Validity of Assessment if ‘limited scrutiny’ shifted to ‘complete scrutiny’ without Prior approval of Principal Commissioner/Commissioner

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Validity of Assessment if ‘limited scrutiny’ shifted to ‘complete scrutiny’ without Prior approval of Principal Commissioner/Commissioner

Short Overview : AO was not justified in making addition on issues other than issue for which assessment was selected for limited Scrutiny without taking approval in writing from Principal Commissioner/Commissioner. Thus, AO without following procedure expanded his jurisdiction without approval and his action was without jurisdiction, making consequent additions null in eyes of law.

Assessee contended that addition of Rs. 59,19,909, made by AO by invoking provisions of section 68 in proceedings initiated for limited scrutiny was without jurisdiction and bad in law. Case of assessee was that AO expanded assessment from ‘Limited Scrutiny’ to ‘Complete Scrutiny’ without following procedure as laid by the CBDT Circular No. 20/2015, dated 29-12-2015; and subsequent instruction on same, dated 14-7-2016 (para 4) and Circular, dated 30-11-2017 (para 3). 

It is held that : Perusal of order sheet did not indicate that AO took approval of Principal Commissioner/Commissioner for expanding assessment from Limited Scrutiny to Complete Scrutiny. No approval in writing was taken by AO for expanding scope of assessment so as to make addition under section 68. Since CBDT Circular issued under section 119 is binding on department/Assessing officer, AO was bound by it and without taking approval in writing from Principal Commissioner/Commissioner, AO could not enquire into other issues other than issue for which the assessment was selected for limited Scrutiny. AO without following procedure expanded his jurisdiction without approval which action of AO was without jurisdiction. Addition was null in eyes of law and, therefore, was deleted.

Decision: In assessee’s favour.

Referred: National Thermal Power Company Limited v. CIT (1998) 229 ITR 383 (SC) : 1998 TaxPub(DT) 0342 (SC), Late Smt. Gurbachan Kaur, Through L/H Shri Dilpreet Singh Narang v. Dy. CIT, Circle-2, Jaipur. [ITA No. 692/JP/2019 (Assessment year 2014-15) Order, dated 5-12-2019] : 2019 TaxPub(DT) 8127 (Jp-Trib), Shri Vijay Kumar v. The ITO [ITA No. 434/Chd/2019 (Assessment year 2014-15) Order, dated 12-9-2019] : 2019 TaxPub(DT) 6786 (Chd-Trib) and M/s. Nitin Killawala & Associates, v. ITO 11 (3) (1) [ITA No. 1611/M/2013 (Assessment year 2008-09) Order, dated 16-9-2015] : 2018 TaxPub(DT) 6795 (Mum-Trib).

 

IN THE ITAT, GUWAHATI BENCH

A.T. VARKEY, J.M. & A. L. SAINI, A.M.

Prabir Das v. ITO

I.T.A. No. 395/Gau/2019

26 June, 2020

Appellant by: Sanjay Modi, FCA

Respondent by: M. K. Das, Addl. Commissioner

 

ORDER

A.T. Varkey, J.M.

This appeal preferred by the assessee is against the order of the learned Commissioner (Appeals), Shillong, dated 11-6-2019 for assessment year 2016-17.

2. At the outset, the learned Authorised Representative Shri Sanjay Modi, FCA drew our attention to ground no.2 which reads as under :–

“2. For that the learned Commissioner (Appeals) ought to have hold that the addition of Rs. 59,19,909 made by the learned assessing officer by invoking provisions of section 68 of the Act in the proceedings initiated for limited scrutiny is without jurisdiction and bad in law.”

3. The learned Authorised Representative drawing our attention to the aforesaid ground submitted that the assessee is aggrieved by the action of the assessing officer to have expanded the assessment from ‘Limited Scrutiny’ to ‘Complete Scrutiny’ without following the procedure as laid by the CBDT Circular No. 20/2015, dated 29-12-2015; and subsequent instruction on the same, dated 14-7-2016 (para 4) and Circular, dated 30-11-2017 (para 3). According to learned Authorised Representative, the assessing officer had issued notice under section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) on 20-9-2017 wherein it was clearly stated that the assessee’s case was selected by CASS (computer aided scrutiny selection) for ‘Limited Scrutiny’ i.e. for only one issue i.e. whether stock has been valued correctly or not ? According to the learned Authorised Representative, the assessing officer erred in expanding the jurisdiction to make addition of Rs. 59,19,907 under section 68 of the Act which was not specified in the ‘Limited Scrutiny’ notice issued under section 143(2) of the Act, dated 20-9-2017. According to the learned Authorised Representative, the CBDT circular/Instruction No. 20/2015, dated 29-12-2015 has clearly laid down the procedure to be followed in case if the assessing officer wishes to expand the scrutiny from the ‘Limited Scrutiny’ to ‘Complete Scrutiny’ which is given in para 3, which reads 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 Principal Commissioner/Commissioner concerned. However, such an approval shall be accorded by the Principal Commissioner/Commissioner in writing after being satisfied about merits of the issues(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 this present purpose, ‘Metro charges’ would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad).”

