SURENDRA BHIMSEN AGARWAL,PUNE vs. ASST. CIT, CIRCLE-8, PUNE

आयकर अपीलीय अिधकरण “ए” �यायपीठ पुणे म� । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE �ी डी. क�णाकरा राव, लेखा सद�य एवं �ी िवकास अव�थी, �याियक सद�य के सम� BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM आयकर अपील सं. / ITA No.637/PUN/2013 िनधा�रण वष� / Assessment Year : 2009-10 Surendra Bhimsen Agarwal, M/s. MZSK & Associates, CA Level-3, Business Bay, Plot No.84, Wellesley Road, Near RTO, Pune411001. .......अपीलाथ� / Appellant PAN : AAYPA0281F बनाम / V/s. ACIT, Circle-8, ……��यथ� / Respondent Pune. आयकर अपील सं. / ITA No.638/PUN/2013 िनधा�रण वष� / Assessment Year : 2009-10 Nitin Bhimsen Agarwal, M/s. MZSK & Associates, CA Level-3, Business Bay, Plot No.84, Wellesley Road, Near RTO, Pune411001. .......अपीलाथ� / Appellant PAN : AARPA2428D बनाम / V/s. ITO, Ward-9(1), ……��यथ� / Respondent Pune. Assessee by : Shri Neelesh Khandelwal Revenue by : Shri N. Ashok Babu सुनवाई क� तारीख / Date of Hearing : 06.08.2019 घोषणा क� तारीख / Date of Pronouncement : 04.09.2019 आदेश / ORDER PER D. KARUNAKARA RAO, AM: There are two appeals under consideration involving two assessees for common assessment year 2009-10. Both the appeals are filed by the

2 ITA No.637/PUN/2013 ITA No.638/PUN/2013 assessee against the two separate orders of the CIT(A)-V, Pune dated 21.01.2013 and 31.12.2012 respectively. 2. Apart from the other grounds/additional grounds, the additional ground no.1 raised by the assessee in both the appeals is common and the same reads as under :- “1. The huge additions (more than Rs.10 lakhs) other than CASS subject matter made by the Assessing Officer cannot be sustained in absence of previous approval of the administrative Commissioner as directed by the Board’s instruction in respect of “CASS” assessment. Therefore, assessment order passed in violation of Board’s instructions, which are binding upon the A.O. is certainly bad in law and void-ab-initio, may please be quashed and addition may please be deleted. Appellant be granted just and proper relief in this respect.” 3. In fact, the ld. Counsel for the assessee submitted that, if the said additional ground no.1 is admitted and adjudicated in favour of the assessee, the adjudication of other grounds/additional grounds raised in both the appeals of the assessee becomes an academic exercise. Therefore, we proceed to pick up the above extracted ground no.1 for adjudication in the following paragraphs. 4. The background facts of this additional ground no.1 include that the both assessees filed respective returns of income declaring the total income of Rs.41,29,878/- in the case of Shri Surendra B. Agarwal and Rs.8,99,793/- in the case of Shri Nitin B. Agarwal for the common assessment year 2009-10. The same were taken up by the Assessing Officer for scrutiny under “CASS” based on the AIR information. The reasons for selection of CASS include that as follows :-

3 ITA No.637/PUN/2013 ITA No.638/PUN/2013 (i) Shri Surendra B. Agarawal – Reason : The Assessing Officer should examine the source of cash deposits above the threshold limit in savings bank account. (ii) Shri Nitin B. Agarwal – Reason : (i) The source of expenditure/investment including information from AIR vis-à-vis Gross Receipts; and, (ii) Assessing Officer should examine the source of cash deposits above the threshold limit in savings bank account.

