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2020 (4) TMI 531 - AT - Income TaxScope of limited scrutiny - Addition u/s 43CA - selection of the case for limited scrutiny under CASS were Real Estate business with high closing stock (verify whether assessee has adopted percentage completion method) - HELD THAT - Assessing Officer can widen the scope of scrutiny even the case is selected for limited scrutiny under CASS, however, the condition precedent for such widening of the scope is that the Assessing Officer has to seek prior approval of the authorities mentioned. Such prior approval and the permission of the PCIT is lacking in the instant case. There was no satisfaction about the merits of the issue which necessitated complete scrutiny in the instant case. Hence, the assessment framed by the assessee on the issues which are not inconsonance of the instruction of CBDT are liable to be quashed. The addition u/s 43CA, since beyond the scope of the limited scrutiny is hereby ordered to be deleted. - Decided in favour of assessee.
Issues Involved:
1. Examination of issue under Section 43CA and consequential addition. 2. Applicability of Section 43CA. 3. Adoption of stamp duty circle rate without reference to the DVO. 4. Compliance with CBDT instructions for limited scrutiny cases. Detailed Analysis: 1. Examination of Issue under Section 43CA and Consequential Addition: The assessee contested the examination of the issue under Section 43CA and the consequential addition of ?9,08,59,835/-, arguing it was beyond the scope of the limited scrutiny proceedings. The limited scrutiny was initially selected for verifying whether the assessee adopted the percentage completion method in its real estate business with high closing stock. The Assessing Officer (AO) expanded the scope to include the sale of plots, leading to the contested addition. 2. Applicability of Section 43CA: The assessee argued that Section 43CA was not applicable as the agreements to sell the plots were executed before the provision came into existence. The AO, however, made additions based on the difference between the sale consideration received and the stamp duty value, deeming the latter as the sale value under Section 43CA. 3. Adoption of Stamp Duty Circle Rate without Reference to the DVO: The AO adopted the stamp duty circle rate as the deemed sale value without referring the matter to the District Valuation Officer (DVO) as required under Section 43CA(2) read with Section 50C(2)/(3). The assessee contended that this procedural lapse rendered the addition unsustainable. 4. Compliance with CBDT Instructions for Limited Scrutiny Cases: The assessee objected to the AO's failure to follow the Central Board of Direct Taxes (CBDT) instructions, which mandate obtaining prior approval for converting a limited scrutiny case into a complete scrutiny case. The CIT (A) dismissed this objection, stating that the instructions were administrative and not legally binding on the assessee. Tribunal's Findings: The Tribunal examined the CBDT instructions (Instruction Nos. 20/2015 and 5/2016) which outline the procedures for handling limited scrutiny cases. These instructions stipulate that the AO must confine their enquiry to the specific issues for which the case was selected for scrutiny unless there is potential escapement of income exceeding a specified threshold, in which case prior written approval from the Principal Commissioner of Income Tax (PCIT) is required. The Tribunal noted that: - The AO did not obtain the necessary approval from the PCIT for widening the scope of scrutiny. - There was no satisfaction recorded about the merits of the issue necessitating complete scrutiny. - The assessment order disregarded the CBDT instructions, which is a procedural irregularity. Reliance on Precedents: The Tribunal relied on the Co-ordinate Bench of ITAT in the case of CBS International Projects Pvt. Ltd. Vs ACIT and the Hon'ble Jurisdictional High Court in the case of Best Plastics Pvt. Ltd., where it was held that assessments disregarding CBDT instructions are liable to be set aside. The Tribunal also referenced the Hon'ble Supreme Court decisions in Commissioner of Customs Vs Indian Oil Corporation and UCO Bank Vs CIT, which support the principle that procedural lapses render such assessments invalid. Conclusion: The Tribunal concluded that the AO's actions in expanding the scope of scrutiny without proper authorization were beyond jurisdiction. Consequently, the addition under Section 43CA was ordered to be deleted. The appeal of the assessee was allowed, and the assessment framed by the AO on issues beyond the scope of limited scrutiny was quashed. Order Pronounced: The judgment was pronounced in the Open Court on 07/02/2020.
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