SAHKUMBARI ASSOCIATES,DEHRADUN vs. ACIT, CIRCLE-2, DEHRADUN

आदेश /O R D E R PER C.N. PRASAD, J.M.

This appeal is filed by the Assessee against the order of learned

Commissioner of Income Tax (Appeals), Dehradun dated 12.12.2017 for the AY 2014-15. In the grounds of appeal the assessee challenged the

order of the Ld. CIT(Appeals) in sustaining the disallowance of Rs.71,91,575/- u/s 37(1) of the Act out of lottery expenses debited to

Profit & Loss Account. The assessee also challenged the very jurisdiction

of the Assessing Officer in making the disallowance u/s 37(1) of the Act on the ground that the Assessing Officer exceeded his jurisdiction in

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making disallowance u/s 37(1) of the Act as the return was selected only

for “limited scrutiny” and disallowance u/s 37(1) is not one of those

items covered under “limited scrutiny”.

of income of assessee for AY 2014-2015 was filed on 30.09.2014 with NIL

income. The case was selected for “limited scrutiny” under CASS system

and the notice u/s 143(2) of Income Tax Act, 1961 was issued on

28.08.2015. The reason for limited scrutiny was: “Substantial increase in

capital in a year”; “high interest expenditure against new capital added

in Work in progress or addition made to fixed assets”; This reason of

limited scrutiny is duly noted in both the impugned assessment order and

impugned first appeal order. Admittedly during assessment there is no

conversion of case to complete scrutiny by mandatory approval as

stipulated in CBDT Instruction No. 20/2015 dated 29.12.2015 and CBDT

Instruction No. 5/2016 dated 14.07.2016. However, the AO while

completing the assessment disallowance of business expenditure of

Rs.71,91,575/- was made in respect of lottery/tender expenses u/s 37 of

the Act. Assessee took specific ground at first appeal stage that the

stated disallowance is outside the scope of “limited scrutiny” which has

not been expressly decided in impugned first appeal order but the

disallowance has been ultimately sustained by Id CIT(A) so it is deemed

to be decided against the assessee by natural implication (128 ITR 52 &

102 1TD 189).

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jurisdictional /legal ground that addition sustained by Ld. CIT(A) is

outside the domain of limited scrutiny vide ground 1. The Ld. Counsel

for the assessee placing reliance on the decisions of the coordinate bench

of the Delhi Tribunal in the cases of CBS International Projects Pvt. Ltd.

Vs. ACIT (ITA No. 144/Del/2019) dated 28.02.2019 and Shri Amit Kumar

Dey Vs. DCIT (ITA No. 5526/Del/2018) dated 30.03.2021 submits identical

issue i.e. as to whether there can be any addition/disallowance in the

limited scrutiny other than the items specified in the limited scrutiny can

be made while completing the assessment came up for hearing and the

Tribunal considering the CBDT Circulars held that the items which were

not covered under limited scrutiny cannot be disallowed/added while

completing the limited scrutiny assessment.

the assessee out of lottery expenses were wrongly disallowed/sustained

by ld CIT(A) as even after Ld. CIT(A) admitted in para 17 page 7 of

impugned order that stated act of assessee in using nominees for the

liquor lottery (core business of assessee) for which ld CIT(A) has given

categorical finding in para 17 of his order that beneficial owner of said

applications, is assessee herein only, just on moral/ extraneous and

irrelevant grounds having no bearing to sec. 37 of the Act which is

contrary to well settled and well acknowledged description of sec.37 of

the Act.

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orders of the authorities below.

below. The assessee filed return of income on 30.09.2014 declaring the

Nil income. The case was selected for limited scrutiny through CASS and

the reasons for selecting for limited scrutiny are as under: -

“Substantial increase in capital in a year”, “Higher interest expenditure against new capital added in work-in-progress or addition made to fixed assets”.

Accordingly, notice u/s 143(2) was issued on 28.08.2015 and the

assessment was completed u/s 143(3) of the Act on 19.12.2016

determining the income of the assessee at Rs.Nil. However, the

Assessing Officer determined the loss of the assessee at Rs.30,74,520/- as

against returned loss of Rs.1,02,88,590/-. While completing the

assessment the Assessing Officer made disallowance u/s 37(1) of the Act

in respect of business expenditure and Rs.22,500/- u/s 40A(3) in respect

of cash paid for purchase of cooler in violation of provisions of section

40A(3) of the Act. The assessee challenged the order of the Ld. Assessing

Officer before the Ld. CIT(A) in making disallowances/additions on the

items not covered under limited scrutiny. The assessee also challenged

the order of the Assessing Officer on merits of the disallowances made

u/s 37(1) & 40A(3) of the Act. It is observed from the order of the Ld.