4 ITA No.637/PUN/2013 ITA No.638/PUN/2013 7. In the case of Nitin B. Agarwal, against the return income of Rs.8,99,793/- the total assessed income is computed at Rs.75,98,685/-. Further, in the case of Surendra B. Agarwal, against the return income of Rs.41,29,878/-, the total assessed income was determined at Rs.86,95,750/-. The details of additions in these two cases are given as under :- Surendra B. Agarwal: Additions made other than reasons in Amount (Rs.) of addition CASS made a. Capital gain on account of Wakad land 2,52,350 b. Capital gain on account of Ravet land 25,41,500 c. Interest expenses 17,72,018 Nitin B. Agarwal: Additions made other than reasons in Amount (Rs.) of addition CASS made a. SB account interest 222 b. Capital gain on account of Ravet land 13,94,413 8. From the above extracted table, it is evident that in cases of compulsory scrutiny and limited scrutiny, the Assessing Officer made other additions other than once already approved/identified under the CASS. In case of Surendra B. Agarwal, the “source of cash deposits” in the SB Account was the reason for limited and compulsory scrutiny. The Assessing Officer did not make any addition on this account. However, the Assessing Officer made “other additions” on account of capital gains on account of Wakad land and Ravet land and on account of interest expenditure.

5 ITA No.637/PUN/2013 ITA No.638/PUN/2013 Further, in the case of Nitin B. Agarwal, the Assessing Officer did 9. not make any addition on account of expenditure/investments. Further, the Assessing Officer made addition on account of cash deposits in SB Account in bank account which is the second reason for CASS. In this case, the Assessing Officer also made addition on account of capital accounts on account of Ravet land and interest income earned from the SB account. 10. In the light of the above facts, for the first time, ld. Counsel for the assessees raised above referred additional ground stating that the assessment orders have to be quashed since the Assessing Officer made various additions beyond the scope of the reasons given in the CASS without obtaining the prior approval of the administrative Commissioner. The reliance is placed on the series of Board Circulars/Instructions given to the field officers. Further, ld. Counsel for the assessee submitted that obtaining the prior approval of the requirement of the Circular which were not obtained by the field officer in such cases, the assessments are required to be held invalid. 11. On considering the preliminary issue, we are of the opinion that there is no need for any investigation to the other issues for adjudication by us. Therefore, considering the settled legal issue on this admission of additional ground no.1, we are of the opinion that the said additional ground no.1 should be admitted and adjudicated.

6 ITA No.637/PUN/2013 ITA No.638/PUN/2013 12. The ld. Counsel for the assessee brought our attention to the series of decisions in this regard and submitted that the CBDT issued various circulars dated 23.05.2007/08.09.2010 giving the guidelines to the officers as to the manner of conducting scrutiny in the cases selection under CASS involving AIR information. According to the Board Circulars (supra), the limited scrutiny cases can be converted into complete scrutiny cases only with the prior written approval of ACIT/JCIT. Referring to the Board Circular dated 08.09.2010, ld. Counsel submitted that there is no case of limited scrutiny. In case, when it is converted wide scrutiny case, the approval of the administrative Commissioner is required when the potential of additional income is more than Rs.10 lakh. The Board also gives the directions as to what mention about the scrutiny notices in such cases. In this regard, ld. Counsel relyied on the various decisions of the Tribunal such as (i) Nitin Killawala and Associates vs. ITO, ITA No.1611/Mum/2013 dated 16.09.2015 and (ii) Lokesh Sadashiv Shetty vs. ITO, ITA No.741/PUN/2018 dated 20.02.2019, copies of the same are placed on record. The ld. Counsel submitted that similar decision taken by the Tribunal in favour of the assessee in such assessment orders made without obtaining prior approval of the administrative Commissioner for conversion from limited scrutiny to wide scrutiny were found unsustainable in law. 13. On the other hand, ld. DR for the Revenue relied heavily on the orders of the Assessing Officer and the CIT(A).

