2023 (3) TMI 1048 - AT - Income Tax

Unexplained investment made in immovable property - Addition u/s 69 - addition on the basis of acquisition of the property - case was selected for limited scrutiny for the reason large cash deposits in saving bank accounts and the assessee had also transferred one or more properties during the year - Whether transfer of property would include the purchase of property as well? - HELD THAT - Acquisition of capital assets would not fall under this definition as it is the case of acquisition of capital asset but not of a sale of capital asset. The assessee should have pre-existing rights into the capital asset which he intends to transfer in favour of a third party. Hence, the pre-existing rights, interests and the title is sine qua non for transferring. In this case, vendor of capital asset is a third party and the assessee is a vendee. In our considered view, there were two options available with the AO; either he could have rectified the mistake so occurred u/s 154 of the Act or replacing the word acquire in place of transfer , in the reasons for limited scrutiny, if it was a typographical error and if it was not so, then he would have sought the approval from the Competent Authority for examining this aspect. The AO failed to do so. Now, at this stage when the facts are undisputed that the case was taken up for limited scrutiny for the reasons stated to be cash deposits in the bank account and transfer of immovable property. We find merit in the contention of assessee that the Assessing Authority exceeded its jurisdiction for making assessment in respect of acquisition of the property by the assessee during the year. Thus, the AO is directed to delete the impugned addition.Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Addition of INR 28,86,600/- in respect of alleged unexplained investment made in immovable property by applying the provision of section 69.
2. Jurisdictional validity of the Assessing Officer's (AO) action in scrutinizing the acquisition of property.

Summary:

Issue 1: Addition of INR 28,86,600/- under Section 69

The assessee filed an original return of income declaring INR 6,37,410/-. The case was selected for limited scrutiny due to large cash deposits and transfer of properties. The AO assessed the income at INR 51,25,510/-, adding unexplained cash deposit of INR 10,10,500/- and unexplained investment in immovable property under Section 69 of the Income Tax Act, 1961 at INR 34,77,600/-. The Ld. CIT(A) upheld the addition under Section 69 but deleted the addition related to bank deposits. The assessee appealed against the sustaining of the addition of INR 34,77,600/-.

Issue 2: Jurisdictional validity of AO's action

The assessee contended that the scrutiny was limited to the transfer of property, not its acquisition, and thus the AO exceeded his jurisdiction. The Ld. JCIT DR argued that "transfer of property" includes "purchase of property." The Tribunal noted that the term "transfer" as defined under Section 2(47) of the Act does not include the acquisition of capital assets. The Tribunal found merit in the assessee's contention that the AO exceeded his jurisdiction by scrutinizing the acquisition of property without prior approval from the Competent Authority. The Tribunal directed the AO to delete the impugned addition, allowing the appeal filed by the assessee.

Conclusion:

The Tribunal allowed the appeal, directing the deletion of the addition made under Section 69, concluding that the AO exceeded his jurisdiction by scrutinizing the acquisition of property without necessary approval.