Additions Beyond Limited Scrutiny Scope Invalid Without Conversion: ITAT Ahmedabad

Rajnikanth S. Bhalavat Vs ACIT (ITAT Ahmedabad)

Summary: ITAT Ahmedabad allowed the assessee’s appeal and set aside the assessment after holding that the Assessing Officer had travelled beyond the scope of the limited scrutiny proceedings without converting the case into full scrutiny after obtaining the requisite approval. The appeal related to AY 2015-16 and was initially delayed by 101 days. The assessee explained that the delay arose from a communication gap between the Chartered Accountant who represented him before the CIT(A) and the firm which was to argue the matter before the Tribunal.

Relying on Smt. Samanthapudi Lavanya v. ACIT, the Tribunal condoned the delay in the interests of justice. The assessee then pressed an additional legal ground challenging the jurisdiction of the assessment itself. The notice under section 143(2) had selected the case for limited scrutiny only on “interest expenses” and “payment to related persons mismatch”.

However, the AO made a disallowance of interest under section 14A and also disallowed commission of Rs.6,36,492/- as bogus under section 37. The assessee contended that neither issue fell within the specified limited scrutiny parameters. Revenue argued that “interest expenses” was broad enough to include section 14A and that the commission payments involved related parties. The Tribunal held that the additional ground, being a pure legal issue going to the root of jurisdiction, could be raised for the first time before it.