7 ITA No.637/PUN/2013 ITA No.638/PUN/2013 14. We heard both the sides on this preliminary issue raised in additional ground no.1, which is legal in nature and perused the orders of the Assessing Officer/CIT(A) and also the series of decisions which are filed by the assessee before us. The issue for adjudication is fate of the assessment orders made by the Assessing Officer invoking the additions outside the reasons specified for selection of cases under CASS when the same are made without obtaining the prior approval of the administrative Commissioner. On perusal of the order of the Mumbai Bench of the Tribunal in the case of Nitin Killawala & Associates (supra), we find the contents of para 4 to 7 of this order are relevant and the same are extracted hereunder :- “4. We have heard the rival contentions and have also gone through the records. Before us, the Ld. A.R. of the assessee has stressed that as per the CBDT instruction No.225/26/2006 dated 23.05.2007, the scope of inquiry in assessment proceedings selected for scrutiny on the basis of AIR information is limited to the aspect of AIR information only. However, the AO is not debarred from the extending the scrutiny in areas other than mentioned in the AIR but subject to obtaining of written permission of Additional Commissioner in this respect. The Ld. A.R. has further stressed that the said instructions have been further reconsidered by the Board and vide F.No.225/26/2006-ITA-II(Pt.) dated 08.09.2010 and it has been decided that scrutiny of such cases would be limited to the aspects of information received through AIR. However, a case may be taken up for wider scrutiny with the approval of administrative Commissioner where it is felt that apart from the AIR information there is a potential escapement of income of more than Rs.10 lakhs. The Ld. A.R. has submitted that the AO, while widening the scope of inquiry, has not taken the necessary approval either as per the instruction dated 23.05.2007 or as per the instruction dated 08.09.2010. On the other hand the Ld. DR has submitted that in the assessee’s case notice under section 143(2) was issued on 20.08.09 whereas the instructions of CBDT regarding wider scrutiny and administrative approval were issued on 08.09.2010, hence the same cannot be applied to earlier period. He also relied upon the decision of the Chandigarh Bench of the Tribunal in the case of “Anup Sharma vs. ACIT” in ITA No.161/CHD/2012 decided on 10.09.2014. 5. We have considered the rival contentions and have also

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gone through the records. The undisputed fact in this case is that the case was selected for scrutiny under CASS. It is also undisputed that the CASS information was regarding the receipt/payment of fees for professional/technical services etc. and in relation to interest other than securities. Apart from the aspects of AIR information, the AO widened the area of inquiry in respect of the expenses incurred by the assessee on the education of its employee and foreign tour expenses. The scope of enquiry under CASS is defined by the Board in CBDT Circular F.No.225/26/2006-ITA-II(Pt.) dt. 23rd May,2007. This is extracted hereunder for ready reference: “F.No.225/26/2006-ITA-II(Pt.) Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, dt. 23rd May,2007 To: All Chief Commissioners of Income Tax All Directors General of Income Tax Sir/Madam, “Sub: Selection of cases for scrutiny on the basis of data in AIR returns and subsequent assessment proceedings – reg. Kindly refer to instructions issued from time to time regarding the procedure for selection of cases for scrutiny on the basis of data in AIR returns and the subsequent assessment proceedings. As has already been clarified vide letter of even number dt. 25th October,2006 scrutiny in cases of Assessment Year 2005-06 selected specifically on the basis of information received through AIR returns should be limited to only that aspect. However, if the Assessing Officer feels that some other areas are required to be looked into he may, with the approval of the ACIT.JCIT range, take up the case for wider scrutiny. Such cases should be monitored by the ACIT/JCIT. This should be immediately brought to the notice of all officers working in your region. Yours faithfully, Sd/- (Renu Jauhri) Director (ITA-II)” 6. These instructions has been reiterated in Board Circular F.No. 225/26/2006-ITA.II(Pt.) dt. 8th September,2010 which is extracted below for ready reference. “F.No.225/26/2006-ITA-II(Pt.)

