2025 (1) TMI 1483 - AT - Income Tax

Addition u/s. 56(2)(vii)(b) - case was selected for limited scrutiny - assuming jurisdiction for making an addition u/s. 56(2)(vii)(b) an issue which did not form a basis for selection of the assessee s case for limited scrutiny ? Whether or not the A.O without making any reference to the valuation cell rightly triggered the provisions of Section 56(2)(vii) r.w.s. 50C(2) of the Act and substituted the FMV of the lands purchased by the assessee as against the actual purchase consideration? Whether or not the A.O is right in law and facts of the case in concluding that the assessee had failed to substantiate his entitlement for claiming deduction u/s. 54B of the Act? HELD THAT - Admittedly the examination of the difference/variance in the purchase consideration of the property i.e. land situated at Mouja Khapargaunge Bilaspur (admeasuring 206.143 Aq. Mtrs.) that was purchased by the assessee for a consideration of Rs. 5 lacs as against the FMV/stamp duty value of Rs. 55, 65, 900/- in the backdrop of Section 56(2)(vii)(b) of the Act was not an issue for which the case of the assessee was selected for limited scrutiny u/s. 143(2) of the Act. Addition u/s. 56(2)(vii)(b) of the Act with respect to difference in the Fair Market Value (FMV) i.e. stamp duty/segment rate of property - Since the assessee s case was selected for limited scrutiny under CASS with respect to certain specific issues therefore the jurisdiction of the A.O in the absence of getting the said case converted into complete scrutiny as per the CBDT Instruction No.20 of 2015 dated 29.12.2015 was confined only to the specific reason/issue based on which the case of the assessee was picked up for such scrutiny. Accordingly on the basis of our aforesaid observations we are of the considered view that the addition of Rs. 50, 65, 900/- (supra) made by the A.O u/s. 56(2)(vii)(b) is liable to be quashed for want of valid assumption of jurisdiction by the A.O while framing the limited scrutiny assessment vide his order u/s. 143(3) of the Act dated 15.12.2017. Thus the addition of Rs. 50, 65, 900/- made by the A.O. is vacated for want of valid assumption of jurisdiction. Deduction u/s. 54B - We find that the agricultural lands sold by the assessee during the year under consideration viz. (i) agricultural land admeasuring 1.424 hectares (out of 1.922 hectares) sold by the assessee vide registered sale deed dated 02.09.2014 i.e. (out of Khasra No.22/1 22/4 and 28/2) situated at Mauja Parsoda Tehsil Bilaspur; and (ii) agricultural land admeasuring 1.781 hectares (bearing Khasra No.17/1) situated at Mauja Parsoda Tehsil Bilaspur sold by the assessee vide registered sale deed dated 02.09.2014 were in the two years immediately preceding the date on which they were transferred i.e. on 02.09.2014 being used by the assessee for agricultural operations i.e. growing paddy crop. Accordingly we herein conclude that the aforesaid pre-condition contemplated u/s. 54B(1) of the Act i.e. usage of the agricultural lands in the two years immediately preceding the date on which they were transferred is duly satisfied by the assessee in so far the aforesaid agricultural lands admeasuring 1.424 hectares (supra) and 1.781 hectares (supra) are concerned. We thus modify the order of the CIT(Appeals) and conclude that the pre-condition as regards usage of the lands sold by the assessee for agricultural purposes in the two years immediately preceding the date on which they were transferred is found to have been satisfied in so far the aforesaid lands are concerned viz. (i) agricultural land admeasuring 1.424 hectares (out of 1.922 hectares) (supra); and (ii) agricultural land admeasuring 1.781 hectares (supra). Accordingly the A.O is directed to allow the assessee s claim for deduction u/s. 54B of the Act in so far the same pertains to the aforesaid lands sold by him during the subject year are concerned subject to verification of satisfaction of the other conditions contemplated in the said statutory provision. Thus the Grounds of appeal No.3 4 raised by the assessee are partly allowed in terms of our aforesaid observations.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the Assessing Officer (A.O) had the jurisdiction to make an addition of Rs. 50,65,900/- under Section 56(2)(vii)(b) of the Income Tax Act, 1961, when the case was selected for "limited scrutiny".
• Whether the A.O was justified in substituting the actual purchase consideration with the Fair Market Value (FMV) of the land without referring the matter to a valuation officer, as per Section 56(2)(vii) read with Section 50C(2) of the Act.
• Whether the assessee was entitled to a deduction under Section 54B of the Act, considering the use of the land for agricultural purposes in the two years preceding its transfer.

ISSUE-WISE DETAILED ANALYSIS

1. Jurisdiction of the A.O for Addition under Section 56(2)(vii)(b)

• Legal Framework and Precedents: The issue revolves around the scope of "limited scrutiny" under Section 143(2) of the Act. The CBDT Instructions No.20/2015 and No.5/2016 restrict the A.O's jurisdiction to the specific issues for which the case was selected for limited scrutiny unless converted to complete scrutiny.
• Court's Interpretation and Reasoning: The Tribunal found that the A.O exceeded his jurisdiction by making an addition under Section 56(2)(vii)(b), as this issue was not within the scope of the limited scrutiny.
• Conclusions: The addition of Rs. 50,65,900/- was vacated due to the lack of valid jurisdiction by the A.O.

2. Substitution of Purchase Consideration with FMV without Valuation Reference

• Legal Framework and Precedents: Section 56(2)(vii) requires the A.O to refer the valuation to a valuation officer if there is a discrepancy between the purchase price and FMV. The Tribunal referred to the judgment of the Hon'ble High Court of Calcutta in Sunil Kumar Agrawal Vs. Commissioner of Income Tax.
• Court's Interpretation and Reasoning: The Tribunal noted that the A.O should have referred the matter to the Valuation Cell rather than summarily substituting the FMV.
• Conclusions: The Tribunal did not delve further into this issue as the addition was vacated on jurisdictional grounds.

3. Deduction under Section 54B for Agricultural Land

• Legal Framework and Precedents: Section 54B allows deduction for capital gains on the sale of agricultural land used for agricultural purposes in the two years preceding the transfer.
• Court's Interpretation and Reasoning: The Tribunal examined the "Form P-II/Khasra" records, which indicated that agricultural operations were conducted on certain lands in the requisite period.
• Key Evidence and Findings: The Tribunal found evidence of agricultural use for some lands, specifically those admeasuring 1.424 hectares and 1.781 hectares.
• Conclusions: The Tribunal directed the A.O to allow the deduction under Section 54B for the lands where agricultural use was substantiated, subject to verification of other statutory conditions.

SIGNIFICANT HOLDINGS

• Jurisdictional Overreach: The Tribunal held that the A.O's addition under Section 56(2)(vii)(b) was beyond his jurisdiction in a limited scrutiny case. The Tribunal emphasized the importance of adhering to the scope defined by CBDT instructions.
• Requirement for Valuation Reference: Although not decided due to jurisdictional findings, the Tribunal highlighted the necessity of a valuation reference to avoid arbitrary FMV substitution.
• Deduction under Section 54B: The Tribunal established that documentary evidence like "Form P-II/Khasra" is crucial in substantiating claims for deductions under Section 54B.
• Final Determinations: The appeal was partly allowed, with the addition under Section 56(2)(vii)(b) vacated and the deduction under Section 54B allowed for certain lands.