KOMAL VIJAYKISHAN AGRAWAL,PUNE vs. CIRCLE 7, PUNE, PUNE

PER R.K. PANDA, VICE PRESIDENT :

This appeal filed by the assessee is directed against the order dated 18th August, 2025 of the Ld. National Faceless Appeal Centre/NFAC), Delhi passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to Assessment Year 2023-24.

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i. Low net profit shown in relation to turnover ii. Discrepancy between taxable business receipts shown in Schedule TDS 2 and receipts shown in P&L account.

2.1 Accordingly, statutory notice u/s.143(2) of the Act was issued and served on the assessee to which the assessee filed certain details. During the course of assessment proceedings, the Assessing Officer noted that the assessee has taken unsecured loans amounting to Rs.11,50,000/- from various persons as under :

2.2 He therefore asked the assessee to submit the details of unsecured loans taken from the above-mentioned persons and establish their Identity,

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creditworthiness and genuineness of the transactions. The assessee in response to the same submitted their ledger confirmations, Aadhar and PAN card detais and bank statements of the specified dates when the lenders have given the unsecured loans to the assessee. However, it was submitted that they have not filed income tax returns for which the assessee did not file the copies of the income tax returns of the above persons. From the bank statements furnished by the assessee, the Assessing Officer noted that assessee has not provided the bank statements of the lenders for the entire year. He, therefore, issued a final show cause notice asking the assessee to explain as to why the unsecured loans of Rs.11,50,000/- should not be added to the total income of the assessee as unexplained cash credits u/s.68 of the I.T. Act.

2.3 The assessee subsequently submitted before the Assessing Officer that the business of the assessee is trading in Cement by Truck. The assessee is dependent mainly on timely supply of goods and with minimum damages. He therefore has taken security deposit from the Drivers for timely supply of the goods to M/s. Balaji Sales Corporation.

2.4 However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He noted that during the entire course of assessment proceedings, the assessee never told that the so called lenders are actually Truck drivers employed with the family concern of the assessee M/s. Balaji Sales Corporation and the unsecured loans taken from these persons are Security

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Deposits. The assessee came up with this theory of Security Deposits only in reply to the show cause notice which makes the loan transactions more suspicious. He noted that if the so called Drivers are employed with family concern of the assessee, i.e. M/s. Balaji Sales Corporation and receiving salary from M/s. Balaji Sales Corporation there was no need of any Security Deposit to be taken by the assessee. He further noted that the assessee is required to maintain the books of account since the case of the assessee is covered u/s.44AB of the Act and therefore it is not known as to why the sum of Rs.11,50,000/- was recorded as unsecured loans instead of Security Deposits. According to the Assessing Officer, the assessee also failed to establish that these lenders are actually employed with M/s. Balaji Sales Corporation. The assessee has submitted only the copies of their driving licenses possessed by these persons from which it cannot be ascertained that they are employed with M/s. Balaji Sales Corporation. Since the persons who have given the loans to the assesesee are having meagre income of Rs.2.00 to Rs.3.00 lakh per annum, therefore, the Assessing Officer doubted the creditworthiness of these persons. Invoking the provisions of section 68 of the Act he made addition of Rs.11,50,000/- to the total income of the assessee.

“6. Decision

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6.1The appellant filed her return of income for the assessment year 2023- 24 on 03.10.2023 declaring a total income of Rs. 49,63,500/-. She is engaged in the business of wholesale trading of cement through her proprietorship concern, M/s Nirmitee Engineering Company, and during the relevant financial year reported gross receipts of Rs. 32,12,58,281/-. The case was selected for scrutiny assessment under CASS for examination of two specific issues, namely, low net profit shown in relation to turnover and discrepancy between taxable business receipts as per Schedule TDS-2 and the receipts reflected in the profit and loss account. In pursuance thereof, a notice under section 143(2) of the Income-tax Act, 1961 was issued, followed by multiple notices under section 142(1) calling for, inter alia, complete details of purchases, sales, creditors, debtors, full-year bank statements, details of unsecured loans taken during the year with supporting documentary evidence, reconciliation of TDS vis-à-vis receipts, and a proper explanation for the low profit declared. During the assessment proceedings, the Assessing Officer noticed that the appellant had reflected unsecured loans aggregating to Rs. 11,50,000/- from eight different persons in her books of account. As per the settled position of law under section 68 of the Act, the onus squarely lay upon the appellant to prove, to the satisfaction of the Assessing Officer, the three essential ingredients, namely, the identity of each creditor, the creditworthiness of each creditor, and the genuineness of each transaction. In response to queries, the appellant submitted confirmation letters from the creditors along with copies of their PAN and Aadhaar cards, and also provided certain extracts from their bank accounts purportedly showing the relevant credit entries. The Assessing Officer, upon examination, found that the appellant had not produced full-year bank statements for any of the creditors, that none of the creditors were income-tax assessees, that their declared incomes were modest and incommensurate with the amounts advanced, and that no interest was paid on these loans. The AO also observed that there were no written agreements in respect of the alleged loans, and that the amounts were recorded in the books simply as "unsecured loans" without any supporting documentation describing them as "security deposits" or explaining their commercial necessity. It was only at the stage of reply to the show-cause notice that the appellant introduced an altogether new explanation to the effect that these amounts were, in fact, refundable security deposits taken from truck drivers employed with M/s Balaji Sales Corporation, a sister concern of the appellant, to ensure continuity of service and to safeguard against operational disruptions. The appellant claimed that instead of paying interest on such deposits, the drivers were compensated through additional monthly salary amounts proportionate to the deposits held. The Assessing