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Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, dt. 8th September May,2010 To: All Chief Commissioners of Income Tax All Directors General of Income Tax Sir/Madam, “Sub: Selection of cases for scrutiny on the basis of data in AIR returns and subsequent assessment proceedings – reg. Reference is invited to Board’s letter of even number dt. 23rd May,2007 regarding scope of enquiry in the scrutiny cases selected only on the basis of information received through the AIR returns. 2. The above mentioned guidelines have been reconsidered by the Board and it has been decided that the scrutiny of such cases would be limited only to the aspects of information received through AIR. However, a case may be taken up for wider scrutiny with the approval of the administrative Commissioner, where it is felt that apart from the AIR information there is a potential escapement of income more than Rs.10 lacs. 3. It has also been decided that in all the cases which are picked up for scrutiny only on the basis of AIR information, the notice under Section 143(2) of the Income Tax Act, 1961 should clearly be stamped with “AIR case.” This should be immediately brought to the notice of all the officers working in your region. Yours faithfully, Sd/i- (Ajay Goyal) Director (ITA.II)” 7. Admittedly, the necessary approval had not been taken by the AO while widening the scope of inquiry. Though the Ld. D.R. has submitted that the notice in this case was issued on 20.08.09 whereas the instruction of CBDT regarding the wider scrutiny was issued on 08.09.2010 and that the said circular was applicable prospectively and not retrospectively, however, it is noted that the said instruction of 2010 has been passed in reconsideration of instruction dated 23.05.2007. Under such circumstances, the instruction of 2007 was operative on the date of issue of notice. The Ld. D.R. has not submitted any evidence on the file that the AO had taken the necessary approval of ACIT/JCIT for widening the scope of inquiry. The instructions of the Board are binding upon the Revenue/AO. The Hon’ble Calcutta High Court in the case of

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Amal Kumar Ghosh vs. ACIT” 2014 (105) DTR (Cal.) 351 has held that the circulars of the CBDT are binding upon the department. The department is bound by that standard and cannot act with discrimination. Hence, the instruction dated 23.05.2007 was very much binding upon the AO. So far as the reliance of the Ld. D.R. on the decision of the Chandigarh Bench of the Tribunal is concerned, we find that the same is relating to the instruction dated 08.09.2010. However, there is no discussion in the said decision about the applicability of the instruction of the year 2007. Hence, the said decision is not applicable to the fact and circumstances of the present case. The action of the AO in widening the scope of the inquiry without obtaining the necessary permissions as per the Board’s instruction was without jurisdiction and the same is accordingly set aside and consequently the additions made beyond the scope of AIR information are ordered to be deleted. The assessee’s appeal succeeds on technical/legal ground taken by the assessee vide revised ground of appeal.” 15. Further, we also perused the decision of Co-ordinate SMC Bench of the Pune ITAT where the undersigned is a party in case of Lokesh Sadashiv Shetty (supra) and find the contents of para 5 to 9 are relevant. For the sake of completeness, the said para 5 to 9 are extracted hereunder :- “5. Before me, ld. Counsel for the assessee submitted that this is a case of CASS for the purpose of limited scrutiny is to examine “the turnover of the assessee as the same deferred from the turnover returned under the GST provisions”. There is no dispute on the fact that the Assessing Officer took any formal approval from the Superior Authorities for converting limited scrutiny to full scrutiny. Ignoring the above procedural issues, the Assessing Officer proceeded to make additions on various accounts. In the backgrounds of these facts, ld. AR submitted that, this being a case of CASS selected for limited scrutiny purpose, the addition linked to the turnover issue may be confirmed and all other additions required to be deleted. A perusal of the assessment order at para 9, I find the Assessing Officer made four additions and the same are extracted hereunder :- “(i) 20% disallowance out of purchase - Rs.14,76,497/- (ii) 20% disallowance out of labour charges - Rs. 1,69,160/- (iii) Difference in receipts - Rs. 1,842/- (iv) Interest u/s 244A - Rs. 2,232/- 6. Generally, the turnover refers to the sales or the pool of receipts which are credited to the Trading/Profit and Loss Account of the assessee.

