Loading judgment…
Facts
During assessment for AY 2017-18, the A.O made an addition of Rs.12,34,078/- under Section 68 of the Income Tax Act, 1961, citing the assessee's failure to prove the genuineness and creditworthiness of a loan received from his wife. This addition was subsequently upheld by the CIT(A). The assessee's case was initially selected for limited scrutiny solely for verifying "cash deposit during the year," which the A.O had accepted without any addition.
Held
The Tribunal held that the A.O exceeded his jurisdiction by expanding the scope of limited scrutiny (which was only for cash deposits) to examine the loan from the wife without any prior authorization from a competent authority. Citing Supreme Court precedents on statutory powers and jurisdiction, the Tribunal concluded that the A.O's action was without valid inherent jurisdiction, arbitrary, perverse, and bad in law. Consequently, the Tribunal set aside the CIT(A)'s order and directed the A.O to delete the addition.
Key Issues
Whether an Assessing Officer can expand the scope of a limited scrutiny assessment beyond its specified subject (cash deposits) to make an addition under Section 68 regarding a loan, without obtaining prior approval from a competent authority.
Sections Cited
Section 68 of the Income Tax Act, 1961, Article 265 of the Constitution of India
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM
The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, dated 11.08.2025 for the assessment year 2017-18 as per the grounds of appeal on record.
2. The brief facts in this case are that during the course of assessment proceedings on perusal of the balance sheet, it was observed by the A.O that the assessee had taken loan of Rs.12,34,078/- from his wife, Smt. Raziya Khan. That in pursuance to the aforesaid observation, the A.O ventured an enquiry to the issue of loan obtained by the assessee from his wife going into the creditworthiness and sought various documents to be furnished by the assessee. As the assessee had failed to furnish such documents, the A.O made an addition of Rs.12,34,078/- u/s.68 of the Income Tax Act, 1961 (for short ‘the Act’).
3. Aggrieved the assessee carried the matter in appeal before the Ld. CIT(Appeals)/NFAC who upheld the addition made by the A.O.
4. At the time of hearing, the Ld. Counsel for the assessee submitted that the present case of the assessee was selected for limited scrutiny with a subject of verifying “cash deposit during the year”. It was submitted by the Ld. Counsel that after due enquiry, the A.O was satisfied regarding the issue of cash deposits and accepted the same as per the return of income, hence, no addition was made with respect to the cash deposits during the year. The Ld. Counsel submitted that as the A.O had exceeded his jurisdiction beyond the scope and subject of limited scrutiny pertained to the cash deposits during the year without any order from the competent authority, therefore, addition made by the A.O is liable to be deleted.
The Ld. Sr. DR fairly conceded to the contention raised by the Ld. Counsel for the assessee on the aforesaid aspect.
I have heard the submissions of the parties herein and carefully considered the materials available on record. I am of the considered view that the action of the A.O in travelling to the issue of determination of the genuineness of the loan was beyond the scope and subject of limited scrutiny pertained to the cash deposits during the year. Admittedly, the A.O accepted the cash deposits and there was no addition made by him. Now traveling beyond that scope without any order of the competent authority placed on record and going into an enquiry regarding genuineness and creditworthiness of the loan is an action done by the A.O beyond jurisdiction.
At this stage, I find that the Hon’ble Supreme Court in its recent order passed in the case of Union of India Vs. Rajeev Bansal (2024) 469 ITR 46 (SC) had, inter alia, observed that the order passed without jurisdiction is nullity. It was further observed that if a statute expressly confers a power or imposes a duty on a particular authority, then such power or duty must be exercised or performed by that authority itself. Elaborating further, the Hon’ble Apex Court had observed that any exercise of power by statutory authorities inconsistent with the statutory prescription is invalid. Apart from that, it was observed that as there cannot be any waiver of a statutory requirement or provision that goes to the root of the jurisdiction of assessment, therefore, any consequential order passed or action taken will be invalid and without jurisdiction. For the sake of clarity, the observations of the Hon’ble Apex Court are culled out as under:
“xxxx xxxx xxxx xxxx xxxx 30. If a statute expressly confers a power or imposes a duty on a particular authority, then such power or duty must be exercised or performed by that authority itself. (Dr. Premachandran Keezhoth Vs. Chancellor, Kannur University). Further, when a statute vests certain power in an authority to be exercised in a particular manner, then that authority has to exercise its power following the prescribed manner (CIT Vs. Anjum M.H. Ghaswala; State of Uttar Pradesh Vs. Singhara Singh). Any exercise of power by statutory authorities inconsistent with the statutory prescription is invalid…………. xxxx xxxx xxxx xxxx xxxx 32. A statutory authority may lack jurisdiction if it does not fulfil the preliminary conditions laid down under the statute, which are necessary to the exercise of its jurisdiction. (Chhotobhai Jethabhai Patel and Co. V. Industrial Court, Maharashtra
Nagpur Bench). There cannot be any waiver of a statutory requirement or provision that goes to the root of the jurisdiction of assessment. (Superintendent of Taxes Vs. Onkarmal Nathmal Trust). An order passed without jurisdiction is a nullity. Any consequential order passed or action taken will also be invalid and without jurisdiction. (Dwarka Prasad Agrawal V. B.D. Agrawal). Thus, the power of assessing officers to reassess is limited and based on the fulfilment of certain preconditions. (CIT Vs. Kelvinator of India Ltd.)”
At the same time, Article 265 of the Constitution of India provides that no tax shall be levied or collected except by authority of law. The spirit of the mandate in the Article 265 of the Constitution of India is that any tax liability that has to be imposed on the assessee needs to have valid inherent jurisdiction of the person who is issuing such order for such an imposition of tax. In the present case as has been clearly evident that since the issue was of limited scrutiny regarding cash deposits and the addition made by the A.O on the other hand u/s. 68 of the Act venturing into an area of the genuineness and creditworthiness of the loan which was absolutely outside the scope of such limited scrutiny, hence, the action of the A.O is without valid jurisdiction. In absence of any valid inherent jurisdiction, the addition made by the A.O is perverse, arbitrary and bad in law. Accordingly, I set-aside the order of the Ld. CIT(Appeals)/NFAC and direct the A.O to delete the addition from the hands of the assessee.
As per the above terms, grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in open court on 18th day of September, 2025.