2016 (4) TMI 909 - AT - Income Tax

Appeal Allowed: Assessment Order Invalid for Violating CBDT Instructions

The Tribunal allowed the appeal, finding the assessment order invalid due to the Assessing Officer's violation of CBDT Instructions. The Tribunal reversed ... Limitation of scrutiny to AIR information - Violation of CBDT instructions governing AIR cases - Widening scrutiny requires administrative Commissioner approval - Binding nature of CBDT instructions under section 119(1) - Invalidation of assessment passed in contravention of statutory instructionsLimitation of scrutiny to AIR information - Violation of CBDT instructions governing AIR cases - Whether the Assessing Officer transgressed the scope of enquiry in an AIR selected case by probing matters beyond the AIR information without requisite approval, thereby violating the CBDT instruction dated 08.09.2010. - HELD THAT: - The CBDT instruction dated 08.09.2010 confines scrutiny of cases selected solely on AIR data to aspects of information received through AIR, permitting wider scrutiny only with the administrative Commissioner's approval where potential escapement exceeds Rs.10 lakhs. The assessee's case was picked up on AIR information relating to cash deposits of Rs.25 lakhs, which she explained by producing the sale deed. Notwithstanding, the AO summoned parties to an unrelated agreement to sell and made additions by treating an advance as forfeited and by disallowing exemption claimed under section 54 on the ground that a plot purchase was unrelated. Those enquiries and additions went beyond the AIR information and were not preceded by the Commissioner's approval to widen scrutiny. Given the mandatory tenor of section 119(1) and the CBDT instruction, the AO's conduct amounted to transgression of the prescribed scope of enquiry. [Paras 24, 26, 27, 28, 29]The AO violated the CBDT instruction by widening scrutiny beyond AIR information without administrative Commissioner approval; such enquiries and resultant additions were not permissible.Invalidation of assessment passed in contravention of statutory instructions - Binding nature of CBDT instructions under section 119(1) - Whether the assessment order passed ex parte in breach of the CBDT instruction is legally sustainable. - HELD THAT: - Section 119(1) mandates that income tax authorities shall observe and follow Board instructions. Judicial precedents recognise that once the Board prescribes a standard for itself, authorities must adhere to it. Because the AO framed the assessment and confirmed additions after pursuing matters outside the AIR scope and without required approval, the assessment was passed in contravention of a binding Board instruction. The Tribunal finds that the CIT(A) erred in upholding the assessment; the proper consequence of such violation is to set aside the assessment order which was rendered unsustainable for legal infirmity. [Paras 14, 16, 28, 30]The assessment order is not legally sustainable and is reversed on account of the AO's violation of the CBDT instruction; consequential grounds are rendered academic.Final Conclusion: The appeal is allowed: the assessment for AY 2011-12, framed ex parte after enquiries beyond the scope of AIR information and without requisite administrative approval, is reversed as being in violation of the CBDT instruction; remaining grounds were not adjudicated as they became academic. Issues Involved:1. Violation of CBDT Instructions dated 08.09.2010 governing AIR cases.2. Addition of Rs. 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 Rs. 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 08.09.2010The 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 Rs. 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 Rs. 3,00,000/- by treating 'biana' as forfeitedThe AO added Rs. 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 Rs. 3,00,000/- was deemed inappropriate.Issue 3: Denial of exemption under section 54The 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 assesseeThe 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 authoritiesThe 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.