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Facts
The assessee's case was selected for scrutiny due to high income, substantial loans given, and large squared-up loans. The Assessing Officer (AO) made additions for under-reporting of GP, undervaluation of closing stock, disallowed discounts, and commission/brokerage. The CIT(A) allowed the assessee's appeal on a technical ground regarding the conversion from limited to unlimited scrutiny.
Held
The Tribunal held that the CIT(A) erred in allowing the appeal on a technical ground. The case was selected for complete scrutiny based on valid reasons, and the AO had not exceeded jurisdiction. The appeal filed by the department was allowed, and the cross-objection by the assessee was dismissed.
Key Issues
Whether the AO exceeded jurisdiction by converting a limited scrutiny case to an unlimited scrutiny case without proper approval. Whether the additions made by the AO on account of under-reporting of GP, undervaluation of closing stock, discounts, and commission were justified.
Sections Cited
143(1)(a), 143(3), 144B, 270A, 156, 145, 143(2), 263, 269SS
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Income Tax Appellate Tribunal, JAIPUR BENCHES,” B”-Bench” JAIPUR
Before: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM vk;dj vihy la-@ITA. No. 1110/JPR/2024
vkns'k@ORDER Per: Narinder Kumar, Judicial Member, This common judgment is to dispose of above captioned appeal- Cross-objection No.14/JPR/2024 filed by the assessee- named above, as the same arise out of same impugned order i.e. dated 21.06.2024 passed by Learned CIT(A)/NFAC, Delhi as regards assessment pertaining to assessment year 2022-23, and these involve the same issue. The assessee was before Learned CIT(A), NFAC, feeling aggrieved by assessment order dated 12.03.2021 passed by the Assessing Officer for the assessment year 2022-23. Vide said assessment order, the Assessing Officer finally computed taxable income of the assessee as under:- “Final computation of taxable income: Sl. No. Description Amount (in INR)
1 Income as per return of income file 1,39,49,220/- 2 Income as computed u/s 143(1)(a) 1,39,49,220/- 3 Variation in respect of issue as per para at 4.5 1,64,11,510/- 4 Total income/Loss determined as per the above 3,03,60,730/- proposal
Assessee at income of Rs. 3,03,60,730/- under section 143(3) r.w.s. 144B of the Income Tax Act. Penalty proceedings u/s 270A for under reporting of income issued separately. Computation of income and demand notice u/s 156 of the Act is attached.”
CO No. 14/JPR/2024 ITO vs. Sangeeta Bafna 2. As is available from the assessment order, the case of the assessee was selected for scrutiny under CASS due to the following reasons:- “A. High income reported in the return and no entry in Schedule Assets and Liabilities of return of income. B. Substantial loans given by the assessee as per Form 3CD of debtors in comparison to gross total income shown in the ITR. C. Large squared up loans during the years.”
Learned Assessing Officer, while computing taxable income of the assessee and framing the assessment order observed in the manner as:- “The assessee has attributed the fall to trading in only cotton and not cotton seeds as in the past. The assessee in support has given the comparative chart of P&L account of this year and immediate assessment year. Further the assessee stated that G.P rates of cotton and cotton seeds were 5.55% and 24.22% respectively which was 10.31% in consolidation of both in the last year. If the comparison is made between the trading in cotton then there is a marginal difference is 0.56% which is negligible. In view of huge tumover even the fall in G.P rate of 0.56% comes to Rs. 22,21,757/- Which is not negligible. The assessee has submitted the comparative chart of cotton trade in which the closing stock of 33600 Kg as per last year valued at Rs 28.06. In this year the closing stock of 87650 kg has been shown at Rs. 160.00 per kg. The assessee was asked to submit top 15 purchase and sales bills for the month of Feb and March. But the assessee has submitted only purchase bills made during the month of March, the assessee has not given any details of sale bills pertaining to Feb and March.
The details of purchases in the last week of March is tabulated here under- Sr. no. Purchase party Date qty Amount detail including GST 1 Ganeshdas Dulraj 26.03.2022 152006236.24 3590856/- 2 GuruKirpa Geenig 30.03.2022 15715@248.01 3897609/- 3 GuruKirpa Geenig 30.03.2022 15505@248.90 3859259/- The assessee has valued the closing stock of 87650 @ Rs.160/- where as the purchase rate in the above table as on 30.03.2022 is Rs.248/-. The assessee should have valued the closing stock of 87650 @ 248 which was the purchase price. Thus the closing stock has been under valued by a sum of Rs.77,13,200/-. Therefore it is clear that the assessee has undervalued the closing stock with a view to reduce the gross profit. In turn the correctness of the profit returned by the assessee in view of books of accounts can't be relied upon.
