2024 (9) TMI 1377 - AT - Income Tax

Assessment Officer exceeded jurisdiction in limited scrutiny by disallowing Fair Market Value under section 45 beyond assigned scope

Ranchhodbhai Jerambhai Meghani Versus The ITO, Ward-1 (1) (3), Rajkot

Ranchhodbhai Jerambhai Meghani Versus The ITO, Ward-1 (1) (3), Rajkot - TMI Issues Involved:1. Jurisdiction of Assessing Officer in Limited Scrutiny2. Fair Market Value (FMV) determination3. Deduction under Section 54B and 54F4. Addition on account of Capital GainIssue-wise Detailed Analysis:1. Jurisdiction of Assessing Officer in Limited Scrutiny:The primary issue raised by the assessee was that the Assessing Officer (A.O.) exceeded his jurisdiction in a limited scrutiny case. The case was selected for limited scrutiny to verify large investment in property and large deductions claimed under sections 54B, 54C, 54D, 54G, and 54GA. The A.O. went beyond these issues by evaluating the Fair Market Value (FMV) under section 45 of the Income Tax Act, 1961, which was not part of the limited scrutiny scope. The tribunal noted that the A.O. violated CBDT Instruction No. 5/2016, dated 14.07.2016, and Instruction No. 20/2015, dated 29.12.2015, which restrict the scope of limited scrutiny. The A.O. should have sought permission from higher authorities to expand the scope, which he failed to do. Consequently, the tribunal found the assessment order to be bad in law.2. Fair Market Value (FMV) Determination:The A.O. disputed the FMV of agricultural land as on 01.04.1981, which was declared by the assessee based on a government-approved valuer's report. The A.O. referred the matter to the District Valuation Officer (DVO), who estimated a significantly lower FMV. The tribunal noted that the A.O. had no jurisdiction to question the FMV under limited scrutiny without prior approval from higher authorities. The tribunal found that the A.O. had exceeded his jurisdiction by disallowing the FMV claimed under section 45 of the Act.3. Deduction under Section 54B and 54F:The assessee claimed deductions under sections 54B and 54F for investments in agricultural land and a residential house. The A.O. allowed a deduction of Rs. 3,67,08,930 under section 54B but disallowed additional deductions claimed by the assessee. The tribunal noted that the case was selected for limited scrutiny to verify deductions under section 54B, and the A.O. had no jurisdiction to disallow these deductions without expanding the scrutiny scope. The tribunal found that the A.O. had violated the CBDT instructions by exceeding his jurisdiction.4. Addition on Account of Capital Gain:The A.O. made an addition of Rs. 2,50,07,170 to the total income of the assessee on account of capital gain by adopting the FMV estimated by the DVO. The tribunal noted that the A.O. had no jurisdiction to make this addition under limited scrutiny without prior approval from higher authorities. The tribunal found that the A.O. had violated the CBDT instructions and exceeded his jurisdiction. Consequently, the tribunal deleted the addition made by the A.O.Conclusion:The tribunal concluded that the A.O. had exceeded his jurisdiction in a limited scrutiny case by questioning the FMV and making additions on account of capital gain without prior approval from higher authorities. The tribunal found that the A.O. had violated CBDT instructions and consequently deleted the additions made by the A.O. The appeal of the assessee was allowed.Order Pronounced:The appeal of the assessee is allowed. Order pronounced in the open court on 02-09-2024.