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

ITAT Rajkot held that AO exceeded jurisdiction in limited scrutiny case by disallowing Fair Market Value claimed under section 45, which was beyond ... Scope of Limited Scrutiny - computation of capital u/s 45 of the Act and providing exemption u/s 54B - provisions of section 54B linked with section 48 of the Act, for enhancement of Capital gain u/s 45 - during the course of hearing, the assessing officer had noticed the different fact, about ‘Fair Market Value’ (FMV) claimed u/s 45 by the assessee, and observed that assessee has claimed fair market value, (FMV), under section 45 of the Income Tax Act, on higher side and therefore invoked provision of section 55A HELD THAT:- We find that case of the assessee, was selected for Limited Scrutiny, for verification of limited issue of deduction claimed u/s 54B of the Act, however, the assessing officer has exceeded his jurisdiction by disallowing the fair market (FMV), claimed u/s 45 of the Act, which is beyond the jurisdiction assigned to the assessing officer, under the limited scrutiny therefore, we find that assessing officer has violated the CBDT instruction No. 5/2016, dated 14.07.2016, read with instruction No. 20/2015, dated 29.12.2015. Thus, the assessment orders passed u/s 143(3) of the Act, dated 14.12.2016, become bad in law. The assessee`s case was selected for limited scrutiny to examine the provisions of section 54B of the Act and not for examination of provisions of section 45 of the Act, (determination of cost of acquisition) therefore, we find that assessing officer has exceeded his jurisdiction assigned to him. If the assessing officer wants to examine cost of acquisition, (which is not the subject matter of limited scrutiny) then in that circumstances, the assessing officer has to take permission from the higher authorities, which the assessing officer failed to do so. Assessee`s case was selected for limited scrutiny to examine two issues, viz: (i) Large Investment, and (ii) Deduction claimed u/s 54B of the Act, however, the assessing officer has not made addition on both the issues of Limited Scrutiny Notice. AO cannot travel beyond the issue raised under Limited Scrutiny, as stated in the two instructions of CBDT, which are binding to all the Assessing Officer, viz, (i)Instruction No. 20/2015, dated 29.12.2015 and (ii)Instruction no. 5/2016, dated 14.07.2016. The Limited Scrutiny has narrow scope of inquiry, as mentioned in Para 3 (d) of Instruction No. 20/2015 and Para No. 4 of Instruction No. 5/2016 of the CBDT. Thus, we find that the assessing officer has violated the Board Instructions and therefore the addition needs to be deleted. Thus, we find that provisions of section 54B of the Act, cannot be linked with section 48 of the Act, for enhancement of Capital gain u/s 45 of the Act. If the assessing officer wants to enhance the Capital Gain u/s 45 of the Act, the assessing officer must have to take prior permission of Pr. CIT, which he has failed to do so. It is settled law that the Revenue Authorities are not allowed to travel beyond the issues involved in limited scrutiny cases, except by completing the relevant formalities before proceeding to other issues, which in the instant case does not appears to have adhered to. That is, if a case is taken for limited scrutiny by the A.O., he cannot exceed the jurisdiction beyond the one which he has carved out himself in the notice issued for limited scrutiny. In the present case, the Ld. Assessing Officer has travelled beyond his jurisdiction and made addition on the issues which are not part of the reasons for limited scrutiny. Appeal of the assessee is allowed. 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.