Commissioner Of Income Tax, Ward - 3, Tirunelveli v. Tax Case Appeal Filed Under Section 260A Of The Income Tax Act, 1961, Against The Order Made In Ita

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.10.2020 CORAM: THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMand THE HONOURABLE Mrs.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal No.350 of 2020 Commissioner of Income Tax, Ward - 3,Tirunelveli .. Appellant /RespondentVs.Smt.Padmavathi.. Respondent /Appellant Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961, against the order made in ITA No.1306/Chny/2019 dated02.12.2019 passed by the Income Tax Appellate Tribunal, 'C'Bench, Chennai for the Assessment Year 2014-2015; and Against the order of the Income Tax Officer(H.Qurs)-2,O/o.The Commissioner of Income Tax, Madurai-2, madurai,dt.18.3.2019 in C.No.114/52/PCIT-2/MDU/2018-19 and against theorder of the Income Tax Officer, Ward-3, Tirunelveli,dt.28.12.2016 in PAN.No. .For Appellant: Mr.M.Swaminathan Senior Standing Counsel Assisted by Ms.V.Pushpa Junior Standing CounselFor Respondent : Mr.G.Baskar [Judgment of the Court was delivered by T.S.SIVAGNANAM, J.] This appeal, at the instance of the revenue filed underSection 260A of the Income Tax Act, 1961 (the 'Act' forbrevity), is directed against the order passed by the Income TaxAppellate Tribunal, Madras 'C' Bench, Chennai in ITANo.1306/Chny/2019 dated 02.12.2019 for the Assessment Year 2014-2015. https://hcservices.ecourts.gov.in/hcservices/ for consideration: “1. Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in coming to conclusion that in alimited scrutiny case, the CIT cannot exercise thepower of revision u/s. 263 of the Income Tax Act tolook in to any other issue which the Assessingofficer himself could not look? 2. Whether on the facts and in the circumstanceof the case the Income tax Appellate Tribunal wasright in holding that invoking of Section 56(2)(vii)(b) of the Income Tax Act 1961 is beyond the purviewof the Assessing officer when the reason for limitedscrutiny is 'purchase of property' and the same issueis very much related to the purchase of property? 3. Whether on the facts and in the circumstanceof the case the Income Tax Appellate Tribunal wasright in concluding that while completing theassessment under limited scrutiny the AssessingOfficer cannot look beyond the issue for which thecase was selected for scrutiny without noting thatthe CBD instruction No.20/2015 has exception clausein 3(d) to convert the same into a completescrutiny?" 3. The assessee is an individual and a partner in a firmunder the name and style of Sri Ram Associates. She filed herreturn of income on 27.10.2015 admitting a total income ofRs.2,58,110/-. The return was processed under Section 143(1) ofthe Act. Subsequently, the case was selected under ComputerAided Scrutiny Selection [for brevity 'CASS'] 'LimitedScrutiny' with regard to a purchase of a property by theassessee. The assessing officer after hearing the assessee,verifying the source of funds completed the assessment by orderdated 28.12.2016 under Section 143(3) of the Act and made anaddition of Rs.8,00,000/-. 4. The Principal Commissioner of Income Tax, Madurai [forbrevity 'PCIT'] invoked his power under Section 263 of the Act,issued show cause notice dated 26.10.2018 to the assessee forthe reason that the assessee had purchased the immovableproperty by a sale deed registered as document no.7165 of 2013on the file of Sub-Registrar, Thirumangalam for a considerationof Rs.41,50,000/-, whereas, the guideline value fixed by theState Government was Rs.77,19,000/- and there is a difference ofRs.35,69,000/- which was not properly enquired into by theassessing officer and not considered during the course ofassessment. For such reason, the assessing officer proposed toinvoke his powers under Section 263 of the Act. 4. The Principal Commissioner of Income Tax, Madurai [forbrevity 'PCIT'] invoked his power under Section 263 of the Act,issued show cause notice dated 26.10.2018 to the assessee forthe reason that the assessee had purchased the immovableproperty by a sale deed registered as document no.7165 of 2013on the file of Sub-Registrar, Thirumangalam for a considerationof Rs.41,50,000/-, whereas, the guideline value fixed by theState Government was Rs.77,19,000/- and there is a difference ofRs.35,69,000/- which was not properly enquired into by theassessing officer and not considered during the course ofassessment. For such reason, the assessing officer proposed toinvoke his powers under Section 263 of the Act. appeared in-person through her Authorised Representative, aChartered accountant. In the explanation, the assessee pointedout that even going by the averments in the show cause noticeshows that the assessing officer did make an enquiry, but thePCIT was of the opinion that the assessing officer did not makeproper enquiry and contended that there is a difference betweenlack of enquiry and indeaquate enquiry and in this regard,referred to a decision of the High Court of Delhi in C.I.T. V.Anil Kumar Sharma reported in [2011] 335 ITR Page 83. 