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2016 (4) TMI 909 - AT - Income TaxApplicability of CBDT Instruction F.No.225/26/2006-ITA-II(Pt.) dated 08.09.2010 on A0 - ex-parte order - AO while computing capital gain and denying benefit of section 54 to the assessee, has contravened the said instructions, thereby rendering the assessment order invalid? - Held that - The proper course for the AO before making the additional enquiries would have been to take approval from the administrative Commissioner to widen the scrutiny. This, however, was not done and therefore, the action of the AO is violative of the CBDT Instruction. Apropos the ld. CIT(A) s order, obviously the ld. CIT(A) has erred in confirming the assessment order. The ld. CIT(A) had erred in holding that the AO has not violated the CBDT Instruction. The ld. CIT(A) has gone wrong in observing that the AO has limited his enquiries to the source of cash deposits. True, the AO is duty bound to see whether the assessee has correctly declared taxable value of the long term capital gains from the sale of her residential house. However, as noted, in a case like the present one, where it has been picked up for scrutiny on the basis of the AIR information, the CBDT Instruction has to be strictly abided by. Herein, since the AIR information was only with regard to cash deposits of ₹ 25 lakhs and the assessee had duly and adequately explained the source thereof, the AO, it cannot be gainsaid, transgressed his competency in issuing the further query and in asking the assessee to produce Smt. Balbir Kaur and Smt. Kamaljit Kaur, the executants of the other agreement to sell which had nothing to do with the cash deposits. Moreover, it cannot, in view of the above discussion, at all be said that the objections raised by the assessee were merely to divert the attention of the AO to come to a logical conclusion. The objections taken by the assessee are well raised and the AO, at the cost of the repetition, could not have gone beyond the specific CBDT Instruction. It is held that since the assessment order, passed ex-parte by the AO, was in violation of specific CBDT Instruction, the same is not legally sustainable. - Decided in favour of assessee
Issues Involved:
1. Violation of CBDT Instructions dated 08.09.2010 governing AIR cases. 2. Addition of ?3,00,000/- by treating 'biana' received against the first sale deal of property as forfeited. 3. Denial of exemption under section 54 to the extent of ?11,92,500/-. 4. Rejection of judicial authorities cited by the assessee. 5. Alleged undue harassment by authorities. Detailed Analysis: Issue 1: Violation of CBDT Instructions dated 08.09.2010 The assessee contended that the ITO violated CBDT Instructions dated 08.09.2010 by expanding the scope of the assessment beyond the AIR information. The AO issued notices to the assessee seeking extensive information unrelated to the AIR data. The CBDT Instruction specifies that scrutiny should be limited to AIR information unless there is potential income escapement over ?10 lakhs, which requires administrative approval. The AO's failure to obtain such approval before widening the scrutiny rendered the assessment order invalid. The Tribunal concluded that the AO's actions were in violation of the CBDT Instruction, and thus, the assessment order was not legally sustainable. Issue 2: Addition of ?3,00,000/- by treating 'biana' as forfeited The AO added ?3,00,000/- to the assessee's income, assuming the advance received from a previous agreement to sell the property was forfeited. The Tribunal noted that this matter was not covered under the AIR information and was beyond the AO's purview. The assessee had adequately explained the source of the cash deposits as sale proceeds from her residential house, which was the only aspect covered by the AIR information. Consequently, the addition of ?3,00,000/- was deemed inappropriate. Issue 3: Denial of exemption under section 54 The AO denied the assessee's claim for exemption under section 54, stating that the plot purchased did not qualify for the exemption as it was not related to the house sold. The Tribunal found that this inquiry was also beyond the scope of the AIR information, which only pertained to the cash deposits. The AO's action of denying the exemption without proper approval for wider scrutiny was in violation of the CBDT Instruction. Issue 4: Rejection of judicial authorities cited by the assessee The CIT(A) dismissed the judicial authorities cited by the assessee, stating that they were not applicable to the case. However, the Tribunal emphasized that the AO and CIT(A) must adhere to the CBDT Instructions and judicial precedents. The Tribunal found that the CIT(A) erred in rejecting the judicial authorities without proper consideration. Issue 5: Alleged undue harassment by authorities The assessee claimed undue harassment by the authorities due to arbitrary stands contrary to binding CBDT Instructions and judicial precedents. The Tribunal acknowledged that the AO's actions were beyond his competency and in violation of specific instructions, leading to unnecessary harassment of the assessee. Conclusion: The Tribunal allowed the appeal, holding that the assessment order was invalid due to the AO's violation of CBDT Instructions. The Tribunal reversed the assessment order and rendered all remaining grounds as merely academic. The appeal was allowed without costs.
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