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Therefore, the additions made on account of purchases and labour charges should be deleted as they are unconnected to the turnover of the assessee. The two other additions i.e. (i) Difference in receipts of Rs.1,842/- and (ii) Interest receipts u/s 244A of Rs.2,232/- should be confirmed as they are relatable to the turnover of the assessee. 7. In principle, it is settled legal proposition that the Assessing Officer is under obligation to convert the limited scrutiny to complete/full scrutiny only as per the terms of the CBDT Circular bearing Circular No.F.No.225/26/2006-ITA.II (Pt.) dated 08th September, 2010. It is held that in absence of such conversion with the approval of the Competent Authority, the other additions made by the Assessing Officer are unsustainable in law. 8. On hearing both the parties and the precedent, I find the similar issue was the subject-matter of adjudication before Pune Bench of the Tribunal in the case of Suresh Jugraj Mutha vs. Addl.CIT vide ITA No.05/PUN/2016 for the assessment year 2011-12, order dated 04.05.2018. In this case, the Tribunal analyzed the scope of the circulars/provisions and came to the conclusion that such additions made by the Assessing Officer are not sustainable in law. For the sake of completeness, I proceeded to extract the relevant paragraphs from 9 onwards of the said order of the Tribunal (supra) and the same are extracted hereunder :- “9. We heard both the parties and perused the orders of the Revenue on the legal issue raised by the assessee. We have also considered the decisions relied on by both the parties. It is an undisputed fact that the reason for which the case was picked up for limited scrutiny relates to the AIR information on the cash deposits in the savings bank account. It is also an undisputed fact that the AO did not obtain the written approval of the concerned Commissioner before extending the scope of scrutiny to the interest disallowed and denial of claim of deduction u/s.54 of the Act. Further, it is on record that the Board did not permit the Assessing Officers to extend the scope of scrutiny to the issues other than the ones which are authorised the Board in this regard under CASS. It is also a fact that judgment cited by the Ld. DR for the Revenue in the case of Banque Nationale De Paris Vs. CIT 237 ITR 518 (Bom.) was not issued in connection with the jurisdiction of the AO in matters relating to extension of areas of scrutiny to the ones than the authorised ones by the Board. In this connection, we perused the CBDT Instruction No.7/2014, dated 26-09-2014 and find it relevant to extract the relevant lines. The same reads as under : “4. In case, during the course of assessment proceedings, it is found that there is potential escapement of income exceeding Rs.10 lakhs (for non-metro charges, the monetary limit shall be Rs.5 lakhs) on any other issue(s) apart from the AIR/CIB/26AS information based on which the case was selected under CASS requiring substantial verification, the case, may be taken up for comprehensive scrutiny with

12 ITA No.637/PUN/2013 ITA No.638/PUN/2013 the approval of the Pr.CIT/DIT concerned. However, such an approval shall be accorded by the Pr.CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. Cases so taken up for detailed scrutiny shall be monitored by the Jt. CIT/Addl.CIT concerned.” 10. We also perused the CBDT letter dated 08-09-2010 which deals with selection of cases for scrutiny on the basis of data in AIR returns and subsequent assessment proceedings. The instructions given in the said letter reads as under : “2. The above mentioned guidelines have been reconsidered by the Board and it has been decided that the scrutiny of such cases would be limited only to the aspects of information received through AIR. However, a case may be taken up for wider scrutiny with the approval of the administrative Commissioner, where it is felt that apart from the AIR information there is a potential escapement of income more than Rs.10 Lacs. It has also been decided that in all the cases which 3. are picked for scrutiny only on the basis of AIR information, the notice u/s.143(2) of Income Tax Act, 1961 should clearly be stamped with “AIR” case. 11. Further, on perusing the orders of the Revenue, we find the facts are similar to the ones already decided by the Pune Bench of the Tribunal in the case of M/s. S.F. Chougule Vs. JCIT (supra) is relevant to the facts present case of the assessee. We therefore proceed to extract the relevant findings given by the Tribunal here as under : “10. The learned Authorized Representative for the assessee pointed out that the assessee was engaged in road construction and building of projects. He pointed out that during the course of Survey on 30.01.2008, the assessee had made a declaration of Rs.33,18,000/- + Rs.12 lakhs + Rs.13,467/- which was included in the return of income filed by the assessee. He further stated that the case of assessee was picked up for scrutiny. The learned Authorized Representative for the assessee brought to our attention, the application made under the Right to Information Act, as to the basis for selection of case of the assessee for the relevant year under scrutiny. It was specifically asked whether the case was selected for scrutiny under CASS. In reply, the Central Public Information Officer stated that the case of assessee was not selected for scrutiny under CASS. Further, the assessee has asked as to why its case was selected for scrutiny since it was covered by relaxed scrutiny norms. In answer, it was pointed out that the case was selected for scrutiny, in view of guidelines for selection of scrutiny issue during financial year 2010-11; copies of RTI application and the reply are placed at pages 20 to 22 of the Paper Book.