6. Further, the assessee contended that the assessing officerhas clearly recorded the guideline value and the saleconsideration in the assessment order, which proves that heconducted necessary enquiry, as deemed fit by him. Therefore,the assessee contended that there was no reason to invoke thepower under Section 263 of the Act, when there was an enquiryand on the ground that the enquiry was inadequate. Withoutprejudice to the said submission, the assessee contended thatthe guideline value be automatically taken as deemed purchaseconsideration and the assessing officer has to refer to thevaluation officer under Section 50(C)(2) of the Act and sincethe assessment was getting time barred, the assessing officer,stepped into the shoes of the valuation officer, made enquiryand ascertained that the guideline value was not fair marketvalue of the property and the actual consideration paid by theassessee represented the fair market value. Therefore, it wascontended that there was no occasion for the PCIT to invoke thepower under Section 263 of the Act. The assessee placedreliance on the decision of Agra Tribunal in the case of IncomeTax officer, 1(3) Vs. Ramesh Chandra Kulshresth and others ITANo.228/Agra/ 2018. 7. The PCIT considered the explanation and held that in thefirst place a request has to be made by the assessee forvaluation of property and nothing is discernible from therecords that the assesee made any request, which needs to anyinference that the assessing officer did apply his mind to thefair market value and the consequential taxability of theinvestment as 'unexplained investment' under Section 56(2)(vii)(b)(ii) of the Act. 8. The PCIT further held that though the assessing officerverified the source of funds, he failed to apply the saidprovision, namely, Section 56(2)(vii)(b)(ii) of the Act. Thus,the PCIT rejected the explanation given by the assessee and setaside the assessment and referred back the same to the assessingofficer to redo the assessment. The assessee challenged thesaid order dated 18.03.2019 passed under Section 263 of the Actby filing an appeal before the Tribunal. The Tribunal held thatthe value adopted for stamp duty purposes is taken as 'deemed 8. The PCIT further held that though the assessing officerverified the source of funds, he failed to apply the saidprovision, namely, Section 56(2)(vii)(b)(ii) of the Act. Thus,the PCIT rejected the explanation given by the assessee and setaside the assessment and referred back the same to the assessingofficer to redo the assessment. The assessee challenged thesaid order dated 18.03.2019 passed under Section 263 of the Actby filing an appeal before the Tribunal. The Tribunal held thatthe value adopted for stamp duty purposes is taken as 'deemed consideration' under Section 56(2)(vii)b of the Act and this isonly a deeming provision and there is no occasion for theassessee to explain the source for deemed consideration.Further, the Tribunal held that since the assessment was underlimited scrutiny, it would be beyond the powers of the assessingofficer to look into any other issue, which has come to hisnotice clearing the course of assessment and also faulted thePCIT for invoking his power under Section 263 of the Act.Challenging the said order, the Revenue is before us by way ofthis appeal. 9. We have heard Mr.M.Swaminathan, learned senior standingcounsel assisted by Ms.V.Pushpa, learned junior standing counselfor the appellant / revenue and Mr.G.Baskar, learned counsel,accepting notice on behalf of the respondent / assessee. 10. We take up the substantial question of law No.3 forconsideration at the first instance. The revenue would contendthat the finding rendered by the Tribunal with regard to thescope of limited scrutiny and the role of the assessing officerin a limited scrutiny is incorrect and such finding has beenrendered by the Tribunal without taking note of the instructionissued by Central Board of Direct Taxes, [for brevity 'CBDT'] ininstruction No.20/2015 dated 29.12.2015. Drawing our attentionto the said instruction, it is submitted that during the courseof assessment proceedings in limited scrutiny cases, if it comesto the notice of the assessing officer that there is potentialescapement of income exceeding Rs.5 Lakhs [for metro charges,the monetary limit