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Facts
The assessee's return for AY 2015-16 was selected for limited scrutiny. The Assessing Officer (AO) made an addition of Rs. 39,90,000/- as unexplained investment, alleging fictitious sundry debtors, which was upheld by the CIT(A). The assessee challenged the AO's expansion of scrutiny scope without approval and the arbitrary addition without rejecting books of accounts.
Held
The Tribunal found that the AO made an arbitrary addition for unexplained investment without conducting proper inquiry, without rejecting the books of account, and without identifying specific bogus investments. Concluding that the addition was against legal principles, the Tribunal allowed the assessee's appeal.
Key Issues
1. Whether the Assessing Officer can expand the scope of limited scrutiny without prior approval from the CIT(A). 2. Whether an addition for unexplained investment on account of fictitious sundry debtors is justified without rejecting books of account and without specific inquiry.
Sections Cited
Section 119 of the Income-tax Act, 1961, Section 143(2) of the Income-tax Act, 1961, Section 142(1) of the Income-tax Act, 1961
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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: MS. MADHUMITA ROY & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the ld. CIT(A), New Delhi dated 19.11.2018 pertaining to A.Y. 2015-16.
None appeared on behalf of the assessee in spite of notice issued nor there in any application for adjournment. Therefore, we decided to proceed exparte.
Having heard the ld. DR, who placed strong reliance on the order of the ld. CIT(A), we have carefully perused the orders of the authorities below.
The sum and substance of the grievance of the assessee is that the ld. CIT(A) has erred in confirming the addition made by the Assessing Officer in making addition of Rs. 39,90,000/- as unexplained investment on the reason that the sundry debtors are fictitious and contrary to the settled principles of law and addition is arbitrary, excessive and illegal.
The Assessing Officer has further erred in confirming the assessment made by the Assessing Officer by rejecting the scope of limited scrutiny having been expanded by the Assessing Officer without prior permission which is in violation of provisions of section 119 of the Income-tax Act, 1961 [the Act, for short]
Briefly stated, the facts of the case are that the assessee e-filed 6. its return of income for A.Y. 2015-16 on 30.09.2015 declaring total income of Rs. 7,271/-. The case was selected for scrutiny assessment under the category of 'limited scrutiny' and notices u/s 143(2) and 142(1) of the Act was issued against which the assessee fully complied by filing all the details and documents.
During the course of assessment proceedings, the Assessing Officer noticed that for A.Y. 2015-16 the assessee has made sales of Rs.39,90,000/- and there is nil Sundry Debtor as on 31.03.2015, therefore the entire payment was made against the sales. The Assessing Officer has accepted the purchase and sales though he suspected that the purchase and sales are not genuine and no addition was made.
The Assessing Officer has also not made any enquiry whatsoever to verify the purchase and sales made by the assessee during the year. The Assessing Officer has only assumed that the assessee is a mere beneficiary and a name lender and without any basis and has made addition of Rs.39,90,000/- on account of investments.
Aggrieved, the assessee went in appeal before the ld. CIT(A) who sustained the order of the Assessing Officer.
10. Before the ld. CIT(A), the ld. counsel for the assessee vehemently stated that the Assessing Officer cannot travel beyond the reasons of the limited scrutiny unless prior approval of the ld. CIT(A) is obtained. The order passed by the Assessing Officer being in violation of the instructions by the CBDT it should be treated as bad in law. The AO has made addition of Rs.39,90,000/- on account of unexplained expenditure by holding that the Sundry Debtors to the extent of Rs. 39,90,000/- as fictitious.
11. The Assessing Officer doubted the Sundry Debtors without making any addition on account of purchases and sales made by the assessee. The Assessing Officer can either reject both the purchases and the sales which he has not done so, but to only say that the sundry debtors are bogus and in a way accept the sales recorded in the books of accounts is a grave error on the part of the Assessing Officer.
The sundry debtors is only in relation to the sales made which are properly recorded. The AO has made additions under the head of investments. The addition made on account of investments by the AO without rejecting the books of the assessee is against the principles of law. The Assessing Officer has also not pointed out which investments are bogus and, therefore, the addition is arbitrary, excessive and illegal and is prayed to be deleted in its entirety.
Now the assessee is aggrieved further and has come in appeal before us.
We have heard the ld. DR and have perused the relevant material on record. There is no doubt that there is NIL sundry debtors as on 31.03.2015, therefore, the entire payment was made against the sales.
The Assessing Officer has not made any enquiry whatsoever to verify the purchase and sales made by the assessee during the year.
12. The Assessing Officer has only assumed that the assessee is a mere beneficiary and name lender and without any basis has made the addition on account of investment without rejecting the books of account which is against the principles of law. The Assessing Officer has also not pointed out which investments are bogus and therefore, the addition is arbitrary. The ld. CIT(A) has rightly held that in a matter involving corporate entity having engaged in complex transactions, it is but required to raise and seek replies to some queries in order to reach a reasonable and lawful conclusion. We do not find any error or infirmity in the findings of the ld. CIT(A), therefore, we decline to interfere.
In the result, the appeal of the assessee in is allowed.
The order is pronounced in the open court on 16.05.2024.