Subodh Adhikary Vs ITO (ITAT Kolkata)
ITAT Kolkata Quashes Assessment for Breach of Limited Scrutiny Norms; Additions Beyond Scope Held Without Jurisdiction
The Kolkata Bench of the Income Tax Appellate Tribunal allowed the appeal of Subodh Adhikary for AY 2015–16, holding that the entire assessment was vitiated due to the Assessing Officer’s unauthorised expansion of limited scrutiny into complete scrutiny in violation of binding CBDT Instructions.
The Tribunal noted that the case was selected under CASS for “Limited Scrutiny” solely on the issue of cash deposits, as expressly stated in the notice under Section 143(2) dated 29.07.2016. However, the Assessing Officer, through notices under Section 142(1) and repeated order-sheet entries, began enquiring into issues beyond the limited scrutiny scope—including short-term capital gains, alleged undervaluation under Section 56(2)(vii)(b)(ii), and unexplained investments under Sections 69/69A—even before formally converting the case into complete scrutiny.
The Tribunal held that such enquiries were without jurisdiction, as the mandatory procedure laid down in CBDT Instruction No. 5/2016 dated 14.07.2016 was not followed. Specifically, there was no credible material, no recorded “reasonable view” of escapement, and no proper administrative approval prior to widening the scope of scrutiny. The subsequent conversion to complete scrutiny on 01.12.2017 was found to be mechanical and an afterthought, incapable of curing the earlier illegality.
Relying on binding precedents including Dev Milk Foods Pvt. Ltd. (Delhi ITAT) and Vijay Kumar (Chandigarh ITAT), and reinforced by the Calcutta High Court’s observations on the binding nature of CBDT circulars, the Tribunal held that assessments framed in violation of limited scrutiny instructions are nullities, not saved even by Section 292BB.
Consequently, the Tribunal deleted major additions relating to short-term capital gains, Section 56(2)(vii) additions, and unexplained investments, holding them to be wholly without jurisdiction. Additionally, on merits, the Tribunal also deleted an addition of ₹28 lakh under Section 68, noting that the assessee had fully explained the cash deposits with bank statements and replies already on record, which were ignored by the lower authorities.
The appeal was thus allowed in full, reaffirming that CBDT scrutiny instructions are binding, and any assessment made in breach thereof is liable to be struck down in entirety.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
