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Facts
The assessee, engaged in leasing/renting properties and agricultural activities, filed returns for Assessment Years 2015-16 & 2016-17. The case was selected for limited scrutiny regarding 'Agricultural Income' and 'business/profession mismatch'. The Assessing Officer, however, made several additions on various other issues under Section 143(3), which were subsequently confirmed by the CIT(A).
Held
The Tribunal found that the Assessing Officer had exceeded the scope of limited scrutiny by making additions on issues not covered by the original notice, without obtaining prior approval to convert the case to complete scrutiny. Relying on CBDT guidelines and a previous coordinate bench decision, the Tribunal set aside the assessment order and remanded the matter to the Assessing Officer for a de novo assessment strictly within the parameters of the limited scrutiny.
Key Issues
Can an Assessing Officer make additions outside the scope of limited scrutiny without formally converting the assessment to complete scrutiny with proper approval?
Sections Cited
143(2), 143(3), 68
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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE-SHRI SIDDHARTHA NAUTIYAL
O R D E R
PER DR. B.R.R. KUMAR, VICE-PRESIDENT:
- Delay Condoned The captioned two appeals have been filed by the Assessee against the common appellate order passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi, relating to the Assessment Years 2015-16 & 2016-17. Since the issues raised in these two appeals are common, we are extracting the grounds of appeal
from for A.Y 2015-16 for the purpose of adjudication. for AY 2015-16
2. The assessee has raised the following grounds of appeal:-
1. That the notice issued under section 143(2) of the Act and all the subsequent proceeding are bad in law and therefore the Order passed by Assessing Officer is required to be quashed and the additions made therein are to be deleted in full
2. That the learned National Faceless Appeal Centre, Delhi has erred in law and facts by confirming the addition of Rs. 27,63,050/- (Rs.32,57,364- Rs.4,94,314), under section 68 of the Act, on the account of treatment of -2191/Ahd/2024 Hargovind M Desai Vs. ITO Asst. Years : 2015-16 & 2016-17 - 2– agricultural income, as unexplained Income under section 68 of the Act and therefore the learned AO should be directed to delete the said addition while computing the total income.
3. That the learned National Faceless Appeal Centre, Delhi has erred in law and facts by treating rent income of Rs. 6,60,000/- as income from other sources, out of offered business income and against which expenses of Rs. 88,114/- has been allowed, while computing the income from other sources and finally computed income from other sources of Rs. 5,71,886/ The course of action of the Id. AO has resulted into disallowance of expenses of Rs. 17,74,579/- (Rs. 18,62,693-Rs.88,114) against the rent income, shown as business Income and accordingly the learned AD should be directed to not to treat rent income of Rs.6,60,000/- as income from other sources and allow the entire expense of Rs. 18,06,485 (Rs. 21,254+Rs 50,000+Rs. 21,500+Rs. 3,37,355+Rs. 13,76,376) under the head income from Business and Profession.
4. That the learned National Faceless Appeal Centre, Delhi has erred in law and facts by confirming the addition of Rs.1,00,450/- (Rent Rs.1,43,500 statutory Deduction Rs. 43,050) under the head Income from House Property and therefore the learned AO should be directed to treat said rent income Rs.1,43,500/-, as business income while computing the total income.
5. That the learned National Faceless Appeal Centre, Delhi has erred in law and facts by confirming the addition of Rs. 16,00,000/- under section 68 of the Act for cash deposit of cars sales and therefore the learned AO should be directed to delete the said addition while computing the total income.
6. That the learned National Faceless Appeal Centre, Delhi has erred in law and facts by confirming the addition of Rs.3,00,000/- under section 68 of the Act for the advance cash received for agriculture produce and therefore the learned AO should be directed to delete the said addition while computing the total income.
7. That the Learned National Faceless Appeal Centre, Delhi has erred in law and facts by confirming the addition of capital gain on sale of assets of Rs.1,36,642/- as the block of asset has not been exhausted and it is continue and the amount of Rs.1,36,642/-is the net gain on sale of cars as per the books of account and therefore the Ld.AO should be directed to delete the said addition while computing the total income.
3. The assessee is engaged in the business of leasing/renting properties and agricultural activities. The return of income was filed on 18.01.2016 declaring total income at Nil. The case was selected for limited scrutiny under CASS for the issue of (i) Income from heads other than -2191/Ahd/2024 Hargovind M Desai Vs. ITO Asst. Years : 2015-16 & 2016-17 - 3– business/profession – mismatch & (ii) Agricultural Income. The Assessing Officer completed the assessment under section 143(3) of the Act on 31.12.2017, making the following additions: i) Agricultural income of Rs.27,63,650/- treated as unexplained income u/s 68; ii) Rent income of Rs.6,60,000/- treated under "Income from Other Sources" after disallowing proportionate expenses of Rs.17,74,579; iii) Rental income of Rs.1,43,500/- treated as “Income from House Property” instead of business income; iv) Rs.16,00,000/- on account of cash deposits related to alleged car sales treated as unexplained cash credit u/s 68; v) Rs.3,00,000/- on account of advance for agricultural produce also treated u/s 68; vi) Capital gains of Rs.1,36,642/- on sale of motor cars.
3.1 The assessee challenged these additions before the Ld. CIT(A), who confirmed the action of the Assessing Officer.
Before us, the Ld. AR submitted that the case was selected for limited scrutiny for the issue of "Agricultural Income". However, the Assessing Officer made several additions unrelated to the limited scrutiny issue without seeking prior approval for conversion into complete scrutiny. The Ld. AR, in this regard, placed reliance on the decision of the Co- ordinate Bench in the case of Shri Rajnikanth S. Bhalavat vs. ACIT in wherein the assessment was quashed for similar reasons.
4.1 We observe that apart from agricultural income, the Assessing Officer made additions in respect of Sale of cars, Advances for agricultural produce Capital gain, Disallowance of expenses, rental income etc. We find that none of these issues were covered under the scope of the original limited scrutiny notice under section 143(2) and the Revenue has not brought on record any approval obtained from the competent authority for converting -2191/Ahd/2024 Hargovind M Desai Vs. ITO Asst. Years : 2015-16 & 2016-17 - 4– the case into complete scrutiny, as mandated under CBDT guidelines and the decision of Co-ordinate Bench in the case of Rajnikanth S. Bhalavat (supra). In view of the above discussion, we set aside the assessment order passed under section 143(3) of the Act and remand the matter to the file of the Assessing Officer for a de novo assessment within the scope of the limited scrutiny guidelines.
4.2 Since we are setting aside the assessment order on jurisdictional grounds, we do not express any opinion on the merits of the case. The assessee is at liberty to raise all legal and factual contentions during the course of the de novo proceedings.
In the result, both the appeals of the assessee are allowed for statistical purposes. The order is pronounced in the open Court on 12.08.2025.
Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (DR. B.R.R. KUMAR) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 12.08.2025 *btk आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, True Copy