Concerning the discount claimed for the first time to the tune of Rs. 56,99,493/-, The assessee has stated that the debit notes of discounts were claimed by the parties on the basis of deficiency in quality, quantum, rates, shortage etc. It seems that the assessee is allowing the discounts automatically as claimed and no evidence of genuineness of allowing discounts have been placed on record. The loss in weight, quality etc after the sales is surprising as the buyer inspects the goods before and decides the rates accordingly or can buy from the other parties or can bargain at the point of purchases. Assessee has brought on record the fact of non availability of many debit notes which again leads to the fact of deficiency in supportive evidence. Therefore the claim of discount is also not fully supported by evidence and not reliable due to above discussion.
In respect of commission/ brokerage for Rs.7,77,060/-, the assessee has not given any copy of agreement and proof of services rendered with nexus Instead the bills from the brokers without proving nexus to the particular sales. In case of Shekhawat Cotton suppliers bill dated 31.03.2022 the assessee has paid the major commission of Rs.5.22.170/- out of total brokerage of Rs.7,77,060/- at the rate of 15% on purchase and 25% on sales which is very much on the higher side and demolishes the defense of the assessee stating that the commission amount is reasonable at 0.20%. It is to be noticed that even the profit margin of the assessee is only 5.5% as against the commission of 25% given by assessee on sales and that on the last date of the closing i.e 31.03.2022. This commission is in addition to the discounts given to various parties. It is apparently not acceptable as any prudent business man will not share 25% with some one else as against his own margin of around 5%. Therefore in view of these facts the claim of commission/ brokerage can't be called genuine.
In view of the above discussion on deficiencies in evidence etc found in respect of Under Reporting of G.P (Rs. 22,21,757/-.), undervaluation of closing stock (Rs.77,13,200/-), Discount (Rs. 56,99,493/-) and Brokerage/commission (Rs.7,77,060/-),. To sum up in view of substantial fall in G.P and N.P rate other CO No. 14/JPR/2024 ITO vs. Sangeeta Bafna deficiencies on the part of the assessee to furnish complete and correct information and also the deficiency pointed out above, the correctness and completeness of books of accounts and profits offered for taxation by the assessee can't be relied upon. Hence, in these facts and circumstances of the case, I am left with no other alternative but to complete assessment by invoking the provisions of section 145 of the Act and on the basis of above discussion a variation of Rs.1,64,11,510/-which is total of above discussed claims is made. I am also satisfied that the assessee is liable for initiation of penalty proceedings u/s 270A for under reporting of income which is also initiated.”
When the assessee challenged the assessment order before Learned CIT(A), NFAC, said appeal was allowed on the technical ground raised
by the assessee-appellant that the AO had converted the limited scrutiny case to an unlimited scrutiny case, and as the assessment order was bad in law and void-ab-initio, when the AO failed to obtain approval of the competent authority i.e. Administrative Commissioner Income Tax, before converting it to a complete scrutiny case.
5. Hence, the appeal and cross-objection.
6. It may be mentioned here that the appeal has been filed after 4 days of the prescribed period for filing of appeal. Seeking condonation of delay, an application has been filed by the Department –applicant. Learned DR for the applicant has submitted that copy of the order sheets passed in the assessment proceedings were required for properly CO No. 14/JPR/2024 ITO vs. Sangeeta Bafna analyzing the facts, but due to technical glitches in the system, same could not be downloaded on time. Another ground put forth by Learned DR for the applicant is that the office was busy in handling cases because of amendments effective from 1.9.2024, in addition to the matters in which limitation was going to expire. Further, it has been submitted that it being festivity period due to Independence Day and Raksha Bandhan and holiday period too, with Saturday and Sunday also falling, most of the staff from out stations happened to be on leave w.e.f. 14.8.2024 and returned on 20.8.2024. Ultimately, Learned DR has submitted that due to the abovesaid sufficient grounds, short delay of 4 days in filing of appeal may be condoned. In response, learned AR for the assessee has not opposed the submission put forth by Learned DR on the point of condonation of delay. Having regard to the submissions put forth by Learned DR, we find it to be a fit case to condone the short delay of 4 days which has crept in filing of the appeal by the department. Arguments have also been advanced by Learned DR for the appellant and Learned AR for the assessee, in the appeal today itself. File perused.
CO No. 14/JPR/2024 ITO vs. Sangeeta Bafna 7. Ld. DR for the appellant-department has advanced only one contention that the case was selected for “complete scrutiny” and not for “limited scrutiny”, and as such, Learned CIT(A) fell in error in allowing the said technical ground raised by the assessee, and in setting aside the assessment order. Accordingly, Ld. DR has urged that this appeal be allowed, and the Cross Objection/appeal filed by the assessee, be dismissed, and the matter be remanded to Learned CIT(A), NFAC for decision of the matter of the appeal afresh.