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Officer found this explanation to be an afterthought, inconsistent with the contemporaneous accounting treatment, and unsupported by independent corroborative evidence. No salary records or payslips showing any such enhanced payments were produced, and the AO noted that the drivers in question had long service tenures ranging from 11 to 21 years without such deposits having been taken in earlier years. The AO also found it commercially improbable that deposits from employees of one concern would be recorded in the books of another concern without any formal arrangement or agreement. Consequently, holding that the appellant had failed to discharge her burden under section 68, the Assessing Officer treated the entire sum of Rs. 11,50,000/- as unexplained cash credits and initiated penalty proceedings under sections 271AAC(1) and 272A(1)(d) of the Act. During the appellate proceedings before this forum, the appellant reiterated her submissions and, in addition, furnished ID cards of the creditors as proof of their identity. However, upon a careful examination of the material placed on record, it is noted that complete bank statements were furnished for only three of the eight creditors, and even in those cases significant discrepancies emerged which go to the root of the matter and seriously undermine the credibility of the appellant's explanation. In the case of Shri Pramod Patil, while the appellant's books record a loan of Rs.2,50,000/-, the bank statement produced reflects a transfer of Rs. 4,00,000/- on 19.01.2022. This not only constitutes a mismatch but also raises a serious question as to why the recorded loan amount differs from the actual transfer reflected in the bank records. Further, Parmod's annual salary was only Rs. 3,72,300/- during the year, which makes it highly improbable that he could have advanced an amount exceeding his total annual earnings without any interest or security. Similarly, in the case of Shri Badal Singh Chavan, the appellant claims to have taken Rs. 2,50,000/- as loan, but the bank statement furnished shows a transfer of only Rs. 1,00,000/-. These mismatches are material and cannot be brushed aside as clerical errors; they point towards a lack of reliability in the appellant's version and cast grave doubts on the authenticity of the transactions. The appellant has also taken a legal plea that the Assessing Officer travelled beyond jurisdiction by making an addition under section 68 when the case was selected for scrutiny on different issues. This plea is devoid of merit. The case was selected for scrutiny under CASS on the basis of "low net profit shown in relation to turnover" and "discrepancy between taxable business receipts shown in Schedule TDS-2 and receipts shown in the

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profit and loss account." These issues required the Assessing Officer to examine in detail the books of account, bank statements, and other financial transactions recorded therein. In the course of such examination, the AO noticed unsecured loans aggregating to Rs. 11,50,000/- recorded in the appellant's books. Once such credits came to light in the normal process of verifying the CASS-flagged issues, the AO was well within his statutory powers to call for an explanation under section 68 and to make an addition where the explanation was not satisfactory. Section 143(3) of the Act empowers the Assessing Officer to assess the total income and determine the tax payable thereon after making such enquiry as he considers necessary. Therefore, in the present case, the AO did not travel beyond his jurisdiction, and the addition under section 68 was within the permissible scope of assessment proceedings. On merits, the explanation furnished by the appellant does not satisfy the cumulative test under section 68. While the identity of the creditors may be established through PAN and Aadhaar, the creditworthiness of the creditors remains unsubstantiated. The modest incomes of the alleged creditors, the absence of their ITRs, the lack of full-year bank statements, and the unexplained mismatches between the amounts claimed and the amounts reflected in banking records all militate against the claim of creditworthiness. The genuineness of the transactions is equally in doubt, given the belated change in the nature of the credits from unsecured loans to security deposits, the absence of any written agreements or independent corroboration of the alleged arrangement, and the commercial improbability of the stated practice. The Hon'ble Supreme Court in CIT v. P. Mohanakala (291 ITR 278) has categorically held that mere routing of funds through a banking channel is not conclusive proof of genuineness, and that the surrounding circumstances and preponderance of probabilities must be considered. In the present case, the surrounding circumstances, including disproportionate amounts compared to the earnings of the creditors, lack of interest payments, absence of formal agreements, and mismatches in the bank statements, cumulatively point towards the conclusion that the appellant has failed to satisfactorily explain the nature and source of the impugned credits. In light of the above detailed factual and legal analysis, I find that the Assessing Officer's action in treating the sum of Rs. 11,50,000/- as unexplained cash credits under section 68 is fully justified. Further, the initiation of penalty proceedings under sections 271AAC(1) and 272A(1)(d) is consequential to the addition and is as per law. The charging of interest under sections 234A, 234B, 234C, and 234D is also mandatory and consequential in nature and calls for no interference.

