DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3, DELHI vs. RAKESH ARORA, DELHI

4. The ld. AO after conducting his detailed enquiries and investigation made addition of Rs.1,69,69,770/- u/s 2(22)(e) of the Act as deemed dividend and further another amount of Rs.4,65,85,000/- as unexplained money under section 69A of the Act. While making the latter addition, the ld. AO on page12 of his order noted that the assessee has the onus to prove the impugned crudities in his bank accounts and also that the assessee was deliberately delaying filing of submissions so as to avoid meaningful timely enquiries. Before the ld. CIT(A), the assessee had, inter alia, contended that its case was selected under the category of limited scrutiny but additions were made on other issues which required prior approval of the PCIT and that since the same was not done the addition deserves to be deleted. The Ld. CIT(A) as seen in para-8 of his order concluded as under:-

“…..6. It is submitted that learned Commissioner of Income Tax (Appeals) relied on the CBDT instructions no. 7/2014 dated 26.09.2014, Instruction No. 20/2015dated 29.12.2015 (pages 31-32 of Paper Book), instruction no. 5/2016 dated 14.07.2016 (page 33 of Paper Book) and instruction for unauthorized expansion of scope of limited scrutiny dated 30.11.2017 (page 34 of Paper Book) and holds as under: (pages 48-50 of the learned CIT(A) order) "8. The crux of the aforesaid instructions issued by the CBDT can be summarized as under: a. In the cases selected for scrutiny under CASS, the scope of enquiry should be limited to verification of the aspects on which case is selected for scrutiny. b. The Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only to the specific points) on the basis of which the particular return has been selected for scrutiny. c. These cases shall be completed expeditiously in alimited number of hearings. d. If during the course of assessment proceedings, it is found that there is potential escapement of income exceeding Rs. 10 lakhs (for non-metro charges, the monetary limit shall be Rs. 5 lakhs) on any other issue(s) apart from the issues on which the case was selected under CASS requiring substantial verification, the case may be taken up for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned e. While proposing to take up 'Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer 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' f. The reasonable view of the Assessing Officer should be based on the following factors: i) there exists credible material or information available on record for forming such view, ii) this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and iii)there must be a direct nexus between the available material and formation of such view. g. Such an approval shall be accorded by the Pr.CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. h. Cases converted for comprehensive scrutiny shall be monitored by the Jt. CIT/Addl. CIT concerned. i. If the Assessing Officers travels beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements same shall be viewed very seriously by the CBDT. 8.1 In view of the aforesaid instructions issued by the CBDT, it is clear that the Assessing Officer cannot travel beyond the reason on the basis of which case was selected for limited scrutiny, and, in case any other issue is sought to be examined. the AO has to form a reasonable view based on the parameters laid down by the CBDT and approval from the Pr. CIT/DIT has to be obtained in writing. In the absence of such mandatory procedure, the AO cannot travel beyond the points of limited scrutiny. As per section 119 of the Act; CBDT instructions/circulars are binding on the AO. Further, following the aforesaid instructions issued by the CBDT. the Page | 4 Hon'ble Courts have consistently been holding that the Assessing Officer cannot make any addition beyond the issues of limited scrutiny without following the procedure laid down in such instruction. 8.2 Adverting to the facts of the instant case, it is seen that the case was selected for limited scrutiny to examine whether the appellant- assessee has disclosed the Investment and income related to securities transaction and securities (derivative) transactions. During the course of the assessment, it was found by the AO that such transactions have duly been disclosed, yet the AO expanded the scope of limited scrutiny to examine other issues, and made other additions which was not the subject matter of limited scrutiny. However, before doing so, as seen from record, neither was a proposal forming reasonable view recorded nor any approval from the concerned Pr. CIT/competent authority taken in accordance with the instructions issued by the CBDT. Accordingly, following the instructions issued by the CBDT and various judgments on the subject-matter cited by the appellant, it is held that additions made by the AO in the assessment order without following the instructions issued by the CBDT are untenable in law and hence such additions are deleted. Since the additions made in the assessment order have been deleted on this legal ground, therefore, contentions raised by the appellant in respect of merits of additions are not being adjudicated here as they would only be rendered academic in nature……..”

5. The Revenue is assailing the impugned relief accorded by the ld. CIT(A).

6. The ld. DR vehemently argued that the relief on the premise taken by ld. CIT(A) is erroneous. He strongly argued in favour of the order of the ld. AO. It was contended that due disclosure would not mean mere disclosure in Return of Income but rather disclosure as per the provisions of Act. It was argued that accordingly there was infirmity in the AO’s order.