8. On the other hand, Ld. Counsel for the assessee has only contended that the case was selected for scrutiny due to the three reasons specified therein, and as such, Ld. CIT(A) was justified in allowing the appeal filed by the assessee holding that the Assessing Officer had exceeded jurisdiction in passing the assessment order, by converting the limited scrutiny case to an unlimited scrutiny case, and that too without approval of the competent authority. In support of his contention, Ld. AR for the appellant has relied on decision in case of Shri Arun Kumar Palawat vs. PCIT in vide order dated 11.04.2023, for the A.Y. 2017-18, by the Co-ordinate Bench of Jaipur Bench.
CO No. 14/JPR/2024 ITO vs. Sangeeta Bafna 9. As is available from the assessment order, for the assessment year under consideration i.e. A.Y. 2022-23, the case of the assessee was selected for scrutiny under CASS due to the following three reasons:- “A. High income reported in the return and no entry in Schedule Assets and Liabilities of return of income. B. Substantial loans given by the assessee as per Form 3CD of debtors in comparison to gross total income shown in the ITR. C. Large squared up loans during the years.” Word, “limited scrutiny” was nowhere mentioned while selecting the said case for scrutiny. Ld. DR for the department has submitted that copy of assessment proceedings sheet. It is available at page 56 of the report received from the Assessing Officer and submitted before this registry on 16.01.2025. Ld. DR for the department has rightly pointed out from the second last column of the sheet downloaded from the portal that it was not a case of limited scrutiny flag for the purpose of selecting the case for scrutiny. Said contents of the sheet in the second last column have not been disputed by ld. AR for the assessee.
As regards, first reason given selecting the case for scrutiny that the assessee had reported high income in the return, but not submitted information in the Schedule pertaining to the Assets and Liabilities, in the CO No. 14/JPR/2024 ITO vs. Sangeeta Bafna course of Ld. AR for the assessee admits that due to high income reported in the return, the assessee was required to submit assets and liabilities schedule, but the assessee did not submit the same. It is not being disputed on behalf of the assessee that such information of assets and liabilities is required to be furnished where total income of the assessee exceeds of Rs. 50, 00,000/-. Such information requires detailed enquiry. In view of this first reason, the Assessing Officer was competent to scrutinize the case not by way of limited scrutiny, but as a complete scrutiny case. As regards, second reason given in selecting the case for scrutiny, it was found that the assessee had lent huge sum by way of loans as per Form 3CD of debtors, in comparison to the gross total income shown in ITR. Accordingly, when genuineness of loan transactions and sources of loan was to be verified, it cannot be said that the case was selected for limited scrutiny. So far as third reason in selecting the case for scrutiny is concerned, as per tax audit report, substantial amount of loans was squared up by the assessee during the year under consideration. Accordingly, genuineness of the transactions, sources of unsecured loan, identity as well as CO No. 14/JPR/2024 ITO vs. Sangeeta Bafna creditworthiness of the lenders were to be verified. It was also required to be verified whether the loan amounts had been actually and genuinely returned to any such creditors and also that the provisions of Section 269SS were followed, while returning the said amount.
In view of the above discussion, we find that Learned CIT(A), NFAC fell in error in observing that the Assessing Officer had passed the assessment order without following procedure i.e. without seeking approval of the competent authority, as per CBDT Circular dated 28.11.2018, which contains directions for converting of a limited scrutiny case to an unlimited scrutiny case. Having regard to the reasons recorded for selecting the case for scrutiny, it cannot be said to be a case selected for “limited scrutiny” or that the Assessing Officer had expanded his jurisdiction.
The decision in case titled as Shri Arun Kumar Palawat case (supra) by the Coordinate Bench of Jaipur Benches , does not come to the aid of the assessee, being distinguishable on facts. That was a case where Ld. PCIT passed an order u/s 263 of the Act, pertaining to the assessment year 2017-18, and the said case was selected for scrutiny by issuing notice u/s 143(2) of the Act by specifically CO No. 14/JPR/2024 ITO vs. Sangeeta Bafna mentioning that the case was being selected for “limited scrutiny” on the issue of deductions against income from other sources, and that is how, in that case, the order passed by Learned PCIT u/s 263 of the Act was set aside.
Result 13. In view of the above discussion, filed by the department deserves to be allowed. It is ordered accordingly. As regards, appeal by way of CO No. 14/JPR/2024 filed by the assessee, same has been filed only on the ground that the appeal filed by the department was barred by limitation. As noticed above, delay in filing of appeal by the department has been condoned. Resultantly, CO No.14/JPR/2024 is hereby dismissed. Consequently, the impugned order passed by Learned CIT(A) is hereby set aside and the matter is remanded to ld. CIT(A), NFAC for decision of the appeal afresh, on merits, i.e. excluding the technical ground, which led to allowing of the appeal filed by the assessee. Of course, Learned CIT(A) shall allow reasonable opportunity to the assessee- appellant of being heard.