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The learned Authorized Representative for the assessee further referred to the criteria of guidelines for income-tax scrutiny, copy of which is placed at page 23 and 24 of the Paper Book and reiterated that in the case of assessee, Survey was carried out and criteria was fixed for not picking up the case under scrutiny and the assessee clearly fulfils the same. He further pointed out that in case the criteria is not met with, then as per clause (g), the Assessing Officer can select any return for scrutiny after recording reasons and after obtaining the approval of CCIT/DGIT. In this regard, he pointed out that no such approval was received from the CCIT. Our attention was drawn to the letter dated 13.05.2013 issued from the office of ACIT, Circle (1), Sangli, wherein the Assessing Officer informed the assessee that there was no record to show that previous approval of CCIT was obtained to select the cases manually for scrutiny for assessment year 2008-09. The learned Authorized Representative for the assessee stressed that where the selection was not through CASS but was manually made, then the previous approval of the CCIT was compulsory. Referring to the order of CIT(A), the assessee pointed out that the CIT(A) states that the case of assessee was selected through CASS and also mentions that the contention of assessee would have been acceptable had the case been manually selected for scrutiny. The learned Authorized Representative for the assessee further placed reliance on the ratio laid down by the Hyderabad Bench of Tribunal in Smt. Nayana P. Dedhia Vs. ACIT (2003) 86 ITD 398 (Hyd) for the proposition of binding nature of CBDT circulars upon the IT authorities. He further pointed out that the said decision has been approved by the Hon’ble High Court of Andhra Pradesh in CIT Vs. Smt. Nayana P. Dedhia (2004) 270 ITR 572 (AP). Further, he referred to the ratio laid down by the Hon’ble High Court of Delhi in CIT Vs. Best Plastics (P) Ltd. (2007) 295 ITR 256 (Del) for the proposition that where the guidelines are laid down for selection of cases for scrutiny and if the case of the assessee was taken up for scrutiny in violation of CBDT Instructions, then the assessment order has to be set aside. He further referred to the decision of Hon’ble Bombay High Court in Bombay Cloth Syndicate Vs. CIT (1995) 214 ITR 210 (Bom) for the proposition that the CBDT Instructions were binding. 11. The learned Departmental Representative for the Revenue on the other hand, pointed out that as per the guidelines of CBDT, the cases could be selected, may be not through CASS. Our attention was drawn to the order of Assessing Officer, wherein he has elaborately dealt with the issue that income increased during the year only because of notional disallowance of expenses under section 40(a)(ia) of the Act and not because of declaration of additional income by the assessee. He stresses that the case was selected under normal scrutiny proceedings and excess expenditure of bad debts claimed by the assessee were disallowed by the Assessing Officer. He then went into merits of the case. It

