PALANISAMY AMBIKA,TIRUPUR vs. DCIT, CENTRAL CIRCLE-2,, COIMBATORE

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ITA 3060/CHNY/2025Status: DisposedITAT Chennai24 August 2026AY 2017-188 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO's assumption of jurisdiction for compulsory scrutiny was contrary to CBDT Instruction No. 4 of 2018, as the assessee's case did not fall under the prescribed parameters. Therefore, the assessment order was deemed bad in law.

What were the facts?

The assessee's case was selected for compulsory scrutiny. The Assessing Officer (AO) relied on survey materials from the assessee's husband's case, as no survey was conducted in the assessee's own case. The assessee argued that this selection violated CBDT Instruction No. 04/2018.

What were the issues?

Whether the selection of the assessee's case for compulsory scrutiny was in violation of CBDT guidelines, and if so, whether the assessment order is liable to be annulled.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 119,Section 133A

AI-generated summary — verify with the full judgment below

Before: Shri Inturi Rama Rao & Shri S.S. Viswanethra Ravi

Hearing: 31.07.2026Pronounced: 24.08.2026

आयकर अपीलीय अिधकरण, ’सी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी इंटूरी रामाराव, लेखा सद� एवं �ी एस.एस. िव�ने� रिव, �ाियक सद� के सम� । Before Shri Inturi Rama Rao, Accountant Member & Shri S.S. Viswanethra Ravi, Judicial Member आयकर अपील सं./I.T.A. No.3060 /Chny/2025 िनधा�रण वष�/Assessment Year: 2017-18 Palanisamy Ambika, Vs. The DCIT, 2, JK Bhavan, 3rd Street, KPN Colony, Central Circle 2, Tirupur – 641601, Tamilnadu. Coimbatore. [PAN: AXWPA8511B]

(अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Mr. R. Venkataraman, CA ��थ� की ओर से/Respondent by : Mr. N. Madan Kumar, Sr. DR सुनवाई की तारीख/ Date of hearing : 31.07.2026 घोषणा की तारीख /Date of Pronouncement 24.08.2026 : आदेश /O R D E R PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:

This appeal filed by the assessee is directed against the order dated 29.08.2025 passed by the ld. Commissioner of Income Tax (Appeals), Chennai-20 for the assessment year 2017-18.

2.

Ld. AR, Mr. R. Venkataraman, CA, drew our attention to the additional grounds 1 and 2 challenging jurisdiction under Section 143(2) of the Income-tax Act, 1961 (for short, the Act) in violation of CBDT Instruction No. 04/2018 dated 20.08.2018 in the facts and circumstances of the case. He submits that the aforesaid additional grounds could not be raised at the time of filing the present appeal due to inadvertence and

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could not be filed before the Ld. CIT(A), as the same were not foreseen at that stage. He argued that the additional grounds are jurisdictional in nature and go to the root of the matter. Further, he submits that the facts relating to the said additional grounds are very much available on record before the assessing officer. Placing reliance on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Company Limited, reported in 229 ITR 383, he prayed for admission of the aforesaid additional grounds. We find no objection from the Ld. DR Mr. N. Madan Kumar, Sr. DR. Upon hearing both the parties and with their consent, we proceed to hear additional grounds Nos. 1 and 2 as preliminary issues.

3.

Ld. AR drew our attention to para No. 1 of page 3 of the assessment order and submits that the AO observed that the assessee’s case was selected for compulsory scrutiny. He drew our attention to Instruction No. 4 of 2018 at page No. 1 of the paper book and submits that the CBDT, in exercise of its power under Section 119 of the Act, prescribed the parameters and procedure governing the compulsory selection of returns for scrutiny during the financial year 2018-19. He argued that the aforesaid instruction has statutory force and is binding upon all Assessing Officers. He refers to the categories specifically enumerated that a return can be selected for compulsory scrutiny if the same falls under cases involving recurring additions, cases pertaining to survey under Section 133A of the Act, cases pertaining to search and seizure actions, cases where notices under Section 148 of the Act have been issued, cases relating to Trust/institutions and cases involving specific information relating to tax evasion. He argued vehemently that the case of the assessee does not fall under any of the aforesaid

