2022 (5) TMI 1008 - AT - Income Tax

Scope of scrutiny selected for limited scrutiny - exercise of jurisdiction by the Ld. AO in expanding the scope of scrutiny - Deduction u/s 54F denied - whether AO has fallen in error in passing the assessment order beyond the scope of scrutiny - as submitted reason for selection of the case of assessee under limited scrutiny was first High increase in Annual Letting Value of House Property and second Large deduction claimed u/s 54B 54C 54D 54G 54GA but the addition was made declining benefit of section 54 - HELD THAT - Appreciating the matter on record it can be observed that the case of assessee was selected for limited scrutiny but the Ld. Assessing officer has not discussed a word about the original reasons for selection of the case under limited scrutiny and straightway proceeded to examine the disallowance on account of exemption claimed as per the provisions u/s 54 of the Act. The ld. AO made a detailed inquiry into the claim and also discussed the plea in alternative of the assessee for allowing the benefit u/s 54F of the Act. Settled proposition of law is that the Assessing officer can widen the scope of scrutiny even when the case was selected for limited scrutiny. However the condition precedent for such widening of the scope is that the Assessing Officer has to seek prior approval of the PCIT. Reliance in this regard can be placed on the judgment of the Co-ordinate Bench 2020 (4) TMI 531 - ITAT DELHI where after referring to various instructions of CBDT. aforesaid proposition of law was upheld. There is irregular exercise of jurisdiction by the Ld. AO in expanding the scope scrutiny. Ld. CIT(A) has fallen in error in dismissing this ground against the assessee by a sweeping observation that there was no prejudice to the assessee and it was a procedural or administrative matter. Consequentially the ground no 1 and 2 of Cross Objection filed by assessee going to the root of jurisdiction of the assessment order are allowed. Even on merits Ld. DR has questioned the findings of Ld CIT(A) of allowing claim of assessee on basis that it failed to consider the detailed enquiry of Ld. AO but the Bench is of considered opinion that the ld. CIT(A) after taking into consideration the entire facts of the case viz. date of purchase date of sale date of investment in capital gain scheme held that the assessee is eligible for claim u/s 54F of the Income Tax Act 1961. Notwithstanding anything the amount once invested in the capital gain scheme cannot be brought to tax in the year of investment itself without considering the utilization within the period allowed under the said scheme. - Decided against revenue.

Summary

Issues:
1. Assessment order passed by the Assessing Officer beyond the scope of limited scrutiny.
2. Allowance of claim under Section 54F of the Income Tax Act, 1961.

Issue 1: Assessment order passed by the Assessing Officer beyond the scope of limited scrutiny

The case involved an appeal by the Revenue against an order dated 17.01.2019 for the assessment year 2015-16 passed by the Ld. Commissioner of Income Tax (Appeals)-19, New Delhi. The Assessing Officer had selected the case for "Limited Scrutiny" due to reasons such as a high increase in Annual Letting Value of House Property and large deductions claimed under various sections. However, the assessment order passed by the Assessing Officer on 24.12.2017 determined the total income of the assessee at Rs. 6,82,31,550, which included disallowances related to long-term capital gains and cost of construction. The Ld. CIT(A) allowed the appeal, stating that the assessee was eligible for the benefit of Section 54F of the Act. In the appeal before the Tribunal, the Revenue raised grounds questioning the order of the Ld. CIT(A) and the addition made by the Assessing Officer. The assessee also filed Cross Objections challenging the assessment order passed by the Assessing Officer under Section 143(3).

Issue 2: Allowance of claim under Section 54F of the Income Tax Act, 1961

The Revenue raised grounds of appeal against the Ld. CIT(A)'s decision to delete the addition made by the Assessing Officer on account of Long Term Capital Gain (LTCG). The Revenue argued that the claim made under Section 54F of the IT Act was not proper and inadmissible. The assessee, in the Cross Objections, contended that the assessment order passed by the Ld. ACIT, Circle 56(1), New Delhi, was liable to be quashed due to jurisdictional issues and exceeding the scope of limited scrutiny. The Tribunal noted that the Assessing Officer had not discussed the original reasons for selecting the case under limited scrutiny but proceeded to examine the disallowance related to exemption claimed under Section 54 of the Act. The Tribunal held that the Assessing Officer can widen the scope of scrutiny with prior approval, and in this case, there was an irregular exercise of jurisdiction. The Ld. CIT(A) was found to have erred in dismissing the grounds against the assessee. On merits, the Tribunal upheld the decision of the Ld. CIT(A) regarding the claim under Section 54F, emphasizing that the amount invested in the capital gain scheme cannot be taxed in the year of investment without considering the utilization within the allowed period.

In conclusion, the Tribunal dismissed the appeal of the Revenue and allowed the Cross Objections filed by the assessee. The decision highlighted the importance of adhering to the scope of scrutiny, obtaining prior approval for widening the scope, and considering the utilization of amounts invested in capital gain schemes for tax purposes.