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Facts
The assessee filed its return of income, which was selected for limited scrutiny regarding issues like import turnover mismatch and duty drawback. Due to non-compliance, the Assessing Officer (AO) made an ad hoc addition of Rs. 2,50,00,000/-, later rectified to Rs. 2,11,56,038/-. The CIT(A) set aside the assessment for fresh assessment, which the assessee challenged before the Tribunal.
Held
The Tribunal dismissed the assessee's appeal, holding that the DCIT had proper jurisdiction based on pecuniary limits. It affirmed that while the AO initially exceeded limited scrutiny scope with an ad hoc addition, this was rectified, and the remaining addition related to the identified limited scrutiny issues. The Tribunal also upheld the CIT(A)'s decision to set aside the assessment for de novo fresh assessment, finding it appropriate given the lack of necessary details for a merit-based decision at the appellate stage.
Key Issues
Whether the DCIT had proper jurisdiction over the assessee's case; whether the AO's conversion of limited scrutiny to complete scrutiny and subsequent ad hoc addition were valid; and whether the CIT(A) was justified in setting aside the assessment for fresh adjudication instead of deciding on merits.
Sections Cited
143(2), 142(1), 40A(2)(b), 145(2), 144, 143(3), 251(1)(a), 154, 129
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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
Before: SHRI SANJAY GARG & SHRI NARENDRA PRASAD SINHA
O R D E R
PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the order of National Faceless Appeal Centre, Delhi (in short ‘the CIT(A)’) dated 28.11.2024 for the Assessment Year (A.Y.) 2015-16.
The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2015-16 on 31.10.2015 declaring total income of Rs.30,11,970/-. The case was selected for limited scrutiny to examine the following issues: -
1) Import turnover mismatch 2) Customs Duty Payment mismatch 3) Payment to related persons mismatch 4) Duty Draw Back received/receivable Assessment Year: 2015-16 Rupen Marketing Pvt. Ltd. vs. DCIT Page 2 of 11 2.1 In the course of assessment proceeding, there was no compliance to the notices under Section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) as well as to the notice under Section 142(1) of the Act issued by the DCIT, Circle-3(1)(2), Ahmedabad (hereinafter referred as ‘the AO’) and the details as requisitioned were not furnished. The AO had given a finding in the assessment order that payment of Rs.11,51,445/- to the persons specified under Section 40A(2)(b) of the Act was not reasonable. Further, the assessee had shown purchase of Rs.4,87,97,753/- in the Profit & Loss Account whereas as per ITS details, the invoice value of imports was Rs.6,99,02,253/-. The difference of Rs.2,11,04,500/- in the purchases was not explained by the assessee which was treated as suppressed purchase. Similarly, export duty draw back shown in the return was Rs.99,011/- whereas the duty draw back on exports as available in the ITS data was Rs.1,50,549/- and the difference of Rs.51,538/- was not reconciled. The Assessing Officer had also given a finding that the assessee had taken various loans which were mostly diverted towards loans and advances, the purpose of which was not explained. In the absence of any compliance by the assessee as well as for lack of explanation in respect of issues for which the case was selected for scrutiny, the Assessing Officer had recorded a finding that the correctness or completeness of the accounts was not verifiable and that the assessee had not followed the method of accounting in accordance with the accounting standard stipulated under Section 145(2) of the Act. Therefore, the Assessing Officer had made ad hoc addition of Rs.2,50,00,000/- to the returned income. The assessment was completed under Section 144 of the Act on 22.11.2017 at total income of Rs.2,80,11,970/-.
Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the assessment was set aside to the file for the Assessing Officer with direction to make fresh assessment after allowing opportunity of being heard to the assessee and after verification of the facts of the case.
Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:-
1. The learned CIT(A) has grievously erred in setting aside the assessment completed u/s.144 r.w.s. 143(3) of the Act to the file of AO to make fresh assessment on the basis of provisions Inserted by Finance Act, 2024 in the statute in clause (a) under sub section (1) of section 251 of the Income Tax Act, 1961 w.e.f. 01.10.2024 on the basis of observations/findings given the appellate order and without going to the merits of the case and different grounds of appeal
raised by the appellant company.