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6.2 In the result, the addition made by the Assessing Officer is confirmed in toto, and the appeal filed by the appellant is dismissed.” 4. Aggrieved with such order passed by the ld.CIT(A)/NFAC, the assessee is in appeal before this Tribunal by raising the following grounds :

“On the facts and circumstances of the case and in law: General Ground 1. The Ld. CIT(A) erred in upholding the assessment order assessing the total income at Rs. 61,13,500 as against the returned income of Rs. 49,63,500. The returned income may kindly be accepted. Addition under Section 68 is erroneous and unjustified 2. The Ld. CIT(A) erred in upholding the addition made by the Ld. AO of Rs. 11,50,000 U/s 68 of the Act which is contrary to the provisions of the law. 3. The Ld. CIT(A) and Ld. AO failed to appreciate that the impugned security deposit cannot be added U/s 68 just because there are no written agreements and the impugned security deposits have been classified in books as unsecured loan and not as security deposits. 4. The Ld. CIT(A) failed to appreciate that in the case of security/contractual deposits there is no need to establish ingredients of section 68 i.e. credit worthiness of depositors and documents like ITR etc. Therefore, the addition is liable to be deleted. 5. The Ld. CIT(A) failed to appreciate that the appellant had sufficiently established the identity of the persons, their creditworthiness, and the genuineness of the transactions by providing: a) PAN details of all eight individuals b) Aadhaar card copies c) Bank statements showing the actual transactions and d) salary details. The addition made by the Ld. AO is liable to delete. Addition made beyond reasoning of CASS 6. The Ld. CIT(A) failed to appreciate that the Ld. AO has travelled beyond his jurisdiction and made addition U/s 68 without appreciating the following points:

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6.1. Failed to appreciate that when the case was selected for scrutiny on the reasoning of low net profit declared in relation to turnover; 6.2. Failed to appreciate that when the case was selected for scrutiny on the reasoning of discrepancy between taxable business receipts shown in schedule of TDS - 2 and receipts as declared in profit and loss account; The Ld. AO is unjustified in exceeding his jurisdiction by making addition U/s 68 of the Act. Violation of CBDT instructions 7. The Ld. CIT(A) failed to appreciate that the Ld. AO disregarded the instruction no. 7/2014 dated 26.09.2014, instruction no. 20/2015 dated 29.12.2015 and instruction no. 5/2016 dated 14.07.2016 when he made the addition beyond the reasons for selection of scrutiny. In view of this the assessment order passed violating CBDT instruction is liable to quash. Substance over form 8. The Ld. CIT(A) and the Ld. AO erred in alleging that the explanation at the stage of final show cause notice is new explanation. The Ld. CIT(A) and Ld. AO failed to appreciate that substance of the transaction will prevail over form. 9. The Ld. AO erred in making the addition holding that the impugned acceptance of deposits is from employees of one concern and found recorded in books of other concern. Failed to appreciate that every transaction need not be supported by formal agreement. To accept deposits is normal commercial transaction 10.The Ld. CIT(A) failed to appreciate that the Ld. AO disregarded the legitimate business rationale behind accepting security deposits from truck drivers, which is a widely recognized and common commercial practice within the transportation and logistics industry. Penalty proceedings are unjustified 11.On the facts and circumstances of the case the Ld. AO erred in initiating penalty proceedings under Sections 271AAC(1) and 272A(1)(d). Levy of interest

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12.On the facts and circumstances of the case the Ld. AO erred in charging interest u/s 234A, 234B, 234C and 234D of the income tax act. That the appellant craves leave to add, alter, amend, modify or delete any ground of appeal on or before hearing.”