4. According to the learned Authorised Representative, from a bare reading of the aforesaid instruction of the CBDT which has been issued by it under section 119 of the Act, it is clear that the assessing officer while issuing questionnaire under section 142(1) of the Act in ‘Limited Scrutiny’ cases shall remain confined only to the specific issues for which case has been picked up for scrutiny and it has been made very clear that the scope of enquiry shall be restricted to the ‘Limited Scrutiny’ issue. It has been further clarified by the CBDT that if the assessing officer comes to know that there is potential escapement of income exceeding Rs. 5 lacs (for metropolitan cities Rs. 10 lacs) requiring substantial verification on any other issues, then the case should be taken up for ‘Complete Scrutiny’ with the approval of the Principal Commissioner/Commissioner concerned and, thereafter, the approval shall be accorded by the Principal Commissioner/Commissioner in writing after being satisfied about the merits of the issues necessitating ‘Complete Scrutiny’ in that particular case. Further, it is also stated that such cases shall be monitored by the Range Head concerned. So, the learned Authorised Representative contended that from a perusal of the order sheet, (copy of which is placed at pages 5 to 9 of the paper book) maintained by the assessing officer would reveal that he (the AO) has not taken the approval of Principal Commissioner/Commissioner. The learned Authorised Representative, pointed out that there is no whisper of the approval granted by the Principal Commissioner/Commissioner in writing allowing the assessing officer to expand the scope of assessment from ‘Limited Scrutiny’ to ‘Complete Scrutiny’. Therefore, according to learned Authorized Representative, the action of the assessing officer to make the addition of Rs. 59,19,902 under section 68 of the Act is bad in law. For this proposition, the learned Authorised Representative relied on the orders of the Tribunal, Jaipur Bench in the case of Late Smt. Gurbachan Kaur v. Dy. CIT, ITA No. 692/JP/2019 (Assessment year 2014-15) Order, dated 5-12-2019 : 2019 TaxPub(DT) 8127 (Jp-Trib); Mumbai Bench decision in M/s. Nitin Killawala v. ITO, ITA No. 1611/M/2013 (Assessment year 2008-09) Order, dated 16-9-2015 : 2018 TaxPub(DT) 6795 (Mum-Trib); Chindagarh Bench decision in Shri Vijay Kumar v. ITO, ITA No. 434/Chd/2019 (Assessment year 2014-15) Order, dated 12-9-2019 : 2019 TaxPub(DT) 6786 (Chd-Trib).