2. The learned CIT(A) has grievously erred in law and on facts in not appreciating the fact that the DCIT Circle 3(1)(2) was not having the jurisdiction over the case of the appellant company and therefore the Impugned assessment order passed by him is bad in law and thus required to be quashed as void-ab-initio and bad in law.
3. The learned CIT(A) has grievously erred in law and on facts in not appreciating the fact that though the case of the appellant company was selected for "Limited Scrutiny Assessment", the DCIT Circle 3(1)(2) has exceed his jurisdiction while passing the assessment order as if the case of the appellant company was selected for "Complete Scrutiny" which is in flagrant violation of the guidelines issued by the CBDT for Limited Scrutiny Assessment. The above facts are supported by the rectification order u/s. 154 of the Act passed by the DCIT Circle 3(1)(2) Ahmedabad. Hence the impugned assessment is required to be quashed as void-ab-initio and bad in law.
4. The learned CIT(A) has grievously erred in law and on facts for not deleting the addition of Rs.2,50,0,000/- which has been made by the DCIT Circle 3(1)2) Ahmedabad without identifying the nature of addition and disallowance. In view of the facts, explanations and evidences filed during the course of assessment and appellate proceedings, the addition of Rs.2,50,00,000/- made by the AO in the assessment order is wholly unjustified and bad in law and thus requires to be deleted.
Assessment Year: 2015-16 Rupen Marketing Pvt. Ltd. vs. DCIT Page 4 of 11 In view of the above, the impugned assessment order passed u/s 144 r.w.s. 143(3) of the Act and addition made therein both requires to be quashed being without jurisdiction. The appellant craves leave to add, amend, alter, modify or delete any of the above grounds and to submit additional grounds at the time of hearing of the appeal.
Shri Mehul Patel, the Ld. AR of the assessee submitted that the Ld. CIT(A) was not correct in setting aside the assessment to the file of the Assessing Officer to make fresh assessment without going into the merits of the case and without adjudicating the different grounds of the appeal as raised by the assessee. The Ld. AR explained that in this case, parallel assessment proceeding was initiated by the ITO, Ward- 3(1)(3), Ahmedabad as well as by the DCIT, Circle 3(2)(2), Ahmedabad by issue of simultaneous notices under Section 143(2) of the Act on 26.07.2016. However, the assessment order was passed only by the DCIT and no order was passed by the ITO. The Ld. AR submitted that the DCIT, Circle – 3(1)(2) was not having jurisdiction over the case and, therefore, the order passed by him was ab-initio-void and bad in law, which should have been quashed by the Ld. CIT(A). The Ld. AR further submitted that the case was selected for limited scrutiny assessment on specific issues. However, the DCIT had made ad hoc addition of Rs.2,50,00,000/- and no specific addition on the issues of limited scrutiny was made in the assessment order. The Ld. AR explained that subsequently the DCIT had passed an order under Section 154 of the Act on 15.12.2017 whereby the order under section 144 dated 22.11.2017 was modified and addition was restricted to Rs.2,11,56,038/- only (in respect of difference in purchase of Rs.2,11,04,500/- and difference of Rs.51,538/- in duty draw back). The Ld. AR further submitted that since the notices under Section 143(2) and Assessment Year: 2015-16 Rupen Marketing Pvt. Ltd. vs. DCIT Page 5 of 11 under Section 142 of the Act was also issued by the ITO, Ward 3(1)(3), the assessee had made compliance before the ITO and submitted the required details which were not considered by the DCIT while passing the assessment order. The evidences filed before the ITO were also filed before the Ld. CIT(A) in the course of appeal proceeding as fresh evidence, on which remand report of the Assessing Officer was called for. The Ld. AR submitted that when the additional evidences were admitted and remand report of the Assessing Officer was already received, the ld. CIT(A) was not correct in setting aside the matter to the file of the AO once again. Rather, he should have decided the grounds as raised and should have quashed the assessment order which was illegal and beyond jurisdiction.
Per contra, Shri Abhijit, Ld. Sr DR supported the order of the Ld. CIT(A).
