The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) held that no steps has been taken by the Assessing Officer (AO) to convert the limited scrutiny into complete scrutiny and hence has overstepped his jurisdiction, therefore directed the AO to delete the disallowance made under Section 54F of the Income Tax Act,1961.
The assessee Muniyappa Muniraju is carrying on the business of civil works contract and filed return of income for the assessment year 2017-18. The assessee declared his business income under Section 44AD of the IT Act, 1961 on presumptive basis at 8% on the amount received and deposited the receipts to two bank accounts maintained in Canara Bank and State Bank of India.
The AO accepted this return of income and income offered under Section 44AD on the turnover declared by assessee. The case was selected for scrutiny by CASS (Computer-Assisted Scrutiny Selection) for the reason “Large Cash Deposits” in the year.
Accordingly, notice under Section 143(2) of the Income Tax Act was issued. The Assessee in the statement of income submitted for the A.Y.2017-18 has declared sale of agricultural land and claimed exemption under Section 54 of the Income Tax Act of Rs.1,35,00.000/- and declared NIL income under the head “Long Term Capital Gain” (LTCG).
The AO on verification observed that Assessee has neither purchased or constructed any new asset within the time allowed as per the Income Tax Act nor has provided any documents to prove the exemption claimed under Section 54 of the Income Tax Ac. Thus the AO disallowed the exemption under Sections 54 of the Income Tax Act and total consideration received of Rs.1,05,00,000/- on the sale of land is brought to tax under the head “Income from Long Term Capital Gain”.
Aggrieved by the order of the AO, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], which held that AO has rightly held that the exemption under Section 54 B or 54 F of the Income Tax Act was not eligible as the new asset has not been purchased within the time period allowed as per of the Income Tax Act and also failed to submit the required evidences regarding the same.
Further aggrieved the assessee filed an appeal before the Tribunal. The Authorised Representative of the assessee G. Satyanarayana argued that the notice issued under Section 143(2) of the Income Tax Act was a limited scrutiny to verify the huge cash deposits. However the subsequent notice issued by the AO has widened the scope of assessment without following the due process of law.
He further relied on the CBDT (Central Board of Direct Taxes) Instruction No. 7/2014 and submitted that the AO failed to convert the limited scrutiny to complete scrutiny and therefore the addition made in the hands of the assessee under LTCG is bad in law.
The Departmental Representative Nischal .B relied on the orders passed by the authorities.
The Bench comprising of Chandra Poojari, Accountant Member and Smt. Beena Pillai, Judicial Member observed that CASS is a system driven identification of returns for limited scrutiny. The picking up of a return under CASS for scrutiny must be restricted only to the selected reason.
The Tribunal further observed that in the above notice, the details in respect of sale deed / purchase deed, the exemption claimed by the assessee in the return of income were also called for along with the details of large cash deposits. However it was noted that no steps has been taken to convert the limited scrutiny into complete scrutiny.
The bench held that the AO has overstepped his jurisdiction by making an addition in the hands of the assessee by disallowing the deduction claimed under Section 54F of the Income Tax Act, therefore directed the AO to delete the disallowance so made.
Hence the appeal of the assessee is allowed.
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