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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma]
ORDER / आदेश Per Rajesh Kumar, AM:
This is the appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax- 5, Kolkata (hereinafter referred to as the Ld. CIT(A)”] dated 04.01.2019 for the AY 2015-16.
2. The assessee has challenged the order of Ld. CIT(A) on various grounds as contained in memorandum of appeal. The assessee has also filed additional ground vide letter dated 2.09.2021 challenging the jurisdiction of AO to make addition in respect of those items which was not subject matter of limited scrutiny u/s 143(2) of Assessment Year: 2015-16 Weilburger Coatings (India) Pvt. Ltd. the Act. Since the assessee has raised the jurisdictional and legal issue in the additional grounds and therefore we are first adjudicating the admissibility of the additional ground. The additional ground raised by the assessee is reproduced as under:
5. That on the facts and circumstances of the case, the action of Ld. CIT(A) in confirming the action of AO in making additions in respect of issues not mentioned in limited scrutiny were beyond jurisdiction of Assessing Officer, as the scrutiny assessment was selected for limited scrutiny u/s 143(2) and not complete scrutiny.
Ld. Counsel for the assessee at the outset submitted that the issue raised in the additional ground challenging the jurisdiction of the AO to make addition in respect of those items which were not subject matter of limited scrutiny u/s 143(2) of the Act is purely a legal issue which does not require any fresh or further verification of facts and therefore the same may kindly be admitted for adjudication as it is a substantive and fundamental issue which goes to the root of the assessment.
4. The Ld. D.R on the other hand objected the admission of the additional ground on the ground that this was never raised either before the AO or before the Ld. CIT(A) and therefore may be rejected in summary.
After having rival contentions and perusing the material on record, we find that issue raised by way of raising an additional ground is purely a legal and jurisdictional issue which does not require any further verification of facts and therefore in the interest of justice and fair play we are inclined to admit the same for hearing by following the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383 (SC).
The Ld. Counsel for the assessee submitted before the Bench that the case of the assessee was selected for limited scrutiny by issuing notice u/s 143(2) of the Act copy of which is placed at page 41 & 42 of the PB which was replied by the assessee on 06.05.2016 submitting various documents as required by the AO. The Ld. Counsel therefore submitted that the notice u/s 142(1) of the Act was issued on 25.04.2017
Assessment Year: 2015-16 Weilburger Coatings (India) Pvt. Ltd. calling upon the assessee as to furnish the various details which were also replied by the assesse on 18.12.2017 submitting the requisite details. The Ld. A.R submitted that the assessment was framed by the AO vide order dated 22.12.2017 framed u/s 143(3) of the Act wherein the AO has rejected the set off and carry forward loss and unabsorbed depreciation on the ground that 97.5% of the share of the assessee company was held by Weilburger Lacke Handelsgessellshaft MbH (WLHM) which was transferred to Weilburger Asia on 19.11.2010 and therefore on the last day of the previous year i.e. on 31.03.2015 shares of the assessee company was held by Weilburger Asia which was not carrying more than 51% of the shares of the assessee on the last day of the year for FY 2006-07, 2007-08, 2008-09 & 2009-10 in which these losses were incurred and consequently rejected the claim. The Ld. A.R submitted that the it was a limited scrutiny covering four items namely i) Receipt of large values foreign remittance, ii) Mismatch in amount paid to related persons u/s 40A(2)(b), iii) Unsecured loans from persons who have not filed their return of income and iv) Loss from currency fluctuations. The Ld. A.R submitted that the issue of setting off and carrying forward of losses was not subject matter in the limited scrutiny. The Ld. A.R therefore submitted that while passing the assessment order , the AO has exceeded his jurisdiction by dealing with and adding those items i.e set off and carry forward of brought unabsorbed loss and depreciation which were not subject of limited scrutiny. In other words the AO made addition even qua the issues which do not figure in the notice issued u/s 143(2) which is against the provisions of the Act and consequently the order passed by the AO is nullity in the eye of law. The Ld. A.R therefore prayed that the assessment framed by the AO may kindly be quashed. The ld counsel relied on the Instruction No. 5/2016 issued by CBDT on 14.07.2016and decision of the coordinate benches in the case of Shri Vijay Kumar vs. ITO in for AY 2014-15 dated 12.09.2019 and prayed that the assessment order may be quashed.
The Ld. D.R on the other hand relied on the order of authorities below by submitting that the AO rightly disallowed the claim of the assessee qua the setting off
Assessment Year: 2015-16 Weilburger Coatings (India) Pvt. Ltd. and carry forward of losses and unabsorbed depreciation on the ground that there was a change in share holdings of the assessee company and therefore the beneficial ownership of shares was not same i.e the predecessor company (WLHM) and subsidiary company Weilburger Asiaare distinct entities and the fact that there are subsidiaries of the ultimate holding company Grebe GmbH & Co. did not mean that there was no change in the beneficial ownership.
