MR. ANIL JAGANNATH KEDAR,SOLAPUR vs. WARD 1(2), SOLAPUR, SOLAPUR

On the facts and in the circumstances of the case and in law, the assessment order passed under section 144 of the Income Tax Act, 1961 (The Act') dated 19-12-2019 is bad in law and invalid and hence the said order and the additions made therein may please be quashed.

On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. CIT-Appeals has erred in upholding the invalid assessment order passed u/s 144 since Ld. AO did not issue the mandatory Show Cause Notice ('SCN') required u/s 144 before framing best judgement assessment order and thus, the impugned assessment order passed in consequent to the said SCN and additions made therein are without juri iction u/s 144 and hence, may please be quashed.

On the facts and in the circumstances of the case and in law and without prejudice to other grounds Ld. CIT-Appeals has grossly erred in not granting the opportunity of personal hearing through Video conferencing to the appellant before passing the adverse appellate order despite specifically requested by the appellant, thereby grossly violating the principles of natural justice and therefore, the appellate order u/s 250 of the Act order deserves to be quashed and set aside.

On the facts and in the circumstances of the case and in law, the appellate order passed under section 250 of the Act dated 24-01-2024 is cryptic, non-speaking and without considering and deciding all the grounds of appeal raised and submissions and evidences filed by the Appellant during the course of appellate proceedings and despite the fact that the detailed submission was advanced on each grounds before Ld. CIT-Appeals thereby deciding only the selected ground. Hence, the appellate order u/s 250 is bad in law, invalid and therefore, may please be quashed.

On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. AO has erred in estimating the income of the appellant without rejecting the books of accounts of the appellant and hence. Ld. CIT-Appeals has erred in sustaining the addition of Rs 20,72,641 based on estimation by Ld. AO and it should be deleted.

On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. CIT- Appeals has erred in not accepting the returned income of Rs 9,75,250 overlooking the fact that Ld. AO himself has accepted the returned income in the assessment order passed u/s 144 and hence, the action of Ld. CIT-Appeals in holding that Appellant's return income calculation is not correct is factually and legally incorrect and thus, may please be set aside and quashed.

On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. CIT-Appeals as well as Ld. AO has erred in rejecting the proper and valid explanations and evidences submitted by the Appellant in support of expenses incurred by the Appellant and Ld CIT-Appeals/ AO should have allowed the same as deduction

On the facts and in the circumstances of the case and in law and without prejudice to other grounds, Ld. CIT-Appeals has erred in sustaining the action of Ld. AO in making addition of at Rs 20,72,641 by ad-hoc estimating profit at 8% on Rs 2,59,08,018 disregarding the valid submissions of the Appellant and hence, the impugned addition may please be deleted.

The appellant craves leave to add, amend, modify, alter, revise, substitute, or not press any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal, in the interest of justice.”

Ld.AR filed written submission as under :

Ground 1-Assessment order is bad in law-exceeding scope of limited scrutiny

1. The assessment was picked was for limited scrutiny for the verification of "cash deposit during the year". Refer notice u/s 143(2) (copy at Pg No. 307 to 310 of paper book)

2. However, while passing the assessment order, Ld. AO made addition by estimating profits at 8% on the trading turnover of the Appellant and no addition was made on the issue of cash deposit.

3. It is submitted that Ld. AO has travelled beyond the mandate of limited scrutiny as per Instruction 5 of 2016 dated 14-07-2016 & 28-11- 2018 respectively (copy at Pg. No. 311 & 313) and thus, the entire assessment order is bad in law

4. Appellant relies on following decisions in support of the same - [2023] 155 taxmann.com 580 (Calcutta)/ (Calcutta)/[2024] 463 ITR 89 (Calcutta) [11-10-20231 (para 7 to 11) (copy at Pg. No. 315)

