Limited scrutiny cannot be expanded to complete without PCIT approval; section 54F deduction allowable via agreement to sell and payment without registered deed.

ORDER 

PER RAJ KUMAR CHAUHAN , J.M.:

This appeal is filed by the appellant/assessee against the final assessment order dated 18.10.2023 passed u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (‘the Act’), in pursuant to the direction of Ld. Dispute Resolution Panel-2, New Delhi (Ld. DRP) u/s 144C(5) of the Act for A.Y. 2021-22.

2. The brief facts as culled out from the order of lower authorities are that the assessee is a non-resident individual. The return of income for the Assessment Year 2021-22 was e-filed on 29th December, 2021 declaring income of Rs. 2,32,900/-. Subsequently, the case was selected for limited scrutiny with respect to ‘capital gain deduction claimed’ on the basis of CASS and the notice u/s 143(2) of the Act dated 28.06.2022 was issued. The assessee file reply to the notice is issued stating that he has not done any business or profession during the year under consideration i.e. financial year 2020-21 and therefore does not have any income under the head ‘income from business or profession’ and his income comprises ‘income from capital gain’ and ‘income from other ‘sources’ during financial year 2020-21 relevant to A.Y. 2021-22. During the year under consideration, the appellant-assessee derived long term capital gain (‘LTCG’) of Rs. 4,07,88,000/- on sale of shares of M/s. Gemini Merchandise Pvt. Ltd. in respect of which deduction u/s 54F of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was claimed towards purchase of a residential house property. Subsequently, the case was selected for limited scrutiny. Vide draft assessment order dated 31.12.2022 the ld. AO proposed to make addition of sale of shares amounting to Rs. 4,14,06,000/- treating the same to be bogus/non-genuine as unexplained money u/s 69A of the Act. Simultaneously, deduction claimed u/s 54 F of the Act was denied for non-registration of sale deed in respect of the purchase of residential house property. The DRP vide its directions dated 18.09.2023 passed u/s 144C(13) of the Act, upheld the aforesaid action of the AO, pursuant to which final assessment order dated 18.10.2023 was passed at an assessed income of Rs. 4,16,38,920/- u/s 143(3) r.w.s. 144C of the Act. The assessee has earned an LTCG of Rs. 4,07,88,000/- on sale of shares of M/s Gemini Merchandise Pvt. Ltd. On examination of the computation of LTCG it was observed that the assessee has taken deduction of capital gain earned on sale of shares under section 54F of the Act. To claim the benefit of section 54F, the assessee entered into a sale / purchase agreement with Ms. Shashita for a residential property in Gurgaon. Hence, to analyze the applicability of Section 54F on the assessee’s sale transaction, notices u/s 142(1) were issued to the assessee and the assessee was asked to give evidence of the valuation of the shares of M/s. Gemini Merchandise Private Limited. The sale and purchase transaction by the assessee was examined and it was found to be a sham transaction because the assessee has sold the shares on 14.09.2020 to Mr. Gaurav Garg, Director of M/s. Gemini Merchandise Pvt. Ltd. The sale and purchased 223000 shares from 10 Kolkata based entities. It was noticed that these entities have common addresses and the names of these entities (As per PAN latest details) were changed which raised some sus