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Facts
The assessee's case for A.Y. 2017-18 was selected for limited scrutiny concerning "large cash deposits in bank account(s) during the year and other income in Part A P&L of ITR utilized as turnover." However, the Assessing Officer (AO) made an addition of Rs. 20,72,641 by estimating profits at 8% of the trading turnover, without addressing the specific cash deposit issue and without converting the case to complete scrutiny. The Ld. CIT(A) subsequently upheld this addition.
Held
The Tribunal held that the Assessing Officer exceeded the scope of limited scrutiny by making additions unrelated to the specific reason for which the case was selected, without converting it to complete scrutiny. Citing binding CBDT instructions and various judicial precedents, the Tribunal concluded that such additions are without jurisdiction and therefore directed the Assessing Officer to delete the impugned addition.
Key Issues
1. Whether the assessment order passed under Section 144 was invalid for exceeding the scope of limited scrutiny. 2. Whether the Assessing Officer violated principles of natural justice by not granting a personal hearing or issuing a mandatory Show Cause Notice under Section 144. 3. Whether the addition of Rs. 20,72,641 based on estimated profit was sustainable given the case was for limited scrutiny on cash deposits.
Sections Cited
250, 144, 143(2), 142(1), 44AD, 143(3), 143
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
Assessment Year: 2017-18 Mr. Anil Jagannath Kedar, V The Income Tax Officer, At Post-Wasud, Sangola, s Ward-1(2), Solapur. Dist – Solapur – 413307. Maharashtra. PAN : ASVPK0584A Appellant/ Assessee Respondent / Revenue Assessee by Shri Piyush Bafna and Shri Aakash Parakh – AR’s Revenue by Shri Rajesh Haladkar – Addl.CIT(DR) Date of hearing 25/06/2025 Date of pronouncement 26/06/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order of Ld.Addl./Joint Commissioner of Income Tax(Appeal)-7, Kolkata passed under section 250 of the Income Tax Act, 1961, for the A.Y.2017-18, dated 24.01.2024 emanating from the Assessment Order u/s.144 of the Income Tax Act, 1961, dated 19.12.2019. The Assessee has raised the following grounds of appeal : “APPEAL
1. 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.
2. 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 jurisdiction u/s 144 and hence, may please be quashed.
3. 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.
4. 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.
5. 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.
6. 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 addition of Rs. 20,72,641/- made by Ld. AO without properly appreciating the submission advanced by the Appellant and hence, the said addition of Rs 20,72,641 may please be deleted.
7. 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.
8. 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
9. 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.
10. 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.”
Submission of ld.AR : 2. Ld.AR filed written submission as under : “ISSUES INVOLVED - The main issues involved in this appeal are - A. Legal validity of the assessment order-exceeding scope of limited scrutiny (Ground No. 1) B. Legal validity of the assessment order u/s 144-Not issuing mandatory SCN u/s 144 (Ground No. 2) C. Violation of principle of natural justice (Ground 3 & 4) D. Addition of Rs 20,72,641 made to the returned income (Ground No. 5 to 9) 1. Ground 1-Assessment order is bad in law-exceeding scope of limited scrutiny 1.1. 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) 1.2. 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. 1.3. 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 1.4. Appellant relies on following decisions in support of the same - A. PCIT vs. Weilburger Coatings (India) (P.) Ltd. Calcutta High Court [2023] 155 taxmann.com 580 (Calcutta)/ (Calcutta)/[2024] 463 ITR 89 (Calcutta) [11-10-20231 (para 7 to 11) (copy at Pg. No. 315) B. Manikrao Satav vs. DCIT-Pune ITAT ITA 391/PUN/2023-order dated 07-08-2023 (para 5 to 6) (copy at Pg. No. 319) C. Narendra Kumar Singh vs. ITO - Patna ITAT - 2024 (11) TMI 962- ITAT Patna dated 18-11-2024 (copy at Pg. No. 325) (para 2 to 5. para 7 & 8) 2. Ground 2-Assessment order is bad in law - Not issuing mandatory SCN u/s 144 In support of this ground. Appellant relies on the written submission at page No. 6 to 12 of the paper book.
Ground 3 & 4-Violation of natural justice 3.1. 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 3.2. 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. 3.3. 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. 3.4. 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 4.1. 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.” Submission of ld.DR : 2. 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 both these aspects and made addition. Therefore, there is no violation of CBDT Circulars.
2.1 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.
Findings & Analysis : 3. 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.”
3.1 Thus, as per the assessment order, case was selected for two reasons.
3.2 However, ld.AR invited our attention to the notice u/s.143(2) dated 21.08.2018(copy was filed by AR), wherein the reasons mentioned is limited scrutiny for verification of cash deposits during the year. The relevant part of the notice u/s.143(2) is scanned and reproduced as under :
3.3 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 44AD. The final sentence of the assessment order determining the income is as under : “As, the assessee had not shown the trading income and not submitted any explanation on the same, thereforethe trading income of the assessee is determined @8% of the trading turnover of Rs.2,59,08,018/- , which comes to Rs.20,72,641/-. Hence, the addition of rs.20,72,641/- is made to the total income of the assessee, on account of business or profession.”
3.4 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 Scrutiny. The Instructions issued by CBDT are binding on the Assessing Officer.