We have heard rival submissions and perusing the material on record, and also notice dated 143(2) dated 08.04.2016 issued for limited scrutiny covering four issues namely) i) Receipt of large values foreign remittance, ii) Mismatch in amount paid to related persons u/s 40A(2)(b), iii) Unsecured loans from persons who have not filed their return of income and iv) Loss from currency fluctuations and also subsequent notice issued u/s 142(1) dated 25.04.2017 called for further information. In our view this is incomplete disregard of the Instruction No. 5/2016 issued by CBDT on 14.07.2016 which provides that while proposing to take up complete scrutiny which was fixed for limited scrutiny, the AO shall form a reasonable view that there is a possibility of under-assessment of income if the case is not examined under complete scrutiny and that plea has to be on the existence of the credible material not merely on suspicion and conjecture or unreliable sources. We note that the instruction provide that there has to be a direct nexus between the available material and formation of such view. The relevant part of the instruction are reproduced as under:
In order to ensure that maximum objectivity is maintained in converting a case falling under Limited Scrutiny' into a 'Complete Scrutiny' case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up 'Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer ('AO') shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under 'Complete Scrutiny'. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable.
3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view;
Assessment Year: 2015-16 Weilburger Coatings (India) Pvt. Ltd. b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view.
4. It is further clarified that in cases under 'Limited Scrutiny', the scrutiny assessment proceedings would initially be confined only to issues under 'Limited Scrutiny' and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to 'Complete * Scrutiny' after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in 'Limited Scrutiny'. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting 'Complete Scrutiny' in such cases. Instruction no. 4 provides only complete scrutiny after following the procedure laid down above and the AO may examine the additional issues besides the issue involved in limited scrutiny and AO shall also expeditiously conducted complete scrutiny in such cases. We note that in the present case there has been a complete violation of the Circular issued by the CBDT. The case of the assessee finds support from the decision of Co-ordinate Bench of Delhi in the case of Shri Vijay Kumar (supra) wherein it has been held as under:
“3. The main contention of the Ld. Counsel for the assessee is that the Assessing Officer while making the impugned additions has exceeded his jurisdiction. That the case of the assessee was selected for limited scrutiny issue i.e. regarding security transaction. The Assessing Officer could not find any reason to make any addition in respect of issue for which the limited scrutiny was done. However, the Assessing officer made the certain other additions for which the Assessing Officer did not have any jurisdiction.
The Ld. D.R has been fair enough to admit that the impugned additions have been made by the Assessing Officer on certain other issues, whereas, the case of the assessee was selected for the purpose of limited scrutiny relating to security transactions.” Considering the facts of the assessee’s case and also the ratio laid down drawn in the above decisions and also the CBDT Instruction No. 5/2016, we are of the considered view that the AO has exceeded his jurisdiction in enquiring into those issues beyond the scope of limited scrutiny which is in clear violation of mandate given by CBDT in the said Circular and has been held by the Co-ordinate Bench in the case of Shri Vijay Kumar (supra) to be bad in law. We note that CBDT has in para 4 of the said instruction clarified that in a limited scrutiny, the scrutiny assessment proceedings would initially be confined only to issues and questionnaire, enquiry, investigation etc.
Assessment Year: 2015-16 Weilburger Coatings (India) Pvt. Ltd. would be restricted to such issues in the limited scrutiny. Only upon conversion of such case to complete scrutiny after following the procedure laid down as stated , the AO may examine the issues other than the issues involved in the limited scrutiny but in the present case the procedures were not followed and assessment was conducted in violation of this Instruction. In our opinion, the order passed by the AO is bad in law and cannot be sustained for the said reason. Accordingly we quash the assessment order as nullity and bad in law. Issue raised by the assessee in ground no. 1 is allowed.
In the result, the appeal of the assessee is partly allowed.
Order is pronounced in the open court on 28th March, 2023
Sd/- Sd/- (Sonjoy Sarma /संजय शमा�) (Rajesh Kumar/राजेश कुमार) Judicial Member/�या�यक सद�य Accountant Member/लेखा सद�य Dated: 28th March, 2023 SB, Sr. PS Copy of the order forwarded to:
1. 1. Appellant- Weilburger Coatings (India) Pvt. Ltd. , JL-4, Kandua Polypark, Mouza-Sandhipur, P.O.-Janaigar, P. S-Sankrail, Howrah-711302.
2. Respondent – DCIT, Circle-13(2), Kolkata 3. Ld. CIT(A)-5, Kolkata (Sent through e-mail) 4. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)