2020 (9) TMI 407 - AT - Income Tax

Scope of the enquiry in a limited scrutiny assessment selected under CASS - Computation of Capital Gains - Traveling beyond the scope of enquiry as selected for verification by the issue of notice u/s. 143(2) - CASS was only for verification of the sale consideration of the property sold by the assessee during the relevant year as it was below that reported in Annual Information Report (AIR) but PCIT required the Assessing Officer (AO) to examine other computational aspects of the capital gain, viz. cost of construction; its indexation, as well - HELD THAT - Admittedly, the sale consideration adopted in assessment is short by ₹ 0.16 lacs and, therefore, even an acceptance of the assessee s plea would result in a part allowance of his appeal, i.e., the impugned order would stand to be upheld to that extent. As regards the principal issue, the assessee s argument is per se unexceptional, and which also found favor with Tribunal in the cited cases, i.e., what cannot be considered by the assessing authority could not possibly be a ground for regarding his order as erroneous. The various returns, as the Annual Information Report (AIR), TDS returns, etc., are fed into the computer along with the related parameters, viz. mismatch in the stated sale consideration of an immovable property and the value adopted/assessed by the stamp valuation authority; the expenditure claimed per the return of income and that on which tax stands deducted at source, etc. These, then, are the parameters with reference to which the computer picks up/selects cases for limited scrutiny. The mismatch/discrepancy, etc. constitutes the reason/s for which an assessee s case stands selected under the limited scrutiny regime, which is required to be intimated thereto (paras 2(iv), 3(a) of the Instruction). All aspects pertaining to this matter could be validly examined in a limited scrutiny assessment that is to follow. The cost of construction, or its indexation, though related to the computation of capital gains, cannot be said to be specific issues arising in the verification of the sale consideration, i.e., the specific area or field qua which the enquiry could only be directed. This is as the Board Instruction is u/s.119 binding on an income tax authority. The reference to section 48, and of it being an integral part of s.45, as argued by the ld. CIT-DR, is misdirected, even as the statement is per se valid. AO, where he intends to verify the areas of income determination, even if related to capital gains, is to get the scope of enquiry enhanced by converting it into a complete scrutiny case, following the requisite procedure in its respect. We, subject to the upward adjustment of the sale consideration by ₹ 0.16 lacs, i.e., to ₹ 147.66 lacs, conceded to before us, uphold the assessee s claim. The computer does not formulate or enumerate the issues arising, but only throws up the areas, based on defined parameters, for being examined in a limited scrutiny assessment. It was, thus, fully open for the AO in the present case to have considered and, upon so, reject the assessee s claim of commission on the sale of property, stated at ₹ 4.60 lacs, deducted from the sale consideration, which was the reason for the same being reported at a lower figure. Likewise, for the short assessment by ₹ 0.16 lacs. It is, therefore, incorrect to say, as Sh. Doshi does before us, that only issues in the contemplation of the mind of the computer could be examined under a limited scrutiny case. Decided in favour of assessee.

Summary

Issues:
1. Timeliness of the appeal.
2. Scope of enquiry in limited scrutiny assessment under CASS.
3. Revisionary power of the Principal Commissioner of Income Tax.
4. Interpretation of relevant sections and instructions in determining capital gains.
5. Validity of assessing authority's actions in a limited scrutiny case.

Analysis:

1. The first issue addressed in the judgment is the timeliness of the appeal, which was initially considered time-barred but later condoned due to the assessee's application for delay. The delay of 55 days was allowed by the Tribunal.

2. The primary focus of the judgment revolves around the scope of enquiry in a limited scrutiny assessment under CASS. The assessee argued that the assessing officer could not go beyond the specific issue of verifying the sale consideration, as per the reason for selection under CASS. The Tribunal agreed with this argument, citing relevant instructions and previous decisions, and upheld the assessee's claim.

3. The revisionary power of the Principal Commissioner of Income Tax was also a crucial issue. The Principal Commissioner sought to examine various computational aspects of capital gains beyond the limited scope of the initial scrutiny. However, the Tribunal found that such actions were beyond the authority's power and struck down the revision under section 263.

4. The judgment delved into the interpretation of relevant sections, such as section 45 and section 48 of the Income Tax Act, in determining capital gains. The assessing authority's requirement to examine all issues related to capital gains was challenged by the assessee, arguing that the limited scrutiny assessment should only focus on specific issues as per CASS guidelines.

5. Lastly, the validity of the assessing authority's actions in a limited scrutiny case was analyzed. The Tribunal emphasized that the computer-generated parameters for scrutiny do not limit the issues that can be examined, as the assessing authority must consider all relevant facts and explanations provided. The assessing officer was deemed to have the discretion to reject certain claims or make adjustments based on the facts presented.

In conclusion, the judgment clarifies the boundaries of a limited scrutiny assessment under CASS, upholding the assessee's claim and emphasizing the need for assessing authorities to adhere to the specified scope of enquiry. The revisionary powers of the Principal Commissioner were also limited to prevent overreach into areas beyond the initial scrutiny's scope.