We have carefully considered the submissions of the assessee. The objection of the assessee about the jurisdiction of DCIT, Circle 3(1)(2) over the case of the assessee goes to the root of the matter and, therefore, the ground no-2 pertaining to jurisdiction, is required to be adjudicated first. It is contended that the DCIT did not have correct and proper jurisdiction to pass the impugned assessment order as the notice dated 04.07.2017 was issued by the ITO, Ward 3(1)(3), Ahmedabad under Section 142(1) r.w.s 129 of the Act. The assessee has brought on record copy of the notices in the paper book filed. It is found that identical computer generated notice under Section 143(2) of the Act was issued by the ITO, Ward - 3(1)(3), Ahmedabad as well as by the ACIT, Circle – 3(1)(2), Ahmedabad on 26.07.2016. Merely because the notices were issued both by the ITO as well as by the ACIT, it can’t be concluded that the ACIT was having no jurisdiction over the case. The territorial jurisdiction of the ITO and the ACIT/DCIT working in the same Range is common. Within the common jurisdiction, the cases are assigned to the ITO and to the ACIT/DCIT on the basis of the monetary limit. The CBDT vide INSTRUCTION NO. 1/2011 [F. NO. 187/12/2010-IT(A-I)], DATED 31- 1-2011 had fixed pecuniary limit for purpose of distribution of work between officers which is extracted below for the sake of convenience and ready reference.
INSTRUCTION NO. 1/2011 [F. NO. 187/12/2010-IT(A-I)], DATED 31-1-2011
References have been received by the Board from a large number of taxpayers, especially from mofussil areas, that the existing monetary limits for assigning cases to ITOs and DCs/ACs is causing hardship to the taxpayers, as it results in transfer of their cases to a DC/AC who is located in a different station, which increases their cost of compliance. The Board had considered the matter and is of the opinion that the existing limits need to be revised to remove the abovementioned hardship. An increase in the monetary limits is also considered desirable in view of the increase in the scale of trade and industry since 2001, when the present income limits were introduced. It has therefore been decided to increase the monetary limits as under: Income Declared (Mofussil Income Declared (Metro cities) areas)
ITOs ACs/DCs ITOs ACs/DCs Corporate Upto Rs. 20 Above Rs. 20 Upto Rs. 30 lacsAbove Rs. 30 lacs returns lacs lacs Non-corporate Upto Rs. 15 Above Rs. 15 Upto Rs. 20 lacsAbove Rs. 25 lacs returns lacs lacs Metro charges for the purpose of above instructions shall be Ahmedabad, Banagalore, Chennai, Delhi, Kolkata, Hyderabad, Mumbai and Pune. The above instructions are issued in supersession of the earlier instructions and shall be applicable with effect from 1-4-2011.
Assessment Year: 2015-16 Rupen Marketing Pvt. Ltd. vs. DCIT Page 7 of 11 7.1 The income declared by the assessee in the current year was above Rs. 30 lacs and thus the jurisdiction over the case was with the ACIT/DCIT in accordance with the CBDT Instruction. Merely because the assessment of past year was made by the ITO, it cannot be presumed that the jurisdiction for the current year will remain with the ITO. The jurisdiction was dynamic considering the CBDT Instruction and the income declared by the assessee in different years. Even if the initial notice u/s 143(2) was issued by the ITO, the jurisdiction was required to be transferred to the ACIT/DCIT considering the fact that the returned income of the assessee in the current year was in excess of Rs.30,00,000/-. Therefore, the contention of the assessee that the AO had no jurisdiction over the case can’t be accepted. The jurisdiction over the case for the current year was with the ACIT/DCIT and not with the ITO. The jurisdiction was also rightly assumed by the ACIT/DCIT by issue of notice under section 143(2) of the Act dated 26.07.2016. Therefore, the assessment order as passed by the DCIT, Circle – 3(1)(2), Ahmedabad in this case cannot be held as without jurisdiction. Accordingly, the ground no.-2 raised by the assessee in respect of jurisdiction over the case is dismissed.