shall be Rs.10 Lakhs] requiring substantialverification on any other issue, then, the case may be taken upfor 'complete scrutiny', with the approval of the PCIT / CITconcern. In such cases, the procedure stipulated in paragraphno.3.a.b.c. of the instructions, would not apply. For betterappreciation, the relevant portion of the instruction is quotedherein below: '3. As far as the returns selected for scrutinythrough CASS-2015 are concerned, two type of cases havebeen selected for scrutiny in the current Financialyear - one is 'Limited Scrutiny' and other is 'completeScrutiny'. The assessees concerned have duly beenintimated about their cases falling either in 'Limitedscrutiny' or 'Complete Scrutiny' through notices issuedunder section 143(2) of the Income-tax Act, 1961('Act'). The procedure for handling 'Limited scrutiny'cases shall be as under:a. In 'Limited scrutiny' cases, the reasons / issuesshall be forthwith communicated to the assesseeconcerned. b. The Questionnaire under section 142(1) of the Actin 'Limited Scrutiny' cases shall remain confined only to the specific reasons / issues for which case hasbeen picked up for scrutiny. Further, the scope ofenquiry shall be restricted to the 'Limited Scrutiny'issues. c. These cases shall be completed expeditiously in alimited number of hearings. to the specific reasons / issues for which case hasbeen picked up for scrutiny. Further, the scope ofenquiry shall be restricted to the 'Limited Scrutiny'issues. c. These cases shall be completed expeditiously in alimited number of hearings. d. During the course of assessment proceedings in'Limited Scrutiny' cases, if it comes to the notice ofthe Assessing Officer that there is potentialescapement of income exceeding Rs. Five lakhs (formetro charges, the monetary limit shall be Rs.Tenlakhs) requiring substantial verification on any otherissue(s), then, the case may be taken up for 'completeScrutiny' with the approval of the Pr.CIT/CITconcerned. However, such an approval shall be accordedby the Pr.CIT/CIT in writing after being satisfiedabout merits of the issue(s) necessitating 'CompleteScrutiny' in that particula case. Such cases shall bemonitored by the Range Head concerned. The procedureindicated at points (a), (b) and (c) above shall nolonger remain binding in such cases. (For the presentpurpose, 'Metro Charges' would mean Delhi, Mumbai,Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad).' 11. It is further submitted that the Tribunal in a subsequentdecision, authored by the very same Hon'ble Member took note ofthe circular and decided the case against the assessee in ITANo.1498/Chny/2019 in the case of M/s Sahayamatha SalternsPrivate Limited, Tuticorin Vs. Deputy Commissioner of IncomeTax, Circle I, Tuticorin dated 11.12.2019. Therefore, it issubmitted that the Substantial Question of Law no.3 has to beanswered in favour of the revenue. 12. Mr.G.Baskar, learned counsel appearing for the respondent/ assessee submitted that the revenue is right in submittingthat in the case of Sahayamatha Salterns Private Limited, theTribunal noted the instruction No. 20/2015 dated 29.12.2015 anddecided the matter against the assessee. However, the assesseehas filed an appeal before this Court in TCA No.158 of 2020 andthe appeal has been admitted to consider the substantialquestion of law, which has been framed almost on similar lines,as substantial question of law no.3 above. 13. We note that the Tribunal did not consider the effect ofinstruction no.20/2015, which had been considered in the case ofSahayamatha Salterns Private Limited, which issue is now pendingbefore the Division Bench of this Court by way of a Tax CaseAppeal, therefore, we are of the view that the Revenue canagitate the said question in the said tax case appeal and itwould suffice to vacate the observations made by the Tribunal in https://hcservices.ecourts.gov.in/hcservices/ the impugned order to the extent with regard to the scope of'limited scrutiny assessments'. 14. Accordingly, that portion of the order and observationsmade in paragraph no.7 of the impugned order are set aside andthe substantial question no.3 is left open to be agitated by theRevenue in TCA No.158 of 2020. 13. We note that the Tribunal did not consider the effect ofinstruction no.20/2015, which had been considered in the case ofSahayamatha Salterns Private Limited, which issue is now pendingbefore the Division Bench of this Court by way of a Tax CaseAppeal, therefore, we are of the view that the Revenue canagitate the said question in the said tax case appeal and itwould suffice to vacate the observations made by the Tribunal in https://hcservices.ecourts.gov.in/hcservices/ the impugned order to the extent with regard to the scope of'limited scrutiny assessments'. 