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Income Tax Appellate Tribunal, ‘’ SMC’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SHRI SIDDHARTHA NAUTIYAL
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-4, Ahmedabad, dated 25/06/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-16.
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The Assessee has raised following grounds of appeal:
The learned CIT(A) has erred in law and on facts in confirming the action of AO of making an addition ofRs.5,98,200/-u/s.69A r.w.s. 115BBE of the Act. 2. The learned CIT(A) has erred in law and on facts in confirming the action of AO of making an addition and not limiting the income of the appellant to presumptive income of Rs.2,45,200/- as mandated u/s.44AD of the Act. 3. Both the lower authorities have erred in stepping into the shoes of the appellant and holding that profit of the appellant at 50.90% of the turnover is on the higher side especially when S.44AD of the Act does not prescribe an upper limit. 4. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 5. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C of the Act. 6. The learned C1T(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty u/s.271(1)(c) of the Act. 7. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the
The assessee has challenged the validity of the assessment framed under section 143(3) of the Act on the reasoning that the AO expanded the scope of limited scrutiny assessment without having necessary approval.
Brief fact is that the assessee is an individual and claimed to be engaged in the retail business of readymade garments. The assessee in the year under consideration has declared total income at Rs. 2,45,000.00 against the turnover of Rs. 4,99,500.00 under presumptive tax as provided under section 44AD of the Act. Subsequently, the return of the assessee was selected for limited scrutiny and the notice was issued under section 143(2) of the Act for examining the issue whether the cash deposit in the bank has been made from disclosed sources. There was deposit of cash in the bank account of the assessee amounting to Rs. 12,13,500.00 i.e. Punjab National Bank. However, the AO made the addition of Rs. 5,98,200.00
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being the amount shown as cash in hand as on 31-3-2015, treating the same as income of the assessee from undisclosed sources.
Aggrieved, assessee preferred an appeal before the learned CIT (A) who confirmed the order of the AO.
Being aggrieved by the order of the Ld. CIT(A) the assessee is in appeal before us.
The Ld.AR before us filed a paper books running from pages 1 to 79 and drew our attention on page 8 of the paper book where the notice for “Limited Scrutiny” issued u/s 143(2) of the Act was placed. The Ld. AR further claimed that the Assessing Officer has not converted the “Limited Scrutiny” to the normal/regular scrutiny u/s 143(3) of the Act. Accordingly, the addition cannot be made.
On the other hand the Ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the relevant materials available on record before us. Admittedly, the case of the assessee was selected under “Limited Scrutiny” scheme as evident from the notice u/s 143(2) of the Act, placed on page 8 of the paper book. As per the CBDT instruction No. 20/2015 dated 29/12/2015 and instruction No. 05/2016 dated 14- 07-2016 the Assessing Officer in case of “Limited Scrutiny” can only examine those issues for which the case has been selected or the issue mentioned therein. If the AO is of the view that there is a potential escapement of income, he may convert the “Limited Scrutiny” into “Complete Scrutiny” but such view should be reasonable view based on credible information or material available on record. Furthermore, there should be direct nexus between such view and information/material. The relevant portion of the instruction stands as under:
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“3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-one is 'Limited Scrutiny' and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 (‘Act’). The procedure for handling 'Limited Scrutiny' cases shall be as under: a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in ‘Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues? " c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in 'limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr.CIT/CIT concerned. However, such an approval shall be accorded by the Pr.CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating 'Complete Scrutiny' in that particular case. Such cases shall be monitored by the Range Head concerned. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
“2. In order to ensure that maximum objectivity is maintained in converting a case falling under 'Limited Scrutiny' into a 'Complete Scrutiny' case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up 'Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer ('AO') shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under 'Complete Scrutiny'. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para ?(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view; b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view.” 9.1 However, on perusal of the notice for “Limited Scrutiny” we find that there was no mentioning/whisper about examination of the cash in hand. As such, the case was selected on account of deposit of cash in the bank but the closing cash in hand balance was added to the total income of the assessee. To our understanding,
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the deposit of cash in the bank and the closing cash in hand are two different items. However, the AO has not made any addition qua the deposit of cash for which the case was selected under scrutiny. Accordingly, we hold that the Assessing Officer has exceeded his jurisdiction by treating the closing cash in hand as income from undisclosed sources which was not mandated under the ‘’Limited Scrutiny” notice issued under section 143(2) of the Act.
9.2 The Ld. DR before us has not brought anything on record justifying that the “Limited Scrutiny” was converted by the Assessing Officer under normal scrutiny after obtaining necessary approval from the appropriate authority.
9.3 We are also not convinced with the argument of the learned DR that the issue raised by the AO is limited to the cash in hand available at the end of the financial year under consideration. It is because if we admit the contention of the learned DR then the same will be beyond the scope of limited scrutiny as there was no question raised in the notice issued for the limited scrutiny under section 143(2) of the Act for the cash balance. The right course of action for the AO was to take the approval from the competent authority for expanding the scope of Limited Scrutiny to the regular assessment but he failed to do so. Thus, in our considered view inaction of the AO should not cause any harassment to the assessee.
9.4 In holding so we draw support and guidance from the order of the Hon’ble Chandigarh Tribunal in case of Rajesh Jain vs. ITO reported in 162 taxman 212 where it was held as under:
The jurisdiction of the Assessing Officer in such cases where the notices are issued for limited scrutiny is confined to the claims he has set out in the notice for verification. This position of law was further elaborated by the CBDT in its Circular No. 8/2002, dated 27-8-2002. The CBDT Circular clarifies that the Assessing Officer does not have the powers to make the entire assessment of income in limited scrutiny cases. Now question had to be decided when the Assessing Officer does not have the powers while making limited scrutiny assessment to decide such issues which are not covered by the limited scrutiny notice, the Commissioner (Appeals) on appeal against limited scrutiny assessment can exercise the powers in excess of the power vested with the Assessing Officer. There is no doubt that the power of the
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Commissioner (Appeals) is co-terminus with the power of the Assessing Officer. So, however, in the instant case, when the Assessing Officer did not have the power to make a full-fledged assessment in limited scrutiny cases, the Commissioner (Appeals)’s power could not be enlarged beyond the power of the Assessing Officer in limited scrutiny cases. So, it was considered appropriate to remit the issue relating to allowance of depreciation in respect of the plinth to the file of the Assessing Officer for the purpose of fresh decision in accordance with law. Since the notice under section 143(2)(i ) was issued for limited scrutiny, the Assessing Officer was precluded from considering any other issue while making the assessment under section 143(3) under limited scrutiny. The decision of the Commissioner (Appeals) in considering the other claim of the assessee not covered in the notice issued under section 143(2)(i) for limited scrutiny was contrary to the provisions of the Act and, accordingly, was set aside.
9.5 In view of the above and after considering the facts in totality as discussed above, we are not convinced with the finding of the authorities below. As such the entire issue should have been limited to the extent of the dispute raised in the notice under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus the ground of appeal of the assessee is allowed.
9.6 As the assessee is succeeded on the technical issue raised by him, we refrain ourselves from adjudicating the other issues raised on merit. Accordingly, the issues raised by the assessee on merit become infructuous. Hence we dismiss the same as infructuous.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 27/04/2022 at Ahmedabad. Sd/ - Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 27/04/2022 Manish