7. The ld. Counsel for the assessee fiercely argued in favour of the order of the ld. First Appellate Authority. It was submitted that learned Assessing officer has travelled beyond the scope of the limited scrutiny Page | 5 and unexplained money u/s 69A of the Act. The ld. Counsel argued that this issue in no longer res-integra in view of the CBDT instructions issued from time to time and which are binding upon the Revenue to follow these instructions. Reference was invited to CBDT instructions no. 7/2014 dated 26.09.2014, Instruction No. 20/2015dated 29.12.2015, instruction no. 5/2016 dated 14.07.2016 and instruction for unauthorized expansion of scope of limited scrutiny dated 30.11.2017. Copies of impugned instructions have been placed in the voluminous paper book filed by the assessee. In furtherance of its arguments, the ld. Counsel also placed reliance upon the decision of Co-ordinate Bench of this Tribunal in the case of Shivalik Educational and Placement Services ITA 3207/Del/2019 holding compliance to CBDT instructions is mandatory and that an AO cannot trouble beyond issues in the limited scrutiny category case unless prior written approval of PCIT is obtained to convert the same to complete scrutiny case. The ld. Counsel accordingly argued that the order of the ld. CIT(A) be upheld and the appeal of the Revenue be dismissed.

“……..9. On the background of the above facts and circumstances, we find it handy to refer the instructions of CBDT issued in respect of examination of issue other than the reasons taken up in limited scrutiny case. The instructions of the CBDT are as under:

“INSTRUCTION NO.20/2015 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 29th of December, 2015 Subject: Scrutiny Assessments-some important issues and scope of scrutiny in cases selected through Computer Aided Scrutiny Selection ('CASS')-reg .- The Central Board of Direct Taxes ('CBDT'), vide Instruction No. 7/2014 dated 26-9-2014 had clarified the extent of enquiry in certain category of cases specified therein, which are selected for scrutiny through CASS. Further clarifications have been sought regarding the scope and applicability of the aforesaid Instruction to cases being scrutinized.

2. In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid Instruction, following clarifications are being made: i. Year of applicability: As stated in the Instruction No. 7/2014, the said Instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014. ii. Whether the said Instruction is applicable to all cases selected under CASS: The said Instruction is applicable where the case is selected for scrutiny under CASS only on the parameter(s) of AIR/CIB/26AS data. If a case has been selected under CASS for any other reason(s)/parameter(s) besides the AIR/CIB/26AS data, then the said Instruction would not apply. Page | 7

iii. Scope of Enquiry: Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s) of AIR/CIB/26AS data. In such cases, the Assessing Officer, shall also the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in these cases can only be conducted as per the guidelines and procedures stated in Instruction No. 7/2014. iv. Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data, the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned.

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. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmadabad).

4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show-cause notice.

5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance. (Ankita Pandey) Under Secretary to Government of India”

10. Further, Instruction No. 5 of 2016 dated 14.07.2016 reads as under:

“Instruction No. 5/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 14th of July, 2016 Subject: Direction regarding scope of enquiry in cases under 'Limited Scrutiny' selected through CASS 2015 & 2016- regd.-

Vide Instruction No. 20/2015 dated 29.12.2015 in File of even number, Board has laid down Standard Operating Procedure for handling of cases under 'Limited Scrutiny' which were selected through Computer Aided Scrutiny Selection in 'CASS Cycle 2015'. In these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny. However, in revenue potential cases, it was further provided that 'Complete Scrutiny' could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT.

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.

(Rohit Garg) Deputy Secretary to the Government of India”

i. The questionnaire u/s 142(1) of the Act shall be confined only to the issue of limited scrutiny. ii. Approval of PCIT/CIT concern iii. PCIT/CIT concern shall grant approval in writing and after being satisfied on the merits of the case. iv. Such cases shall be monitored by range head. v. In limited scrutiny cases enquiry shall be restricted only on the issues of limited scrutiny. vi. Only after conversion of case to complete scrutiny and after following the procedure outlined above the A.O. may examine the issues other than limited scrutiny issues. v. The A.O. shall intimate the assessee regarding conducting complete scrutiny. vi. The provisions of Sec. 144A of the Act should be invoked in suitable cases. vii. To prevent the roving and fishing enquiries, such cases should be picked up for review and inspection by administrative authorities.

12. Reliance is also being placed in the order of the Co-ordinate Bench of ITAT in the case of CBS International Projects Pvt. Ltd. Vs ACIT, New Delhi in and order of the Hon'ble Jurisdictional High Court in the case of Best Plastics Pvt. Ltd. 295 ITR 256, wherein it was held Page | 10 that the assessment order passed by the Assessing Officer disregarding the instructions of the CBDT are liable to the set aside and no substantial of law arises. The said Judgment relied upon the decision of Hon'ble Supreme Court in the case of Commissioner of Customs Vs Indian Oil Corporation and also the judgment of Hon'ble Supreme Court in the case of UCO Bank Vs CIT: 237 ITR 889.

In the present case, as the same was not done we proceed to quash the addition made by the Ld. AO amounting to Rs.1,69,69,770/- u/s 2(22)(e) and Rs.4,65,85,000/- under section 69A of the Act. Ground of appeal no.1 and 2 raised by the Revenue are dismissed.

11. Ground of appeal no.3 raised by the Revenue is regarding the action of the ld. CIT(A) in not deciding the issue on merits. We have noted that in para-8 of his order, the ld. CIT(A) has rightly observed that since the additions made in assessment order have been deleted on legal grounds, contentions of the appellant assessee in respect of merits of the addition would become merely academic in nature. Upon consideration, we have noted that the conclusions drawn by ld. CIT(A) are in conformity with the established judicial principles and cannot be faulted upon. The same is therefore confirmed and the ground of appeal no.3 raised by the Revenue is dismissed.