14. Accordingly, that portion of the order and observationsmade in paragraph no.7 of the impugned order are set aside andthe substantial question no.3 is left open to be agitated by theRevenue in TCA No.158 of 2020. 15. The substantial question nos.1 and 2 are interconnectednamely, the power of the PCIT under Section 263 of Act andwhether he could have set aside the assessment on the groundthat the assessing officer did not invoke Section 56(2)(vii)b(ii). The reading of the assessment order shows that the casewas selected for limited scrutiny only on this aspect regardingthe sale consideration paid by the assessee for purchase of theimmovable property and the source of funds. The assessingofficer has noted that the sale consideration paid by theassessee was Rs.41,50,000/- and she has paid stamp duty andother expenses of Rs.5,75,000/-. The source of funds wasverified and the assessing officer was satisfied with the same.The PCIT while invoking his power under Section 263 of Act,faults the assessing officer on the ground that he did not makeproper enquiry. It is not clear as to what in the opinion of thePCIT is 'proper enquiry'. By using such expression, itpresupposes that the assessing officer did conduct an enquiry.However, in the opinion of the PCIT, the enquiry was not properin absence of not clearly stating as to why in the opinion ofPCIT, the enquiry was not proper, we have to necessarily holdthat the invocation of the power under Section 263 of the Actwas not justified. 16. The only reason for setting aside the scrutiny assessmentwas on the ground that the guide line value of the property, atthe relevant time, was higher than the sale considerationreflected in the registered document. The question would be asto what is the effect of the guideline value fixed by the StateGovernment. There are long line of decisions of the Hon'bleSupreme Court holding that guideline value is only an indicatorand the same is fixed by the State Government for the purposesof calculating stamp duty on a deal of conveyance. Therefore,merely because the guideline was higher than the saleconsideration shown in the deed of conveyance, cannot be thesole reason for holding that the assessment is erroneous andprejudicial to the interest of revenue. 17. The assessing officer in his limited scrutiny, hasverified the source of funds, noted the sale consideration paid,the expenses incurred for stamp duty and other charges.Furthermore, the assessee in their reply dated 11.01.2019 to theshow cause notice dated 26.10.2018 issued by the PCIT has specifically stated that the assessment was getting time barred,assessing officer took upon himself the role of a valuationofficer under Section 50(C)(2) and found that the guidelinevalue was not actual fair market value of the property and theactual consideration paid was the fair market value andtherefore, he did not choose to make any addition under Section50(C) of the Act. 17. The assessing officer in his limited scrutiny, hasverified the source of funds, noted the sale consideration paid,the expenses incurred for stamp duty and other charges.Furthermore, the assessee in their reply dated 11.01.2019 to theshow cause notice dated 26.10.2018 issued by the PCIT has specifically stated that the assessment was getting time barred,assessing officer took upon himself the role of a valuationofficer under Section 50(C)(2) and found that the guidelinevalue was not actual fair market value of the property and theactual consideration paid was the fair market value andtherefore, he did not choose to make any addition under Section50(C) of the Act. 18. The PCIT, has not dealt with this specific objection,but, would fault the assessing officer for not invoking Section56(2)(vii)(b)(ii) merely on the ground that the market value washigher. As point out earlier, the guideline value is only anindicator and that will always not represent the fair marketvalue of the property and therefore, the invocation of the powerunder Section 263 of the Act by the PCIT is not sustainable inlaw. In the result, the present appeal is dismissed and thesubstantial question of law nos.1 and 2 are answered against therevenue and the substantial question of law no.3 is left open tothe revenue to agitate the same in TCA No.158 of 2020. No costs. Sd/- Assistant Registrar(CS )//True Copy// Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, 'C' Bench, Chennai/ 2.The Income Tax Officer,Ward 3, Tirunelveli. 3.The Income Tax Officer(H.Qurs)-2, O/o.The Commissioner of Income Tax, Madurai-2, madurai. +1 cc to Mr.M.Swaminathan, Advocate,sr.32836+1 cc to Mr.G.Baskar,advocate,sr.32876.Kk(co)krd 5/11