2019 (5) TMI 1547 - AT - Income Tax

Revision u/s 263 by Pr. CIT - power of AO in limited scrutiny - unexplained cash payment over and above the agreement value of the properties - HELD THAT - We observe from the notice issued u/s 143(2) for limited scrutiny dated 19.09.2016 and find merits in the contentions of the assessee that the said limited scrutiny can not be expanded unless the AO converted it into complete scrutiny with the approval of Ld. Pr. CIT and if the AO after considering the submissions of the assessee does not come to the conclusion of potential escapement the Ld. Pr. CIT can not hold the order to be erroneous on the ground that AO ought to have reached to such conclusion. As perused the letter dated 09.11.2016 addressed by the DDIT (Inv.), Mumbai to ITO-29(3)(4), Mumbai wherein the details of on money in the case of Runwal Green (shops) were given and we find that on money was determined by taking the rate @ ₹ 26,000/- per sqr. ft. while agreements were for lower amounts. However, in the case of the assessee we observe that the agreement value was executed @ ₹ 26,000/- per sqr. ft. Thus we find merits in the contention of the assessee that there is no question of on money as the agreement value was even higher than the maximum rate which was taken by the DDIT (Inv.), Mumbai to ascertain the amount of on money received by the builder. Moreover, the case of M/s. Runwal Homes Pvt. Ltd. vs. DCIT 2017 (12) TMI 1216 - ITAT MUMBAI A.Y. 2015-16 the issue of on money has been decided in favour of the M/s. Runwal Homes Pvt. Ltd. by deleting the addition on account of on money. In view of the aforesaid facts, we are of the view that the revisionary order passed by the Ld. Pr. CIT(A) is without jurisdiction and has to be quashed on legal issue as well as on merit. - Decided in favour of assessee.

Issues Involved:
1. Exercise of revisionary jurisdiction under section 263 of the Income Tax Act.
2. Examination of on-money transactions and cash payments.
3. Validity of limited scrutiny and its expansion to complete scrutiny.
4. Adherence to CBDT instructions regarding limited scrutiny.
5. Examination of the merits of the case and the agreement value.

Issue-wise Detailed Analysis:

1. Exercise of Revisionary Jurisdiction under Section 263 of the Income Tax Act:
The primary issue raised by the assessee was against the Principal Commissioner of Income Tax (Pr. CIT) exercising revisionary jurisdiction under section 263 of the Income Tax Act. The Pr. CIT set aside the assessment order and directed the Assessing Officer (AO) to frame the assessment afresh after making necessary enquiries and verification of the issues. The assessee argued that the AO had already conducted a thorough examination during the original assessment proceedings and that the Pr. CIT’s exercise of revisionary jurisdiction was unwarranted and should be quashed.

2. Examination of On-Money Transactions and Cash Payments:
The case involved the alleged payment of on-money transactions between the assessee and M/s. Runwal Homes Pvt. Ltd. The AO received information from DDIT (Inv.), Mumbai, indicating that the assessee had paid an on-money amount of ?1,14,06,000/- during the financial year 2014-15 for the purchase of two shops. The Pr. CIT observed that the AO failed to make necessary enquiries regarding the cash payment and its source, thus considering the assessment order to be erroneous and prejudicial to the interest of the revenue.

3. Validity of Limited Scrutiny and its Expansion to Complete Scrutiny:
The assessee contended that the case was selected for limited scrutiny under section 143(2) of the Act, specifically to examine the transaction of property purchase. The AO issued a notice under section 143(2) dated 19.09.2016, and the transaction was thoroughly examined without any addition. The assessee argued that the scope of limited scrutiny could only be expanded if the AO noticed a potential escapement of income exceeding ?10 lakhs and obtained approval from the Pr. CIT. Since the AO did not convert the limited scrutiny into complete scrutiny, the Pr. CIT’s revisionary jurisdiction under section 263 was beyond the scope and not justified.

4. Adherence to CBDT Instructions Regarding Limited Scrutiny:
The assessee emphasized that as per CBDT instructions, the scope of limited scrutiny could only be extended with proper approval. The AO did not find any potential escapement of income and thus did not convert the limited scrutiny into complete scrutiny. The Pr. CIT’s action to revise the assessment order on grounds not part of the limited scrutiny was argued to be beyond the jurisdiction under section 263.

5. Examination of the Merits of the Case and the Agreement Value:
On the merits, the assessee argued that the agreement for the purchase of the shops was executed at ?26,000/- per sq. ft., which was the rate considered by DDIT (Inv.), Mumbai, for determining on-money. Therefore, there was no scope for any on-money addition. The assessee further cited a coordinate bench decision in the case of M/s. Runwal Homes Pvt. Ltd., where the addition of on-money was deleted, supporting the argument that the assessment order was neither erroneous nor prejudicial to the revenue.

Conclusion:
After hearing both parties and perusing the materials, the tribunal found merit in the assessee's contentions. It was observed that the limited scrutiny could not be expanded without proper approval, and the Pr. CIT could not hold the assessment order erroneous on grounds not part of the limited scrutiny. The tribunal also noted that the agreement value was higher than the rate used to determine on-money, and the coordinate bench had already decided in favor of M/s. Runwal Homes Pvt. Ltd. on similar grounds. Thus, the revisionary order passed by the Pr. CIT was quashed both on legal grounds and on merits, and the appeal of the assessee was allowed.

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