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was also stressed by the learned Departmental Representative for the Revenue that the declared income in the hands of assessee means the book profit. 12. The learned Authorized Representative for the assessee in rejoinder pointed out that in the case of assessee, he declared additional income during the course of Survey. He further pointed out that the details of expenses were compared by the Assessing Officer. 13. We have heard the rival contentions and perused the record. The preliminary issue raised in the present appeal by way of ground of appeal No.5 is against the validity of assessment made in the hands of assessee. The assessee claims that the case of assessee was not selected for scrutiny under CASS but was selected manually. For selection of any return for scrutiny manually by the Assessing Officer, the requirement of guidelines issued for this purpose for relevant assessment year was that the same should be after obtaining approval of the CCIT / DGIT. Since no such approval was received from the CCIT / DGIT, the Assessing Officer had no jurisdiction to proceed with the scrutiny assessment in the case of assessee. The assessee had raised the issue before the Assessing Officer and CIT(A) but the facet of argument before the authorities below was that the case of assessee could not be selected for scrutiny under CASS since in the case of Survey, certain conditions were laid down and the assessee having fulfilled the said conditions, then no scrutiny could takes place in the hands of assessee. 14. In the facts of the case, Survey under section 133A of the Act was carried out at the premises of assessee on 30.01.2008. During the course of Survey, the assessee made declaration of additional income of Rs.45,93,467/- which was offered as additional income over and above the income to be returned for the year under consideration. The assessee claims that it had disclosed the said additional income in its return of income wherein the return was filed declaring income of Rs.81,64,598/-. However, the perusal of computation of income reflected that net profit shown in Profit & Loss Account was Rs.11,62,084/- and certain disallowances were made on account of personal expenses, capital expenses and disallowances under section 40(a)(ia) of the Act at Rs.68,31,574/- and other disallowances and the income was aggregately shown at Rs.85,69,672/- The Assessing Officer and CIT(A) thus, were of the view that the assessee had not included the additional income of Rs.45,93,467/-, where it had declared the business income at only Rs.11,62,084/-, though it had filed the return of income declaring income of Rs.81,64,590/-. The case of authorities below is that the assessee had not fulfilled the conditions laid down in the guidelines for taking up the case for scrutiny assessment year under consideration and hence, there was no merit in the claim of assessee that it had

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fulfilled the conditions laid down in guidelines. The whole gamut of arguments and discussion in the orders of Assessing Officer and CIT(A) is on this account that the assessee had not fulfilled the conditions relating to Survey cases for financial year and the case of the assessee could be picked up for scrutiny. The assessment order was passed on 09.09.2010 and the appellate order was passed on 04.01.2012. The assessee thereafter moved an application under the Right to Information Act, wherein a specific question asked was with regard to selection of scrutiny and other relevant information relating to assessment year 2008- 09. The specific question asked by the assessee was whether its case was selected for scrutiny under CASS and in case it was not selected under CASS and why the same was picked up for scrutiny. The assessee also asked that under which norms the case was selected for scrutiny and whether relaxation in selection of cases in which survey action was carried out on fulfilling the criteria was available in the said norms or not. In reply, it was stated that the guidelines / instructions were followed and since the guidelines were confidential in nature, the copy of same could not be provided. In reply to the next question whether the case was selected under CASS, the categorical answer was ‘No’. The said RTI reply further stated that the case was selected for scrutiny in view of the guidelines contained in F.No.225/93/2009/ITA.II. 15. The said guidelines for selection of scrutiny were published and it was pointed out that the said guidelines were only for the use of Officers of Income Tax Department and the same could not be disclosed even under the RTI Act, 2005. The said application under the RTI Act and the order under the RTI Act are placed at pages 20 to 22 of the Paper Book. The assessee has also placed the copy of guidelines issued for scrutiny, copy of which is placed at page 23 of Paper Book. The said guidelines were for use of Income Tax Department, wherein selection criteria was provided which was applicable to all Income Tax returns at all stations. The guidelines vis-à-vis survey cases are provided therein and vide clause (g), it is provided that the Assessing Officer may select any return for scrutiny after recording reasons and after obtaining the approval of CCIT / DGIT. The cases under this category should be selected, if there are compelling reasons and cases not selected under CASS. These cases are watched by the CCIT / CIT for the quality of assessment. The said guidelines are as per F.No.225/93/2009/ITA.II. The reply under RTI also refers to the said guidelines and admittedly, these guidelines were used to select the case of assessee for scrutiny. Further, the assessee also filed on record letter dated 13.05.2013 issued by the ACIT, Circle (1), Sangli, wherein in reply to the letter of assessee, it has been informed that there is no record to show that previous approval of CCIT / DGIT was obtained to select the case manually for scrutiny for assessment year 2008-09. So, taking into consideration the