5.1 However, the Assessing Officer has gone beyond the scope of the Limited Scrutiny and made addition of Rs.11,50,000/- by invoking the provisions of section 68 of the I.T. Act. Referring to the decision of the Coordinate Bench of the Tribunal in the case of ABIL Realty Pvt. Ltd. Vs. ITO in ITA No.446/PUN/2024 order dated 19.03.2025 for the A.Y. 2016-17 he submitted that where the case is selected for Limited Scrutiny under CASS the Assessing Officer cannot make any other addition by travelling beyond the issues for which the case was selected without prior permission of the concerned PCCIT/PCIT/CIT. He accordingly submitted that on this ground itself the addition made by the Assessing Officer and sustained by the ld.CIT(A)/NFAC is liable to be deleted.

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genuineness of the transactions. He submitted that if the income is below the threshold of minimum slab, filing of income tax return may not be considered as strict parameter for the purpose of invoking the provisions of section 68 of the I.T. Act and the source may be accepted as genuine. For the above proposition, he relied on the decision of the Coordinate Bench of the Tribunal in the case of Jalgaon Golden Transport Pvt. Ltd. Vs. DCIT in ITA No.1991/Pun/2025 order dated 09.03.2026 for the A.Y. 2016-17. He accordingly submitted both legally and factually the addition made by the Assessing Officer and sustained by the ld.CIT(A)/NFAC is not justified.

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beyond the scope of the reasons given for scrutiny without taking the prior permission of the competent authority.

“21. We have heard the rival arguments made by both the sides, perused the order of the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. Before deciding the issue on merit, we would first like to decide the additional ground raised by the assessee i.e. as to whether the addition made by the Assessing Officer towards deemed dividend u/s 2(22)(e) of the Act can be sustained if the same is outside the scope of limited scrutiny proceedings. We find the reasons recorded by the Assessing Officer at para 2 of his order for selection of the case for limited scrutiny are as under: 2. The issues to verify under LIMITED scrutiny are 1) "Low income in comparison to high loans/advances/Investment in shares appearing in balance sheet (Part A-BS, Income in Part B-TI) 2) Low income in comparison to very high investment appearing in balance sheet (Part A-BS, Income in Part B-TI and Schedule EI of ITR) 3) Large other expenses claimed in the Profit & Loss a/c 4) Large current liability in comparison to total asset in balance sheet (Part A-BS of ITR)" as per the return of income filed for the assessment year concerned.

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Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 29th of December, 2015 Subject: Scrutiny Assessments-some important issues and scope of scrutiny in cases selected through Computer Aided Scrutiny Selection (‗CASS')-reg .- The Central Board of Direct Taxes (‗CBDT'), vide Instruction No. 7/2014 dated 26-9-2014 had clarified the extent of enquiry in certain category of cases specified therein, which are selected for scrutiny through CASS. Further clarifications have been sought regarding the scope and applicability of the aforesaid Instruction to cases being scrutinized. 2. In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid Instruction, following clarifications are being made: i. Year of applicability: As stated in the Instruction No. 7/2014, the said Instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014. ii. Whether the said Instruction is applicable to all cases selected under CASS: The said Instruction is applicable where the case is selected for scrutiny under CASS only on the parameter(s) of AIR/CIB/26AS data. If a case has been selected under CASS for any other reason(s)/parameter(s) besides the AIR/CIB/26AS data, then the said Instruction would not apply. iii. Scope of Enquiry: Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s) of AIR/CIB/26AS data. In such cases, the Assessing Officer, shall also confine the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in these cases can only be conducted as per the guidelines and procedures stated in Instruction No. 7/2014. iv. Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data, the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned. 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year- one is -Limited Scrutiny' and other is- Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in Limited Scrutiny' or ‗Complete Scrutiny' through notices issued under section 143(2) of

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the Income-tax Act, 1961 (‗Act'). The procedure for handling ‗Limited Scrutiny' cases shall be as under: a. In ‗Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in ‗Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the ‗Limited Scrutiny' issues. c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for ‗Complete Scrutiny' with the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating Complete Scrutiny' in that particular case. Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmadabad). 4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show- cause notice. 5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance. Sd/- (Ankita Pandey) Under Secretary to Government of India‖ 23. Further, Instruction No.5/2016 issued by the CBDT reads as under: INSTRUCTION NO.5/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes

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North Block, New Delhi, the 14th of July, 2016 Subject: Direction regarding scope of enquiry in cases under Limited Scrutiny' selected through CASS 2015 & 2016-regd.-Vide Instruction No. 20/2015 dated 29.12.2015 in File of even number, Board has laid down Standard Operating Procedure for handling of cases under ‗Limited Scrutiny' which were selected through Computer Aided Scrutiny Selection in ‗CASS Cycle 2015'. In these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny. However, in revenue potential cases, it was further provided that ‗Complete Scrutiny' could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT. 2. 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; 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. 5. It is also clarified that once a case has been converted to ‗Complete Scrutiny', the AO can deal with any issue emerging from ongoing scrutiny proceedings notwithstanding the fact that the reason for such issue have not been included in the Note. 6. To ensure proper monitoring in cases which have been converted from Limited Scrutiny' to ‗Complete Scrutiny', it is suggested, that provisions of section 144A of the Act may be invoked in suitable cases. To prevent possibility

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of fishing and roving enquiries in such cases, it is desirable that these cases should invariably be picked up while conducting Review or Inspection by the administrative authorities. 7. The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are pending scrutiny cases as well as cases selected/being selected under the CASS 2016. 8. The contents of this Instruction may be brought to the notice of all for necessary compliance. 9. Hindi version to follow. Sd/- (Rohit Garg) Deputy Secretary to the Government of India‖ 24. Similarly, the CBDT on 30.11.2017 has issued the guidelines regarding unauthorized expansion of scope of limited scrutiny which read as under: F.No. DGIT(Vig.)/HQ/SI/2017-18 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi-110001 Dated: 30th November, 2017 Subject: Unauthorized expansion of the scope of limited scrutiny -- instructions -- reg., CBDT has issued detailed guidelines/ directions for completion of cases of limited scrutiny selected through CASS module. These guidelines postulate that an Assessing Officer, in limited scrutiny cases cannot travel beyond the issues for which the case was selected. The idea behind such stipulations was to enforce checks and balances upon powers of an AO to do fishing and roving inquiries in cases selected for limited scrutiny. 2. Further, the guidelines for proper maintenance of order sheets have been given in the Manual of Office Procedure issued by the Directorate of Organisation and Management Services. The Manual clearly lays down: - A. The minutes of the hearing must be entered with date, in the order-sheet. B. Make proper order-sheet entries for each posting, hearing and seeking and granting of adjournments. C. If nobody attends a hearing or the request for adjournment comes after the hearing date, enter the facts in the order-sheet. Maintenance of a cursory and cryptic order sheet shows irresponsible, ad hoc and undisciplined working of any officer. 3. Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited

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Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension. 4. In view of discussion in the preceding paragraphs it is once again reiterated that the Assessing Officers should abide by the instructions of CBDT while completing limited scrutiny assessments and should be scrupulous about maintenance of note sheets in assessment folders. (Rakesh Gupta) ADO (V) HQ-I New Delhi 25. A perusal of the above three instructions / circulars issued by the CBDT from time to time clearly and categorically shows that if during the course of assessment proceedings in limited scrutiny cases, it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding certain limit requiring substantial verification on any other issue(s), then, the case may be taken up for „Complete Scrutiny‟ with the approval of the PCCIT / Pr. CIT / CIT concerned. Without taking prior approval of the PCCIT / Pr.CIT / CIT or Pr.DIT/DIT, the Assessing Officer cannot expand the scope of limited scrutiny to complete scrutiny. The CBDT has also cautioned the Assessing Officers who have travelled beyond their jurisdiction while making assessments in limited scrutiny by initiating inquiries on new issues without complying with the mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. The CBDT has viewed very seriously such instances and in certain cases explanations have been called for from the officers. It is also to be noted that the CBDT circulars are binding on the Revenue authorities and once the Assessing Officer has not followed the CBDT circular / guidelines in case of limited scrutiny and expands the scope by initiating enquiries on new issues i.e. here the provisions of section 2(22)(e) of the Act, such addition on a new issue which is not the issue as per the limited scrutiny, cannot be upheld. 26. We find the Hon‟ble Calcutta High Court in the case of PCIT v. Weilburger Coatings (India) (P) Ltd. (supra) has held that the Assessing Officer making additions in respect of issues not mentioned in limited scrutiny were beyond jurisdiction of the AO as the scrutiny assessment was selected for limited scrutiny u/s 143(2) and not complete scrutiny. 27. We find the Hon‟ble Calcutta High Court in the case of PCIT v. Sukhdham Infrastructures LLP (supra) has held that the Assessing Officer having issued notice under section 142(1) during the limited scrutiny assessment proceedings seeking information regarding secured and unsecured loans which was not an issue covered by limited scrutiny prior to the conversion of limited scrutiny into complete scrutiny, the Tribunal was justified in holding that the procedure adopted by the Assessing Officer