5. Per contra, the learned Departmental Representative contended that the issue raised by the learned Authorised Representative has not been raised before the learned Commissioner (Appeals) and, therefore, this issue according to him, cannot be agitated for the first time before the Tribunal. According to the learned Departmental Representative, the CBDT Circular, dated 30-11-2017 (para 1) specifically states the reason why this ‘Limited Scrutiny’ has been advised in certain cases. According to him, this is to prevent assessing officer from going on a fishing enquiry to harass the assessee. According to learned Departmental Representative, in this case even though the assessee’s case was selected for scrutiny under CASS for ‘Limited Scrutiny’, later on it had come to the notice of the assessing officer that the survey was conducted on 4-9-2017 in the case of M/s. Assam Textiles and M/s. Mahavir Textiles (third parties) and it was found that there were transfer of funds to the tune of Rs. 41,78,299 (from M/s. Assam Textiles) and Rs. 16,85,030 (from M/s. Mahavir Textiles) to the assessee. Armed with this information, the assessing officer sought queries from the assessee and since the assessee failed to respond properly to the queries and failed to establish the genuineness of the transaction, the assessing officer drew adverse inference against the assessee and made the addition of Rs. 59,19,909 (though the correct total is Rs. 58,63,329).Therefore, according to the learned Departmental Representative, the action of the assessing officer cannot be faulted. Therefore, he wants us not to interfere in the order passed by the learned Commissioner (Appeals). In the rejoinder, the learned Authorised Representative, conceded that this ground was not raised before the learned Commissioner (Appeals). However, he contented that this issue is purely a legal issue raised by the assessee before this Tribunal wherein assessee is challenging the very jurisdiction of assessing officer to expand the scope of enquiry/assessment from ‘Limited Scrutiny’ to ‘Complete Scrutiny’; and since the assessing officer has resorted to an action which was regulated by the CBDT circular which is binding on him and the assessing officer’s action of expanding the jurisdiction without taking the approval of Principal Commissioner/Commissioner in writing is without jurisdiction; and, therefore, this being a legal issue which if found to be correct would go to the root of the addition made of Rs. 59,19,909 as raised in ground no.2 which, according to him, can be raised at any forum as decided by the Hon’ble Supreme court in NTPC v. CIT (1998) 229 ITR 383 (SC) : 1998 TaxPub(DT) 0342 (SC) and therefore, he wants us to adjudicate the legal issue. He also pointed out that in the 143(2) notice this issue regarding addition under section 68 of the Act was never raised in the “Limited Scrutiny notice”, dated 20-9-2017 wherein the assessing officer has clearly stated that assessee’s case has been selected only for Limited Scrutiny on one issue i.e. whether stock has been valued correctly or not? So, according to him, the assessing officer could not have expanded the jurisdiction without taking approval from the Principal Commissioner/Commissioner in writing and, therefore, he wants us to delete the addition made under section 68 of the Act of Rs. 59,19,907.

6. Having heard both the parties and after carefully going through the contents of the three (3) CBDT Circulars and case laws relied upon, we note that the assessee had filed return of income on 15-12-2016 reflecting an income of Rs. 8,17,530. Later the case of the assessee was selected for ‘Limited Scrutiny’ which fact was conveyed to the assessee by notice, dated 20-9-2017 issued under section 143(2) of the Act. In this notice under section 143(2) of the Act, it was clearly stated that the assessee’s case was selected by CASS only for ‘Limited Scrutiny’ regarding one issue only i.e. “whether stock has been valued correctly or not ?”. We note from perusal of the assessment order that the assessing officer has referred to a survey conducted at the premises of M/s. Assam Textiles and M/s. Mahavir Textiles on 4-9-2017 (third parties) and that he got information about certain transfer of funds from these two entities to assessee for which he raised question to the assessee and the assessing officer being not satisfied with the replies given by the assessee has made the addition of Rs. 59,19,909 (as per the assessee total is only Rs. 58,63,329). The legal issue before us is whether the assessing officer could have made this addition when the fact remains that the assessee’s case was selected for Limited Scrutiny only for the reason that whether stock has been valued correctly or not. According to learned Authorised Representative, the assessing officer could not have expanded the jurisdiction/assessment from ‘Limited Scrutiny’ to complete scrutiny without following the procedure as stipulated in the CBDT Circular No. 20/2015, dated 29-12-2015 and other CBDT Circulars on the subject, dated 14-7-2016 and 30-11-2017. We note that the assessing officer has not taken approval in writing from the Principal Commissioner/Commissioner in this case before he ventured to expand the scope of assessment from ‘Limited Scrutiny’ to complete scrutiny as prescribed in the CBDT circular which is admittedly binding on him. A perusal of the order sheet placed at pages 5 to 9 of the paper book does not indicate that the assessing officer has taken the approval of the Principal Commissioner/Commissioner for expanding the assessment from Limited Scrutiny to Complete Scrutiny. The learned Departmental Representative fairly conceded this fact after perusal of the order sheet that no approval in writing was taken by the assessing officer for expanding the scope of assessment so as to make the addition under section 68 of the Act. Since the CBDT Circular issued under section 119 of the Act is binding on the department/Assessing officer as held by the Hon’ble Apex Court and High Courts, the assessing officer was bound by it and without taking approval in writing from Principal Commissioner/Commissioner could not have enquired into other issues other than the issue for which the assessment was selected for Limited Scrutiny. Here, the assessing officer without following the procedure as stated, supra has expanded his jurisdiction without approval which action of assessing officer is held to be without jurisdiction and, therefore, is bad in law and, therefore, the assessee succeeds and the addition made by the assessing officer Rs. 59,19,909 is null in the eyes of law and, therefore, it has to be deleted and we order accordingly. The other grounds not pressed by the learned Authorised Representative, therefore, the grounds raised by the assessee are dismissed.

7. In the result, the appeal of assessee is partly allowed.

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