has passed the order u/s 143 (3) of the act wherein on the issue of cash deposit no addition is made. This order is placed at page number 96 of the paper book. The para number two of that assessment order clearly shows that there was no discrepancy in the cash deposited by the assessee in his savings bank account. Thus the issue of the limited scrutiny for which the original return of the assessee was picked up was even in assessment proceedings pursuant to the order u/s 263 of the income tax act no addition was made. Thus, it shows that the original assessment order did not have any infirmity or error to the extent of cash deposited in the bank account. Thus, the issue of the large cash deposited in the bank account of the assessee has been properly explained by the assessee and hence on this issue the order of the learned CIT – A whether sustained or, as does not have any impact now because of the reason that even in the set-aside proceedings no addition has been made.
Now we come to the other issues of the order passed u/s 263 of the act. The moot question that arises when the case of the assessee is selected for limited scrutiny whether the assessing officer has a power to scrutinize any other aspects of the return of income filed by the assessee without converting the limited scrutiny case into the complete scrutiny after obtaining proper approval of the approving authority.
Office memorandum [F. NO. 279/MISC/52/2014-(ITJ)] dated 7/11/2014 clearly provides that:- “Instruction No. 7 of 2014 dated 26-9-2014 clarifies that ordinarily in scrutiny cases selected on the basis of AIR/CIB/26AS information, the scrutiny shall be limited to that information. Wider scrutiny would be possible only with the sanction of Principal Commissioner of Income-tax/ Commissioner of Income-tax in specified cases and under the monitoring of the Range Head. (Such cases form 25-30% of the total scrutiny basket, thus limiting the cases of full scrutiny).
Thus it is a natural corollary that the learned assessing officer will only enquire the issues which are recorded for the selection of the case of the assessee Under the limited scrutiny. If the assessing officer is required to look into only those issues, naturally the learned principal Commissioner of income tax cannot say that the assessing officer has failed to enquire on any other issues. We are also conscious of the fact that if the learned assessing officer requires to examine, other issues other than issues for which limited scrutiny selection of the case of the assessee is made, he needs to take the necessary approval. Therefore necessarily the revisionary authority cannot say that the learned assessing officer has failed to look into the issue, which he is not authorised to look into, and thus the order of the learned assessing officer is erroneous and prejudicial to the interest of revenue.
The facts clearly show that the case of the assessee was not converted into complete scrutiny. Therefore, the learned assessing officer was duty-bound to carry on enquiry only with respect to the large cash deposit in the savings bank account of the assessee. He could not have even otherwise looked into other aspects of the revisionary issues raised by the learned principal Commissioner of income tax such as computation of long-term, deduction u/s 54B as well as the interest on bank account of the assessee. Admittedly, none of these issues have any relation with the cash deposits in the bank account of the assessee. Therefore, the assessing officer could not have enquired on those aspects. In view of this, we are of the opinion that in case of a limited scrutiny case only revisionary powers could have been exercised u/s 263 of the income tax act with respect to such limited scrutiny reasons for which the return of income of the assessee is picked up. Assessee has relied upon for of judicial precedents on this issue, which are not necessary to be referred to, in view of the specific office memorandum, CBDT instruction number 7/2014 dated 26/9/2014, and circular number 225/26/2006- ITA- II(pt) dated 8/9/2010.
In view of above facts, we do not find any reason to uphold the order passed by the learned principal Commissioner of income tax u/s 263 of the act. Accordingly, it is quashed.
Thus, appeal of the assessee is allowed. Order pronounced in the open court on : 23/11/2021.