4. 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 :- (a) Whether in the facts and circumstances of the case and in law the Learned Tribunal has committed substantial error in law in deleting the disallowance of carry forward of losses of earlier years? (b) Whether the Learned Tribunal has substantially erred in law in holding that the Assessing Officer exceeded his jurisdiction in enquiring into those issues which were beyond the scope of limited scrutiny, without taking into consideration the fact that the claim of the assessee pertaining to carried forward losses was inadmissible since the beginning itself and therefore the Assessing Officer was justified in disallowing the same without converting the case into complete scrutiny? 5. We have heard Mr. Amit Sharma, learned standing Counsel appearing for the appellant and Mr. Abhratosh Majumder, learned senior Advocate for the respondent. 6. The short issue which falls for consideration in the instant case is whether the Assessing Officer exceeded his jurisdiction in completing the assessment on grounds which were not subject matter of the limited scrutiny. 7. 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 order passed by the CIT(A) preferred appeal before the Tribunal and in the appeal additional ground was raised contending that the action of the CIT(A) in confirming the action of the Assessing Officer in making additions in respect of issues not mentioned in limited scrutiny were beyond jurisdiction of the Assessing Officer as the scrutiny assessment was selected for limited scrutiny under Section 143(2) and not complete scrutiny. The Department objected to the additional ground which were raised by the appellant before the Tribunal. However, the learned Tribunal overruled the said objection holding that the issue is jurisdictional issue and can be raised by the assessee at any point of time. This finding of the learned Tribunal is well justified and in accordance with the settled legal principle. Thereafter the learned Tribunal has re-examined the factual position and found that the issue which was decided by the Assessing Officer was not part of the limited scrutiny for which the assessment was directed to be scrutinised. That apart, the learned Tribunal has also taken note of the CBDT Instruction No.5 of 2016 to hold that the Assessing Officer has exceeded his jurisdiction.
8. 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.
9. 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 Officer could be construed to be an irregularity. While considering such a contention in Sukhdham Infrastructures LLP the Court rejected the same with the following observation :- "While considering the said issue, the Hon'ble Supreme Court noted the distinction between the statutes affecting rights and those affecting mere procedure. The revenue cannot rely upon the said decision as the scheme of assessment as provided under Section 143 of the Act is a complete code by itself and the circumstances under which the power under sub-section (2) of Section 143 could be invoked has been clearly spelt out and on a reading of sub-section (3) of Section 143, it s evidently clear that on the day specified in the notice issued under sub- section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. Therefore, the question of part of the provision being procedural is an incorrect interpretation of the scheme provided under Section 143 of the Act. Further, as noted above, the CIT(A) has examined the merits of the matter and after taking note of the facts granted relief to the assessee to the extent indicated therein. Thus, for the above reasons, we find that the revenue has not made out any case for interference of the order passed by the Tribunal. Accordingly, the appeal fails and is dismissed. The substantial questions of law are answered against the revenue. The application for stay being GA 1 of 2023 is also dismissed." In the light of the above, no grounds have been made out to interfere with the order passed by the Tribunal.
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 A.Y.2017-18, dated 18.11.2024. The assessment year and facts are identical to the case of the assessee. The relevant Paragraphs 7, 8 and 9 of the order of ITAT Patna Bench are reproduced here as under : “7. After hearing the rival contentions and perusing the material available on record including the case law cited before us as well as Circular No. 3/2019 issued by the CBDT, we observe that undisputedly the case of the assessee was selected for scrutiny for examination and verification of large cash deposits during the impugned financial year. However, upon verification of facts by the ld. Assessing Officer during the course of assessment proceedings, the ld. Assessing Officer did not make any addition after verification of Bank accounts towards large cash deposits. However, he made two additions of Rs.1,02,17,061/- on peak credit of unexplained deposits which were not on account of cash deposits and second in respect of under misreporting of income of Rs.34,43,814/- as per Form 26AS. It is pertinent to state that during the course of hearing, ld. Assessing Officer noticed that the assessee has deposited Rs.1,73,10,349/- in Canara Bank account out of which cash deposit was of Rs.4,01,390/- whereas credit entries of Rs.6,26,597/- in ICICI Bank account were there out of which cash deposit was of Rs.96,565/- during the financial year. We note that the assessee did not comply with the show-cause notice issued by the ld. Assessing Officer and finally ld. Assessing Officer framed the assessment under section 144 of the Act vide order dated 19.12.2019 making two additions as stated above. Therefore, it is abundantly clear that the additions made by the ld. Assessing Officer were not in respect of the issue, which was the subject matter of the limited scrutiny as is apparent from the notice issued under section 143(2) of the Act dated 10.08.2018 and the ld. Assessing Officer passed the assessment order by making the above said additions without converting the limited scrutiny into complete scrutiny in terms of Circular issued by CBDT bearing No. 3/2017 dated 21.02.2019. In our opinion, the said additions made by the ld. Assessing Officer are without jurisdiction and cannot be sustained. The assessee finds support from the decision of the Hon’ble Jurisdictional High Court in the case of PCIT -vs.- Weilburger Coatings (India) Pvt. Limited [2023] 155 taxmann.com 580 (Calcutta), wherein Hon’ble Court has held as under:- The assessee has placed Instruction issued by the CBDT dated 30-11-2017, 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 26-92014, 29-12-2015 and 14-7-2016. 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 Principal Commissioner 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, it is viewed that the Tribunal rightly allowed the assessee's appeal on the said issue.
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 jurisdiction 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 Jurisdictional 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.
6.1 Since we have decided the Legal Ground No.1 raised by the assessee, the remaining Grounds automatically becomes academic in nature, therefore, dismissed accordingly.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on 26 June, 2025.