2019 (11) TMI 599 - AT - Income Tax

Scope of Limited Scrutiny - Converting the Limited Scrutiny to a Complete Scrutiny - Chargeability of capital gain u/s 54EC - large deduction u/s 5B, 54C, 54D etc. and large cash deposits in savings bank account - HELD THAT - As is evident from the assessment order, in the present case, we find that the same is beyond the intent purpose and scope of the jurisdiction of the Assessing Officer, as the assessment has been made, exceeding his jurisdiction, because the case has been selected for limited scrutiny only on two issues, i.e. (i) Large deduction under section 54B, 54C, 54D etc., and (ii) Large cash deposits in savings account of the assessee; whereas the additions have been made on the indexed cost of acquisition at ₹ 17,59,545/- and indexed cost of improvement at ₹ 20,90,319/-, which is covered under section 48 of the Act, and is outside the scope and purview of the reasons of limited scrutiny. Moreover, the approval of the PCIT is mandatorily required for converting the Limited Scrutiny to a Complete Scrutiny. So, the proper course for the AO before making these 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. Thus, the addition so made by the Assessing Officer, in gross violation of the CBDT Instruction, is liable to be deleted. Finding merit in the grievance sought to be raised by the assessee by way of additional Ground No. 7, the same is accepted, resultant to which ground Nos. 1 to 3 originally raised by the assessee become infructuous, requiring no specific adjudication. Deduction under section 54EC - objection of the Assessing Officer that investment in excess of ₹ 50 lakhs is not permitted in a year was introduced in the statute by the Finance (No. 2) Act, 2014 w.e.f. 1/4/2015 i.e. relevant to assessment year 2015-16 - The case under consideration relates to assessment year 2014- 15, hence the same is not applicable to the facts of the present case. Secondly, the objection that the investment in bulk is not required and piecemeal is not permitted also does not hold good, as the assesse purchased Bonds of ₹ 50 lakhs on a particular date and claimed deduction of ₹ 16.80 lakhs in assessment year 2013-14 and ₹ 33.20 lakhs in ay 2014-15. There is no bar in the act that the Bonds for two different assessment years cannot be purchased en masse and that they should be purchased separately. The restriction is only to the extent that the bonds in excess of ₹ 50 lakhs cannot be purchased in one single financial year. Since the assessee has not exceeded the limit of ₹ 50 lakhs, this ground taken by the Assessing Officer is not a valid ground. Objection of the Assessing Officer that the plots were sold after the investment made in specified Bonds is not correct, as all the sale deeds (APB 620 to 195) were duly filed before the Assessing Officer by the assessee along with a chart (APB 51) depicting the sale of plots for the year under consideration. The assessee has also filed the calculation of capital gains accrued prior to the date of investment in REC Capital Gain Bonds on 31/5/2013 (APB 61), which shows long term capital gain upto 31/5/2013 at ₹ 60,03,311/- thus, deduction of ₹ 33,20,000/- was rightly available to the assessee. Findings of the Ld. CIT (Appeals) too is vitiated, as he has held that the Assessing Officer has further given a finding that the plots were sold after 31/05/2013 and that this fact has not been denied by the assessee. The assessee had written a letter (APB 44-46), dated 10/8/2017, to the Ld. CIT (A), categorically stating therein that the plots to the extent of ₹ 77,83,000/- have been sold upto 22/04/2013, whereas the investment in REC Bond was made on 31/05/2013 and also furnished the chart depicting the sale of plots for the year under consideration along with copies of sale deeds. Therefore, in our opinion, the disallowance of claim made by the assessee under section 54EC is not justifiable. We, therefore, set aside the order of the ld. CIT(A) on this issue and accept ground Nos.4 5 raised by the assessee. Deduction under section 54F - we find that the assessee had claimed deduction of ₹ 28,54,707/- against the investment of ₹ 41,76,800/- made in construction of house. The Assessing Officer, however, allowed deduction under section 54F of the Act at ₹ 36,37,346/-, which has been confirmed by the ld. CIT(A). Since we have set aside the orders of the authorities below relating to the claim under section 54EC of the Act, we set aside the orders of the authorities below on the issue relating to allowability of claim under section 54F of the Act and restore the same to the file of the Assessing Officer for final computation of the capital gains. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Adoption of land rates by lower courts.
2. Calculation mistake in land valuation by DVO.
3. Cost of improvement shown by way of mud filling.
4. Denial of claim under section 54EC.
5. Disallowance of deduction under section 54F.
6. Jurisdiction of the Assessing Officer in limited scrutiny cases.