CIT(A) that the Ld. CIT(A) sustained the disallowance of business

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expenditure which was disallowed u/s 37(1) of the Act and deleted the

disallowance u/s 40A(3) on merits. However, the Ld.CIT(A) has not given

any finding on the jurisdictional ground raised by the assessee in making

disallowances on the points not covered under limited scrutiny.

very much clear that the case of the assessee was selected for limited

scrutiny to verify substantial increase in capital, interest expenditure

against new capital added in work-in-progress or additions made to fixed

assets. There is no finding by the Assessing Officer whether the limited

scrutiny was converted into full scrutiny and for this purpose necessary

approvals have been obtained. The Assessing Officer made disallowance

u/s 37(1) and 40A(3) of the Act while completing the scrutiny assessment

which were not the items for which the return was selected for limited

scrutiny. The CBDT Circular in Instruction No. 20 of 2015 dated

29.12.2015 and Instruction No. 5 of 2016 dated 14.07.2016 clearly

describes the scope of enquiry in cases selected under limited scrutiny

that the scrutiny assessment proceedings in case of limited scrutiny

would initially be confined only two issues under limited scrutiny and

questionnaires, enquiry and investigation etc. would be restricted to such

issues. The CBDT clarified that only upon conversion of cases to

complete scrutiny after following the procedure i.e. obtaining necessary

approvals from Pr. CIT/CIT in writing the Assessing Officer can deal with

any issue emerging from ongoing scrutiny proceedings. In the case on

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hand it is the finding of the Assessing Officer in the assessment order that

the case of the assessee was selected for limited scrutiny.

bench of the Tribunal in the case of Shri Amit Kumar Dey, wherein the

Tribunal held as under: -

“9. We have carefully considered the rival contentions and perused the orders of the lower authorities. Admittedly, in the return of income assessee has claimed the deduction of Rs.60,10,487/- under Section 54 of the Act. This is evident from the computation of total income placed at page No. 3 of the paper book. The notice under Section 143(2) of the Act dated 20.09.2016 title limited scrutiny’ categorically states that the issue of deduction claimed under the head capital gains have been identified for examination. Admittedly, no such adjustment to the returned income of the assessee was made with respect to deduction claimed by the assessee under the head capital gain. Admittedly, such deduction was allowed to the assessee. Therefore, it is apparent that the reasons for selection of the limited scrutiny was for verifying the deduction claimed Under the head capital gain by the assessee which was examined by the learned assessing officer and he was satisfied and thus allowed the claim. However, the learned assessing officer found that there are shares of two companies, which are purchased by the assessee, bonus was declared on them, and assessee sold part of the shares and has resultantly shown capital loss on those transactions. Such losses were set off against the capital gain earned by the assessee in mutual funds and other securities. Admittedly, this was not the issue of limited scrutiny before the assessing officer. Therefore now the facts before us shows that assessing officer has made an adjustment to the total income of the assessee on the issue which was not part of the limited scrutiny issue for which the case of the assessee was picked up for scrutiny. There is no evidence placed before us that such a limited scrutiny assessment proceedings have been converted into complete scrutiny proceedings. The assessment order as well as the orders of the learned and CIT(A) also does not show any indication of the same. If the Assessing Officer desires to 6

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look into any other adjustment or examination of any issue, then what is mentioned as reasons for limited scrutiny, the CBDT has issued a clear instruction No. 5 of 2016 dated 14.07.2016 wherein after obtaining the administrative approval from the Pr. Commissioner of Income Tax or CIT, as the case may be, he can embark upon other issues by converting it into a ‘complete scrutiny’ case from ‘limited scrutiny’ case. In the present case, no such exercise has been shown to us. Further, the above instruction clearly shows that only after conversion of case to complete scrutiny and after following the detailed procedure contained therein, the Assessing Officer may examine the issues other than limited scrutiny issue. The AO is also required to intimate the assessee regarding such conversion of case into complete scrutiny. In the present case, it is apparent that the Id. AO has touched upon the issues, which are not part of the limited scrutiny. Therefore, the same deserves to be deleted on this account only. In view of this, we direct the Id. Assessing Officer to delete the disallowance of set off of capital loss of Rs.7,61,581/-.” 9. Similar view has been taken by the coordinate bench in the case of

CBS International Projects Pvt. Ltd. Vs. ACIT in ITA No. 144/Del/2019

dated 28.02.2019. Therefore, in the facts and circumstances of the case

of the assessee, we hold that the Assessing Officer travelled beyond his

jurisdiction and made disallowances u/s 37(1)/40A(3) of the Act which

were not the items for consideration in the limited scrutiny and,

therefore, the assessment order passed u/s 143(3) is liable to be

quashed. We order accordingly. Ground No. 1 of grounds of appeal is

allowed.

ground, we are not inclined to go into the merits of the disallowance

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made u/s 37(1) of the Act as it would be only an academic exercise at

this stage.

Order pronounced in the open court on 28/02/2023

Sd/- Sd/- (ANIL CHATURVEDI) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28/02/2023 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order

Assistant Registrar, ITAT: Delhi Benches-Delhi