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categories and none of the parameters described by CBDT for compulsory scrutiny are attracted to the facts of the present case. He submits that the Revenue appears to have treated the assessee’s case as falling under the category relating to survey cases as was in her husband’s case and no survey under Section 133A of the Act was conducted either at the assessee’s business premises or in the case of the assessee. Ld. AR submits that CBDT instruction specifically contemplates survey in the case of the assessee whose return is sought to be selected for compulsory scrutiny but not in the case of a third person. He argued vehemently that the assumption of jurisdiction by the AO for compulsory scrutiny is contrary to the binding CBDT instruction and without the authority of law as the assessee’s return was not eligible for selection under the compulsory scrutiny parameters prescribed by the CBDT.

4.

He referred to the decision of the Hon’ble High Court of Andhra Pradesh in the case of Smt. Nayana P. Dedhia; [2024] 270 ITR 572 (AP) and argued that the assessment framed after selecting the case for scrutiny in violation of the CBDT guidelines was held to be bad in law and referred to paras 3 and 4 of the said judgment. Further, referred to the order of Pune Benches of ITAT in the case of S.F. Chougule v. JCIT (ITA No.458/PN/2012) and submits that the Tribunal, by following the decision of the Hon’ble High Court of Andhra Pradesh and the High Court of Delhi, held that where the Assessing Officer fails to comply with the binding CBDT guidelines governing scrutiny selection, the AO lacks jurisdiction to undertake scrutiny assessment and the assessment so framed is liable to be annulled. The AR, by referring to the facts and circumstances of the present case, argued that the assumption of

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jurisdiction by the AO for compulsory scrutiny is contrary to the Instruction No.4 of 2018 issued by the CBDT and prayed to annul the assessment order, allow additional grounds.

5.

Ld. DR, Mr. N. Madan Kumar, Sr. DR, submits that there was a survey in the case of the assessee’s husband and the assumption of jurisdiction by the AO, treating the assessee’s case under the survey category, selected the return of income filed by the assessee for compulsory scrutiny. The Ld. DR argued vehemently that the submissions of Ld. AR cannot be accepted in saying that there was no survey in the case of the assessee. He prayed to remand the matter to the file of the AO for verification.

6.

Heard both the parties and perused the relevant material available on record. On perusal of the assessment order dated 11.12.2019, it is clear from page No.3 of the assessment order that the assessee’s case was selected for compulsory scrutiny and statutory notices under Section 143(2) and 142(1) of the Act were issued. We find that the AO observed with reference to the survey materials that the assessee had made fixed deposit in the Tirupur Sangam and further a show-cause notice was issued asking the assessee to furnish details to substantiate/prove the source for cash deposit during the period 01.04.2016 to 31.03.2017. As rightly pointed by the Ld. AR, the AO proceeded to complete the assessment of the assessee only on the survey materials as found in the case of assessee’s husband but not in the case of the assessee. We find no dispute with reference to the fact that there was no survey in the case of the assessee from the respondent Revenue. In this regard, let us examine as to whether the case of the assessee falls under the ambit of

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Instruction No.4 of 2018 dated 20.08.2018 issued by the CBDT prescribing the parameters and procedure governing the compulsory selection of returns for scrutiny during the AY 2017-18 or not? We find the above said Instruction No.4 of 2018 is at page No.1 and 2 of the paper- book. On an examination of Para 2 of the said Instruction, we note that through Computer Aided Scrutiny Selection (CASS), cases are being selected in two categories i.e. limited scrutiny and complete scrutiny in a centralized manner under CASS-2018. CASS is a system-based method for scrutiny selection which identifies the cases through data analytics and 360-degree data profiling of tax-payers and in a non-discretionary manner. Further, list of these cases is being/has been separately intimated by the Principal DCIT Systems (Systems) to the concerned jurisdiction authorities for necessary action.

7.

