Section 143(3), CBDT Instruction dated 8.9.2010 – As per CBDT instruction dated 8.9.2010, if a case is selected for scrutiny on the basis of AIR information then the scope of scrutiny is to be limited to verification of the said AIR information. AO is not entitled to widen the scope of scrutiny without approval of the CIT. Order passed by the AO in violation of the specific CBDT instruction is not legally sustainable.
Facts
The assessee filed his return of income on 17.10.2011. The Assessing Officer (AO) issued a notice dated 21.9.2012 seeking information in connection with return of income submitted by the assessee. This notice was marked “AIR Only”. Thereafter, the AO issued a notice, dated 15.7.2013, u/s. 142(1) of the Act, asking the assessee to produce accounts/or documents and information as per questionnaire to the said notice. The questionnaire called for details on various issues apart from the information of cash deposits made by the assessee in his savings bank account. The assessee, in his reply, stated that the notice was seeking information with evidence on various issues not covered by AIR information, though the first notice was marked “AIR Only” and that in accordance with instruction dated 8.9.2010 issued by CBDT scrutiny of cases selected on the basis of information received through the AIR returns would be limited only to aspects of information received through AIR.
In response to the query regarding the source of alleged cash deposit of Rs. 25 lakh in the assessee’s savings bank account with OBC, the assessee stated that she sold her residential house for Rs.32.25 lakh of which Rs. 25 lakh were received by cash which cash was deposited by her into her savings bank account. To substantiate her contention, copy of the sale deed was filed.
The AO noticed that the assessee had received a sum of Rs. 3,00,000 from Smt. Balbir Kaur under agreement dated 15.3.2009 entered into by the assessee with Smt. Balbir Kaur for sale of assessee’s property. Copy of the agreement was filed. He called upon the assessee to produce Smt. Balbir Kaur for his examination. Since the assessee had subsequently on 7.5.2010 sold this property to a different person, but had not refunded the amount received from Balbir Kaur to her, the AO added this sum of Rs. 3,00,000 as income of the assessee on the ground that it was forfeited by the assessee. He also denied exemption claimed by the assessee under section 54 of the Act.
Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the order of the AO.
Aggrieved, by the order passed by CIT(A), the assessee preferred an appeal to the Tribunal.
Held
The Tribunal observed that in the present case, the question is, whether while computing capital gain and denying benefit of section 54 to the assessee, the AO has contravened CBDT’s Instruction no. F.No. 225/26/2006- ITA –II(Pt.) dated 8.9.2010 thereby rendering the assessment order invalid. It was observed that the Delhi Bench of ITAT has in the case of Crystal Phosphates Ltd. vs. ACIT 34 CCH 136 (Del. Trib.) held that once CBDT has issued instructions, the same have to be followed in letter and spirit by the AO. It also noted that the Calcutta High Court has in the case of Amal Kumar Ghosh vs. Addl. CIT 361 ITR 458 (Cal.), held that when the department has set down a standard for itself, the department is bound by that standard and it cannot act with discrimination. It also noted that the operative word in section 119(1) is `shall’. It observed that in the present case, the assessee’s case was picked up for scrutiny on the basis of AIR information and the notice was stamped “AIR Only” in compliance with para 3 of the CBDT instruction dated 8.9.2010. The AIR information in the present case was regarding cash deposit of Rs. 25 lakh by assessee in her savings bank account with OBC. The assessee explained the same as sale proceeds of her residential house. This assertion of the assessee was supported by a copy of the sale deed. As per CBDT instruction, nothing further was to be gone into by the AO since the information received through AIR was the cash deposits. The act of the AO of asking the assessee to produce Smt. Balbir Kaur for examination to ascertain whether the agreement was finalised or cancelled was not covered by AIR information and therefore, was not within the purview of the AO. This act of the AO amounted to widening the scope of scrutiny, which as per para 2 of the CBDT instruction, could have been done with the approval of the administrative Commissioner. Since this approval was not taken, the Tribunal held that the action of the AO was violative of the CBDT instruction and therefore the order passed by the AO in violation of specific CBDT instruction was not legally sustainable.
The Tribunal allowed the appeal filed by the assessee.