Ground 2-Assessment order is bad in law - Not issuing mandatory SCN u/s 144

Ground 3 & 4-Violation of natural justice

1. Appellant requested a Video conference hearing before CIT-A before deciding the appeal. Refer acknowledgements attached at pg. No. 37, 39, 41 & 43 of paper book. which demonstrate the same. However, no VC was granted, and the order was passed and thus, thereby there is gross violation of principle of natural justice

2. Further, refer to para V (pg 9 & 10) of the Addl. CIT-A's order dated 24-01-2024. Instead of dealing with ground wise detailed written submission advanced before him, Ld. Addl. CIT-A, without any reason, clubbed all grounds, did not consider the voluminous evidences brought on record (refer pg. 58 to 306 of the paper book) and passed a cryptic and non-speaking order, without dealing with various contentions raised and evidences submitted by the Appellant.

3. Further, refer to pg. no. 47 of Paper book which the SCN issued by AO. It will be noted that Ld. AO issued SCN on 14-12-2019 and gave time till only 17-12-2019 i.e. only a very short time of 3 days.

4. These actions together have violated the orders passed by the lower authorities and thus, the same are liable to be quashed and set aside.

Ground 5 to 9-On Merit - Incorrect addition of Rs 20,72,641

1. In support of these grounds which cumulatively challenges the addition of Rs 20,72,641, Appellant relies on the detailed written submission at page No. 6 to 9 of the paper book (para 1.3 to 1.18) & page 15 to 30 of the paper book (para 3.2 to 3.21 & para 4.2 to 4.8) which was advanced before Ld. CIT-Appeal and the same may kindly be considered while deciding this appeal.”

Ld.DR for the Revenue submitted that as per Assessment Order, the Assessee’s case was selected for limited scrutiny for “Large cash deposits in bank account(s) during the year and other income in Part A P&L of ITR utilized as turnover”. Ld.DR submitted that accordingly, Assessing Officer has verified

1 Ld.DR submitted that Assessing Officer has analysed the turnover based on bank statements and arrived at total turnover, then, Assessing Officer has estimated income @8% of the turnover. Ld.DR requested to sustain the addition.

We have heard both the parties and perused the records. In this case, Assessee had filed Return of Income electronically on 30.11.2017, declaring total income at Rs.8,66,840/- for A.Y.2017- 18. Assessee’s case was selected for scrutiny. In the assessment order, Assessing Officer has mentioned as under : “The case was selected for scrutiny under CASS with the reason that “Large cash deposits in bank account(s) during the year and other income in Part A P&L of ITR utilized as turnover.” A System generated notice u/s.143(2) of the Income Tax Act, 1961, was issued on 21.08.2018 and served on assessee’s registered E-mail ID. Further notice under Sec. 142(1) of the Act alongwith questionnaire was issued on 14.03.2019 and served on the assessee.”

1 Thus, as per the assessment order, case was selected for two reasons.

3 Thus, it is clear from the Notice u/s.143(2) that Assessee’s case was selected for limited scrutiny for examination of cash deposits during the year. We have studied the assessment order, nowhere Assessing Officer has discussed about the cash deposits made by Assessee during the year. Rather, on reading the assessment order, we could not find out the exact amount of cash deposits during the year, ld.DR for the Revenue also could not find out the same from the assessment order. The entire discussion is about Assessee’s business, his turnover and applicability of Section ITA No. 567/PUN/2024 [A]

4 Thus, the Assessing Officer has made addition outside the scope of limited scrutiny. Though in the assessment order, one more reason is mentioned i.e. other income in P & L Account, however, in the notice u/s.143(2), the reason mentioned is Cash Deposits. The Notice u/s.143(2) is system generated, therefore, it has to be taken as Correct. No evidence has been brought by ld.DR for the Revenue, on record to rebut the reasons appearing in the notice u/s.143(2) of the Act. In these facts and circumstances, we are convinced that Assessee’s case was selected for limited scrutiny for examination of cash deposits during the year. However, Assessing Officer has travelled outside the scope of limited scrutiny. The Central Board of Direct Taxes had issued Instruction No.05/2016 dated 14.07.2016 regarding Scope of Limited Scrutiny. Similarly, CBDT had issued a letter dated 20.11.2018 explaining Scope of Enquiry in Limited