We find the parameters for manual selection of returns of complete scrutiny are provided in Para No.1 of the said Instruction. We note that (i) shows cases involving addition in an earlier assessment year on a recurring issue of law or fact which is not in the present case as there was no recurring issue of law or fact involving the same addition in an earlier assessment year. (ii) explains cases pertaining to survey under Section 133(A) of the Act. Admittedly, there was no survey in the case of the assessee and therefore, the condition in (ii) is not applicable. Further, in (iii), it is noted the cases involving search and seizure and admittedly there is no search in the case of the assessee. Further, (iv) explains returns filed in response to notice under Section 148 of the Act. Admittedly, the AO concluded assessment under Section 143(3) of the Act and there was no issuance of notice and consequently concluding the re-assessment. Therefore, condition in (iv) is also not applicable. Further,

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(v) and (vi) are relating to registration/approval under various sections such as 12(A) etc. and specific tax evasion information given by any Government department etc. respectively. Admittedly, the conditions in (v) and (vi) are not applicable. Therefore, we find force in the arguments of the Ld. AR that the AO, in violation of guidelines prescribed by the CBDT vide Instruction No.4 of 2018, without following prescribed parameters and procedure governing compulsory selection of returns, in our opinion, makes assessment bad under law.

8.

In this regard, the assessee placed reliance on the decision of the Hon’ble High Court of Andhra Pradesh in the case of Smt. Nayana (supra), wherein it was held that the Tribunal was right in holding that Income Tax Authorities could not have selected the instant case for detailed scrutiny. The said decision is at page No.3 of the case law paperbook and on perusal of the same, we note that the questions framed therein were (i) whether on the facts and in the circumstances of the case, the Tribunal is correct in holding assessee’s case falls under the consideration issued by the department in Instruction No.1935 dated 12.3.1996? and (ii) whether on the facts and the circumstances of the case, the Tribunal is correct in holding that the Assessing Officer ought not to have taken up the case for scrutiny. The Hon’ble High Court was pleased to answer the said questions in Para No.3 and 4 of the said decision and held that the Tribunal was right in holding that the Income Tax Authorities could not have selected the case for detailed scrutiny in view of the circular issued by the Board. Further, the Hon’ble High Court of Andhra Pradesh was pleased to consider the decision of the Hon’ble Supreme Court in the case of UCO Bank v. CIT [1988] 237 ITR 889/[1999], which held that the Board, by issuing such instructions, may

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be by way of relaxation of any of the provisions of the Sections specified there or otherwise and in exercise of its statutory powers under Section 119 of the Act, which are binding on the authorities in the administration of the Act. Further, it is also held that it is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Further, the Hon’ble High Court of Delhi, in the similar circumstances, with reference to the power under Section 119 of the Act, held the order of the Tribunal in confirming the order of the Ld. CIT(A) in setting aside the order passed by the AO in violation of Instruction No.1917 dated 03.06.1994 by holding that the same is applicable for assessment year 1993-94. Therefore, we find the facts and circumstances of the present case are similar to the facts before the Hon’ble High Court of Andhra Pradesh and Delhi and the ratio laid down therein, in our opinion, are applicable to the facts on hand. Respectfully, following the above said two decisions, we hold that the assessment order dated 11.12.2019 passed by the AO under Section 143(3) of the Act pursuant to notices under Section 143(2) dated 24.09.2018 and 142(1) dated 04.10.2019 were issued without valid reasons contemplated in CBDT Instruction No.4 of 2018 dated 20.08.2018 and violating the same the above-said assessment dated 11.12.2019 is bad under law. Thus, additional ground Nos.1 and 2 raised by the assessee are allowed. In view of our decision in allowing additional ground Nos.1 and 2, holding the assessment bad under law, grounds raised in Form 36 become academic, requiring no adjudication.

9.

In the result, appeal of the assessee is allowed.

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Order pronounced on 24th August, 2026 at Chennai.

Sd/- Sd/- (INTURI RAMA RAO) (S.S. VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 24.08.2026 MM/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR & 5. गाड� फाईल/GF.

MANISH Digitally signed by MANISH MISHRA MISHRA Date: 2026.08.28 15:07:00 +05'30'

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