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was in complete derogation to Instruction No.5 of 2016, dt. 14th July, 2016 and, therefore, the assessment order passed by the Assessing Officer is not sustainable. 28. We find the Hon‟ble Orissa High Court in the case of PCIT v. Shark Mines and Minerals Pvt. Ltd. (supra) at para 10 has held that What persuades this Court to reach this conclusion is the requirement in law that if the Assessing Officer has to go beyond the scope of the issues for which limited scrutiny has to be undertaken by him, he has to seek prior permission of the superior officer in terms of the CBDT Instruction No.7/14 dated 26 September, 2014 and Instruction No.20/15 dated 19 December, 2015. 29. We find the Hon‟ble Kerala High Court in the case of Sahyadri Agencies Ltd. v. PCIT (supra) has held as under: “8.1 On a reading of the circular, it is discernible that the circular is applicable during the scrutiny assessment taken by the AO under CASS. As explained to this Court by the learned senior counsel appearing for the parties, the CASS is a system-driven identification of returns for limited scrutiny. The picking up of a return under CASS for scrutiny must be restricted only to the selected reasons. Therefore, it is procedurally legal for the AO to confine the scrutiny to the limited reasons selected under CASS. The AOs are not allowed to expand the limited scrutiny introduced through the faceless interface of scrutiny to other aspects, because the ease desired through CASS is effaced. The CBDT, in its jurisdiction, inputs, received and wisdom, restrained the AOs to the reasons for selecting a return under CASS and computing the assessment.” 30. The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that once the case is selected for limited scrutiny under CASS for certain issues, the Assessing Officer cannot make any other addition by travelling beyond the issues for which the case was selected for limited scrutiny without taking the mandatory permission from the concerned PCIT / Pr.CIT for conversion of such „limited scrutiny‟ to „complete scrutiny‟. It is the settled proposition of law that the CBDT circulars are binding on the department and it has to be strictly followed by the officers of the department. Since the Assessing Officer in the instant case has travelled beyond the issues for which the case was selected for limited scrutiny without taking mandatory permission from the concerned PCIT or Pr.CCIT, therefore, the addition u/s 2(22)(e) of the Act made by the Assessing Officer which was not the issue as per limited scrutiny, cannot be sustained. We, therefore, allow the additional ground raised by the assessee and direct the Assessing Officer to delete the addition made by him u/s 2(22)(e) of the I.T. Act, 1961. Since the assessee succeeds on this additional legal ground, the grounds challenging the addition on merit are not being adjudicated being academic in nature. 31. In the result, the appeal filed by the assessee is allowed.”

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Complete Scrutiny for making the addition beyond the issues for which the case was selected for Limited Scrutiny, therefore, the addition made by the Assessing Officer and sustained by the ld.CIT(A)/NFAC in our opinion is not in accordance with law. Accordingly, the same is liable to be deleted. We therefore set aside the order of ld.CIT(A)/NFAC and direct the Assessing Officer to delete the addition of Rs.11,50,000/-. The appeal filed by the assessee is accordingly allowed.

Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 18th September, 2026 Satish Satish Kumar Digitally signed by Satish Kumar Madishetty Madishetty Date: 2026.09.18 13:21:30 +05'30' आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: अपील र्थी / The Appellant; 1. प्रत्यर्थी / The Respondent 2. 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘A’ Bench, Pune ग र्ड फ ईल / Guard file. 5. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अदिकरण , पुणे / ITAT, Pune

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S.No. Details Date Initials Designation 1 Draft dictated on 16.09.2026 Sr. PS/PS 2 Draft placed before author 17.09.2026 Sr. PS/PS Draft proposed & placed before the 3 18.09.2026 JM/AM Second Member Draft discussed/approved by Second 4 18.09.2026 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 18.09.2026 Sr. PS/PS 6 Kept for pronouncement on 18.09.2026 Sr. PS/PS 7 Date of uploading of Order 18.09.2026 Sr. PS/PS 8 File sent to Bench Clerk 18.09.2026 Sr. PS/PS Date on which the file goes to the Office 9 Superintendent 10 Date on which file goes to the A.R. 11 Date of Dispatch of order