The ground nos.-3 and 4 pertain to conversion of limited scrutiny into complete scrutiny by the AO and making ad hoc addition of Rs.2,50,00,000/- without identifying the nature of addition. It is true that the case was selected for limited scrutiny on specific issues as already mentioned earlier. The Assessing Officer had also discussed those issues in the assessment order and pointed out specific discrepancy in respect of import turnover mismatch and duty draw back mismatch. However, since no compliance was made by the assessee before the Assessing Officer, he had rejected the books of account and made ad hoc addition of Rs.2,50,00,000/- in respect of the mismatch on the issues of limited Assessment Year: 2015-16 Rupen Marketing Pvt. Ltd. vs. DCIT Page 8 of 11 scrutiny as well as the other discrepancies as noticed in the course of assessment. The objection of the assessee that AO was not empowered to exceed the limited issues on which the case was selected for scrutiny, is justified. However, merely because the AO had exceeded his jurisdiction in making certain additions, the entire assessment cannot be held as void ab initio. The additions made in excess of the issues under consideration can only be held as illegal. The AO had specifically pointed out discrepancies to the extent of Rs.2,11,04,500/- and Rs.51,538/-, in the assessment order, in respect of import duty vis-à- vis purchase mismatch and export duty drawback mismatch, which were two of the issues for which the case was selected for limited scrutiny. Therefore, the AO was entitled to make addition to the extent of the total difference of Rs. 2,11,56,038/- as identified in the assessment order. Only the addition made in excess of the identified difference of Rs. 2,11,56,038/- can be held as beyond jurisdiction. In fact, the Assessing Officer had rectified this mistake by passing an order under Section 154 of the Act dated 10.12.2017 whereby the addition was restricted to Rs.2,11,56,038/- which pertained to two of the issues on which the case was selected for limited scrutiny. Thus, the addition was finally restricted only to the issues of limited scrutiny. In fact, the assessee itself was to be blamed for this addition as no compliance, at all, was made before the AO. The assessee has acknowledged receipt of the notices issued by the AO. When the compliance was made before the ITO, the assessee could have simply filed a copy of those submissions before the AO as well. In the absence of any explanation in respect of the discrepancies on the two of the issues of limited scrutiny, the AO had no option but to make the addition. The objection taken by the assessee on the addition beyond the limited scrutiny issues is no longer res integra as the same stands rectified Assessment Year: 2015-16 Rupen Marketing Pvt. Ltd. vs. DCIT Page 9 of 11 by the AO. Further, the entire addition can’t be held as beyond jurisdiction and the assessment order can’t be quashed for this reason. Moreover, the assessment has already been set aside by the Ld. CIT(A) for denovo assessment on the issues after giving another opportunity to the assessee to present his case and after verification of the facts of the case. Hence, the assessee, under the circumstances at this stage, is not left with any grievance relating to the impugned additions made by the Assessing Officer. Therefore, the ground no-3 and 4 as raised by the assessee in this regard are dismissed.
The ground No.-1 taken by the assessee is against setting aside the matter to the file of the Assessing Officer for making fresh assessment. The contention of the assessee is that, as the remand report of the AO was already obtained on the additional evidences filed in the course of appeal proceedings, the Ld. CIT(A) should have decided the grounds taken by the assessee on merits rather than setting aside to the file of the AO for fresh assessment. A copy of the remand report as well as rejoinder of the assessee thereon has been brought on record in the paper book. In the remand report the AO had commented that the assessee had failed to reconcile the difference in import turnover mismatch as well as in respect of duty draw back receipt. In the rejoinder dated 12.07.2023 to the remand report of the AO, the assessee had contended that the AO did not carry out any enquiries before submitting his remand report. It was explained that the mismatch of import turnover and customs duty was based on information uploaded by Customs Department on ITD, which did not mention bill-wise details/break-up of import, date of import, break-up of customs duty, its date of payment etc. It was contended that the AO didn’t collect the complete information from the Customs Department and 9.1 The issue could have been decided on merit by the ld. CIT(A) only if the difference of Rs.2,11,04,500/- in the purchase vis-à-vis import and the difference of Rs.51,538/- in the export duty draw back was reconciled. As explained by the assessee itself in the rejoinder to the remand report, these differences could have been reconciled only after obtaining specific information/bill-wise details in respect of the data as uploaded on ITD. In the absence of such details, it was not feasible for the Ld. CIT(A) to decide the issue on merit. Therefore, he had rightly set aside the matter to the file of the AO with a direction to allow another opportunity of being heard to the assessee and decide the matter afresh after verification of the facts of the case. Since the Ld. CIT(A) could not have decided the matter on merits in the absence of necessary details, there was nothing wrong in his setting aside the matter to the file of the AO for deciding the matter afresh after conducing further enquiries and verifications as deemed necessary. Therefore, the ground as taken by the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on this 18th June, 2025.