2019 (11) TMI 599 - AT - Income Tax

Tribunal rules AO exceeded jurisdiction & grants relief on section 54EC claim, remands 54F deduction for final computation

Ravi Prakash Khandelwal Versus Dy. CIT Circle II Bareilly

Ravi Prakash Khandelwal Versus Dy. CIT Circle II Bareilly - TMI 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 Rs. 45.10 per sq. yard against Rs. 75 per sq. yard shown by the assessee, leading to an addition of Rs. 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 Rs. 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 Rs. 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 Rs. 20,90,319 (indexed value of mud) to the assessee's income.4. Denial of Claim Under Section 54EC:The assessee invested Rs. 50,00,000 in REC bonds on 31/05/2013, divided as Rs. 16,80,000 for AY 2013-14 and Rs. 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 Rs. 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 Rs. 41,76,800, which was restricted by the AO to Rs. 36,37,346, resulting in a disallowance of Rs. 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 Rs. 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 Rs. 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.