16 ITA No.637/PUN/2013 ITA No.638/PUN/2013 said correspondence which has come into existence after the date of passing of assessment order and appellate order, the first thing to be taken note of is that the case of assessee was not selected for scrutiny in CASS which is the reply given in answer to RTI query as per letter dated 12.04.2012. The second aspect is that the case of assessee was selected for scrutiny in view of the guidelines contained in F.No.225/93/2009/ITA.II. The assessee has placed the copy of said guidelines on record at page 23 of the Paper Book, wherein it is provided that the case of any assessee may be selected for scrutiny after recording reasons and after obtaining the approval of CCIT / DGIT. In other words, the case of assessee could be picked up for scrutiny manually but the same had to be after recording reasons for such an action and after obtaining the approval of CCIT / DGIT. However, the Assessing Officer vide letter dated 13.05.2013 has categorically mentioned that no previous approval of CCIT was obtained to select the case manually for scrutiny for assessment year 2008- 09. In the above circumstances, where the order has been passed against the norms laid down by the CBDT vide its guidelines which were binding upon the Assessing Officer, then the order passed by the Assessing Officer is bad in law. The instructions issued by the CBDT are to be strictly followed by the authorities i.e. Assessing Officer and in the absence of the same, the assessment order passed in the case is annulled. Such is the proposition laid down by the Hon’ble High Court of Andhra Pradesh in CIT Vs. Smt. Nayana P. Dedhia (supra) and the Hon’ble High Court of Delhi in CIT Vs. Best Plastics (P) Ltd. (supra). In view thereof, we hold that where the Assessing Officer has failed to follow the guidelines issued for selecting the cases for scrutiny and in the facts of the present case, where the case was selected manually for scrutiny, but no previous approval of CCIT was obtained, then the Assessing Officer lacks jurisdiction to carry out the scrutiny assessment in the present case and accordingly, assessment order passed by the Assessing Officer is bad in law. Hence, we hold so. Since the assessment order is held to be bad in law, the issue on merits becomes academic and the grounds of appeal raised by both the assessee and the Revenue in their respective appeals are infructuous. The appeal of assessee is thus, allowed and the appeal of Revenue is dismissed.” Therefore, the Board circular do not permit the AO from converting the limited scrutiny case like the present one to the unlimited one without the approval of Administrative Commissioner of Income Tax. AO did not mention the reasons for not taking such an administrative approval before making the said addition. As such, the Pune Bench of the Tribunal has already taken the favourable view in these matters in favour of the assessee. We do not understand why AO failed to take approval for such conversion. Considering the settled nature of the issue, we allow the legal

17 ITA No.637/PUN/2013 ITA No.638/PUN/2013 ground raised by the assessee vide Ground No.1 and hold that the assessment order passed by the AO is bad in law and void-ab initio. Consequently, we find adjudication of other grounds by the assessee on merits becomes academic. Therefore, the said grounds are dismissed are academic.” 9. From the above, it is settled legal issue at the level of the Tribunal, Pune Bench, in the cases, selected under CASS, the additions on the non- CASS issues can only be made after obtaining due permission from the superior authorities and the said approval of the superior authorities in writing should be available on records. In this appeal, I find there is no whisper about the obtaining of such approval from the superior authorities before the scrutiny scope is extended to non-CASS issues. In any case, the Assessing Officer did not make any addition on account of the issues of sales of the assessee. Therefore, in my considered view, the said order of the Tribunal covers the common solitary preliminary issue raised before me in this appeal. Accordingly, the preliminary issue raised by the assessee in his appeal is allowed.”

18 ITA No.637/PUN/2013 ITA No.638/PUN/2013 the other grounds/additional grounds raised by the assessee are dismissed as academic. 18. In the result, both the appeals of the assessee are partly allowed.

Order pronounced on 04th day of September, 2019. Sd/- Sd/- (िवकास अव�थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �याियक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 04th September, 2019. Sujeet आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A)-V, Pune. 4. The CCIT-, Pune. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.