Limited scrutiny, earlier-year share enquiries, and section 54F relief for unregistered residential purchase

Limited scrutiny cannot be widened into complete scrutiny without the prescribed written approval, and the wider enquiry was therefore treated as unauthorised. Earlier share-acquisition transactions could still be examined in the relevant year where they formed the basis of the capital gains claim, despite those prior years being time-barred. Deduction under section 54F was not to be denied merely because the residential property was not registered, since substantive investment, supporting agreement, possession-related material, and payment evidence can satisfy the purchase requirement. On the stated conclusions, the assessment order was held unsustainable and the appeal succeeded.

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Issues: (i) Whether the limited scrutiny assessment could be expanded into complete scrutiny without approval of the Principal Commissioner; (ii) whether the enquiry into the share acquisition transactions of earlier years could be examined in the course of the assessment for the relevant year; (iii) whether denial of deduction under section 54F on the ground of non-registration of the residential property was sustainable.

Issue (i): Whether the limited scrutiny assessment could be expanded into complete scrutiny without approval of the Principal Commissioner.

Analysis: The scrutiny was selected on a limited issue relating to capital gains deduction. The record showed that the Assessing Officer issued notices and called for details beyond the limited issue and treated the matter as a complete scrutiny proceeding without obtaining written approval from the Principal Commissioner, as required for wider verification under the applicable CBDT instruction. The assessment record and notices also reflected that the enquiry had moved beyond the original limited scope.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (ii): Whether the enquiry into the share acquisition transactions of earlier years could be examined in the course of the assessment for the relevant year.

Analysis: The Assessing Officer examined the genuineness of the earlier share acquisition transactions because they formed the foundation of the long-term capital gain claimed in the relevant year. The contention that such examination was impermissible merely because the earlier years were time-barred was not accepted. The deeming character of section 69A was relied upon to reject the objection.

Conclusion: The issue was decided against the assessee.

Issue (iii): Whether denial of deduction under section 54F on the ground of non-registration of the residential property was sustainable.

Analysis: The deduction was denied solely because the sale deed for the residential property had not been registered. The jurisdictional precedent treated the word "purchase" in section 54/54F in its ordinary sense and held that registration of the conveyance document is not indispensable where the assessee has in substance invested the capital gains in the residential house within the prescribed period. The payments, agreement to sell, possession-related material, and allied documents supported the claim.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The assessment order could not be sustained, and the appeal succeeded with the impugned assessment being quashed.

Ratio Decidendi: Limited scrutiny cannot be converted into complete scrutiny without the prescribed written approval, and for section 54F, substantive investment in a residential house is sufficient even if a registered sale deed is not executed.

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