2020 (8) TMI 862 - AT - Income Tax

Scope of Limited scrutiny - expansion of the scope of limited scrutiny - unsecured loans from persons who have not filed their return of income - Sales consideration of property in ITR less than sales consideration reported in Form 26QB - applicability of sec 50C - assessee filed the first appeal before the Ld. CIT (A) wherein it was contended that provisions of Section 50C of the Act were not at all applicable as the assessee had not sold any asset being land or building or both but had sold a capital asset in the form of booking rights/right to allotment of flat only - HELD THAT - It is an undisputed fact that the instant case was picked up for Limited Scrutiny on two specific issues as reproduced - It is also an undisputed fact that neither any permission was sought by the AO to expand the scope of limited scrutiny in the instant case nor such permission was ever granted by the Ld. Pr.CIT/CIT in this case to inquire into any other issue during assessment proceedings. AO, while passing the assessment order, has not drawn any adverse inference against the assessee on either of the two issues on which the case was picked up for limited scrutiny under CASS. The assessee had claimed TDS credit u/s 194IA and had declared sales consideration in his ITR. The rate of TDS during this period was 1% under Section 194IA of the Act and the amount of TDS which fully corresponds to the amount as declared by the assessee in his ITR. Thus, it cannot be said that the sales consideration declared in ITR is less than the one reported in FORM 26Q filed by buyer. Even the AO has not disputed this fact in the assessment order. No adverse inference has been drawn by him against the assessee on the issue of unsecured loans. In our considered opinion, the findings of the Ld. CIT (A) on this issue are not correct and there was no valid basis for the AO to inquire into other issues while conducting a limited scrutiny, without taking the mandatory permission from the Ld. Pr.CIT. On these facts, when the CBDT instructions did not permit the AO to travel beyond the issues which are authorised by the Board in this regard under CASS, it is held that the addition made by the AO is beyond his jurisdiction. AO has travelled beyond his jurisdiction when he has invoked the provisions of Section 50C, whereas he only had the jurisdiction to verify as to whether the sales consideration declared by the assesse in his ITR was less than the amount reflected in FORM 26QB. Once he was satisfied on this aspect, he ought not have travelled beyond this without obtaining the mandatory permission from the Ld. Pr.CIT to do so in terms of the above referred CBDT Instructions. The finding of the Ld. CIT (A) on this issue, therefore, cannot be upheld and the assessee s first ground of appeal is allowed. Possession of the flat was not offered by the builder as the project was still under construction as proved from the order of RERA dated 6-10-2017 brought on record by the assessee both before the AO and the Ld. CIT (A). Thus, it is a case of transfer of only the booking rights of a residential flat in an under construction project. As the assessee did not have possession of any immovable property, there was no question of sale of any land or building or both. On these facts, in our considered opinion, the provisions of section 50C are not applicable as the assessee has neither sold any land nor any building or both. Since it has been held by us that the provisions of Section 50C of the Act are not applicable to the transaction of selling booking rights/rights to allotment of a flat, as has been done by the assessee in the instant case, the issue of making reference or not to the DVO becomes academic and is not adjudicated here. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) under limited scrutiny.
2. Applicability of Section 50C of the Income Tax Act to the transaction of sale of booking rights/right to allotment of a flat.
3. Requirement of reference to the District Valuation Officer (DVO) under Section 50C(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) under limited scrutiny:
The case was selected for limited scrutiny based on two reasons: unsecured loans from non-filers of income tax returns and the sales consideration of property reported in the Income Tax Return (ITR) being less than that in Form 26QB. The AO did not make any addition on these issues but instead made an addition of ?2,51,75,501/- under Section 50C and disallowed ?8,36,298/- as the cost of acquisition of another land. The assessee contended that the AO exceeded his jurisdiction by not obtaining the required approval from the Principal Commissioner of Income Tax (Pr. CIT) to expand the scope of limited scrutiny. The Tribunal agreed with the assessee, noting that the AO had no valid basis to inquire into issues beyond the limited scrutiny without mandatory permission from the Pr. CIT. Therefore, the addition made by the AO was beyond his jurisdiction, and the assessee’s first ground of appeal was allowed.

2. Applicability of Section 50C of the Income Tax Act to the transaction of sale of booking rights/right to allotment of a flat:
The assessee argued that Section 50C, which applies to the sale of land or building, was not applicable as the transaction involved only the sale of booking rights to a flat under construction. The Tribunal found that the possession of the flat was not offered by the builder and the project was still under construction, as evidenced by a RERA order dated 6-10-2017. Therefore, the transaction was a transfer of booking rights, not the sale of land or building. Consequently, the Tribunal held that Section 50C was not applicable to the transaction, and the addition made by the AO under this section was invalid.

3. Requirement of reference to the District Valuation Officer (DVO) under Section 50C(2) of the Income Tax Act:
The assessee disputed the AO’s adoption of circle rates for the property, arguing that the AO should have referred the matter to the DVO under Section 50C(2). However, since the Tribunal held that Section 50C was not applicable to the transaction of selling booking rights, the issue of making a reference to the DVO became academic and was not adjudicated.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the AO exceeded his jurisdiction under limited scrutiny and that Section 50C was not applicable to the sale of booking rights to a flat under construction. Consequently, the additions made by the AO were invalid.