Detailed Analysis:

1. Adoption of Land Rates by Lower Courts:
The lower courts adopted land rates at ?45.10 per sq. yard against ?75 per sq. yard shown by the assessee, leading to an addition of ?17,59,545 towards the indexed value of land. The assessee contended that this addition was uncalled for and unjustified.

2. Calculation Mistake in Land Valuation by DVO:
The assessee pointed out a calculation mistake in the valuation of land by the DVO amounting to ?73,542 (indexed value) before the CIT(A), which should have been accepted but was not.

3. Cost of Improvement Shown by Way of Mud Filling:
The assessee claimed a cost of improvement of ?4,00,555 for mud filling over four financial years, supported by an affidavit. However, the lower courts did not accept this claim and added ?20,90,319 (indexed value of mud) to the assessee's income.

4. Denial of Claim Under Section 54EC:
The assessee invested ?50,00,000 in REC bonds on 31/05/2013, divided as ?16,80,000 for AY 2013-14 and ?33,20,000 for AY 2014-15. The lower courts denied this claim on grounds that the plots were sold after 31/05/2013. The assessee argued that the sale of plots before 31/05/2013 amounted to ?77,80,000, covering the investment in bonds.

5. Disallowance of Deduction Under Section 54F:
The assessee claimed a deduction under section 54F amounting to ?41,76,800, which was restricted by the AO to ?36,37,346, resulting in a disallowance of ?5,39,454. The assessee argued that this disallowance was without basis and should be allowed.

6. Jurisdiction of the Assessing Officer in Limited Scrutiny Cases:
The assessee contended that the AO exceeded his jurisdiction by making additions on the cost of acquisition and cost of improvement, which were outside the scope of limited scrutiny. The limited scrutiny was only for large deductions under sections 54B, 54C, 54D, etc., and large cash deposits in savings accounts. The AO did not obtain the mandatory approval from the Principal CIT for expanding the scope of scrutiny, violating CBDT Instruction F.No. DGIT(Vig.)/HQ/SI/2017-18 dated 30/11/2017.

Judgment:

Adoption of Land Rates and Calculation Mistake:
The Tribunal found that the AO exceeded his jurisdiction by making additions on the indexed cost of acquisition and improvement, which were beyond the scope of limited scrutiny. The proper course for the AO would have been to seek approval from the administrative Commissioner to widen the scrutiny, which was not done. Therefore, the additions made by the AO were deleted.

Cost of Improvement:
Since the additions on the indexed cost of acquisition and improvement were deleted, the original grounds related to these issues became infructuous and required no specific adjudication.

Claim Under Section 54EC:
The Tribunal found that the objections of the AO regarding the investment in REC bonds were not valid. The restriction of ?50 lakhs in a single financial year was introduced by the Finance (No. 2) Act, 2014, effective from AY 2015-16, and was not applicable to AY 2014-15. The assessee had not exceeded the limit of ?50 lakhs in a single financial year, and the investment in bonds was made before the sale of plots. Therefore, the disallowance of the claim under section 54EC was not justified, and the order of the CIT(A) on this issue was set aside.

Deduction Under Section 54F:
The Tribunal set aside the orders of the authorities below on the issue relating to the allowability of the claim under section 54F and restored the matter to the AO for final computation of capital gains.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal deleting the additions made by the AO on the indexed cost of acquisition and improvement, allowing the claim under section 54EC, and remanding the issue of deduction under section 54F to the AO for final computation.