The Hon’ble Calcutta High Court in the decision of PCIT Vs. Weilburger Coatings (India) (P.) Ltd., [2023] 155 taxmann.com 580 (Calcutta) dated 11.10.2023 has held as under : “4. The revenue has raised the following substantial questions of law for consideration :-

We have heard Mr. Amit Sharma, learned standing Counsel appearing for the appellant and Mr. Abhratosh Majumder, learned senior Advocate for the respondent.

The short issue which falls for consideration in the instant case is whether the Assessing Officer exceeded his juri iction in completing the assessment on grounds which were not subject matter of the limited scrutiny.

The contention of the learned standing Counsel for the appellant is that the assessee was put on notice on that particular issue by the Assessing Officer, the assessee participated in the proceedings and thereafter the assessment was completed by order dated 27th December, 2017 under Section 143(3) of the Act. The assessee carried the matter on appeal before the Commissioner of Income Tax (Appeals) 5 [CIT(A)] and the appeal was contested on merits and the appeal stood partly allowed on certain issues by order dated 14th January, 2019. The assessee being aggrieved by the disallowed portion of the ITA No. 567/PUN/2024 [A]

Learned senior Counsel for the respondent/assessee has placed before us another Instruction issued by the CBDT dated 30th November, 2017, being F.No. DGIT(Vig.)/HQ/SI/2017-18, wherein the CBDT has noted instances where some of the Assessing Officer were travelling beyond the issues while making assessment in limited scrutiny cases by initiating inquiries on new issue without complying with mandatory requirements of the relevant CBDT Instruction dated 26.09.2014, 29.12.2015 and 14.07.2016. It has been stated that these instances have been viewed 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 and among 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. Further, the CBDT has recorded that this gave rise to a very strong suspicion of mala fide intentions and the Officer concerned has been placed under suspension. Therefore, it was reiterated that the Assessing Officer should abide by the Instructions of CBDT while completing limited scrutiny assessment and should be scrupulous about maintenance of note sheets in assessment folders.

Thus, considering these aspects, we are of the view that the learned Tribunal rightly allowed the assessee's appeal on the said issue. This Court had an occasion to consider a somewhat similar issue in the case of Pr. CIT v. Sukhdham Infrastructures LLP, in [ITAT No. 164 of 2023, dated 14-8-2023]. In the said case an identical contention as raised before us was raised stating that at best the action of the Assessing

Accordingly, the appeal fails and is dismissed.

The substantial questions of law are answered against the revenue.”

The above-mentioned decision of Hon’ble Calcutta High Court was followed by Patna Bench of ITAT in the case of Narendra Kuamr Singh Vs. ITO in ITA No.468/PAT/2024 A.Y.2017-18,

Similarly, the above issue is also covered by the decision of the Coordinate Bench in the case of Vudatha Vani Rao -vs.- Income Tax Officer [2024] 159 taxmann.com 1394 (Visakhapatnam -Trib.), wherein the issue has been decided in favour of the assessee by holding that the additions made in the assessment order, which were not subject matter of the limited scrutiny, are beyond the juri iction of the ld. Assessing Officer and therefore, have to be deleted.

Considering the above facts and in the light of above judicial precedences, we are inclined to set aside the order of ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the additions.”

We have already discussed the facts of the case. No contrary decision of Hon'ble Juri ictional High Court has been brought to our notice. Therefore, respectfully following the Hon’ble Calcutta High Court, ITAT Patna Bench and ITAT Pune Bench(supra), we direct the Assessing Officer to delete the addition. Accordingly, Legal Ground No.1 raised by the Assessee is allowed.

In the result, appeal of the assessee is partly allowed.