P. Venkata Ramana Reddy Vs ACIT (ITAT Hyderabad)
CBDT Circular mentions that the concerned assessees should be intimated that their cases fall either in ‘Limited Scrutiny’ or ‘Complete Scrutiny’ through notices issued u/s 143(2) of the Act and the procedure prescribed is that in Limited Scrutiny cases, the reasons/issues shall be forthwith (emphasis provided by us) communicated to the assessee concerned. Thus, this is a procedural condition to be followed.
The dictionary meaning of the word ‘forthwith’ is ‘immediately, without delay’. Therefore, it is not necessary that the reasons should be incorporated in the notice u/s 143(2) itself. It would suffice if the reasons are to be communicated immediately thereafter. We find that the intention behind such a condition is that the assessee should be made aware of the reasons for the scrutiny of his return of income. In the present case, though the reasons have not been incorporated/annexed to the notice u/s 143(2), we find that the assessee was made aware of the reasons for limited scrutiny on the very next date of hearing i.e. 10/10/2017 as is evident from the docket sheet entries and in compliance thereof, the assessee has also provided all the required details on the subsequent date. Therefore, no prejudice has been caused to the assessee by such intimation of the reasons subsequent to the issuance of notice u/s 143(2) of the Act. Further, though the return was selected for scrutiny on two issues, the AO has made addition only on account of one issue, i.e. cash deposits, the sources of which could not be explained by the assessee and, therefore, he has not exceeded his brief of the limited scrutiny. Only where the AO believes that there is income, which has to be brought to tax but is not the issue for the limited scrutiny, he needs to get the permission of the Commissioner to proceed with complete scrutiny assessment. The AO has restricted himself to the limited issues of cash deposits under CASS and it was the assessee’s contention that these are his business receipts, but, could not prove his business activity. Thus, the issue was limited to the cash deposits and as there was no other income, there was no need for the AO to obtain permission from the higher authorities to proceed with complete scrutiny assessment. Therefore, we do not find any reason to hold that there is any non-compliance of CBDT Circular and that the assessment order is invalid.
FULL TEXT OF THE ITAT JUDGEMENT
Both are assessee’s appeals for AY 2015-16. ITA No. 1395/Hyd/2019 is against the order of CIT(A) – 6, Hyderabad, dated 08/07/2019 confirming the assessment order passed by the AO u/s 143(3) of the IT Act, while, ITA No. 1396/Hyd/2019 is against the order of the CIT(A) – 6, Hyderabad dated 08/07/2019 confirming penalty levied by the AO u/s 271 (1 )(c) of the IT Act.
2. Brief facts of the case are that the assessee, an individual, filed his e-return of income for the Ay 2015-16 on 05/01/2017 admitting total income at Rs. 56,30,000/-. The said return was initially processed u/s 143(1) of the Act and subsequently, the case was selected for scrutiny under CASS. During the assessment proceedings u/s 143(2) of the Act, the assessee was asked to produce details of property and sources for cash deposits in the bank account. In response to the same, the assessee submitted details of his properties, bank statements and submitted that the properties belong to the company M/s Indus Creators Pvt. Ltd. and were purchased as a representative for the company. In support of the same, assessee submitted the copies of the sale deeds and after considering the same, the AO accepted the explanation and did not draw any adverse inference.
2.1 With regard to cash deposits, the assessee submitted that these were his business receipts and that the assessee has admitted business income u/s 44AD. When asked to submit the evidence of his carrying on construction activity, he submitted that he is not in a position to produce any evidences/confirmations for the same. The assessee’s representative also submitted that he has worked out peak cash credit taking the bank account into consideration and requested that the peak cash credit of Rs. 1,23,90,000/- be treated as his income and also further requested that the income already offered u/s 44AD of Rs. 7,49,200/- be reduced from the total peak cash credit. Thus, he requested the peak cash deposits of Rs. 1,23,90,000/- to be treated as his income. The AO accepted the assessee’s contention and after reducing the sum of Rs. 7,49,200/-, which has already been offered to tax, the balance amount of Rs. 1,16,40,800/- was brought to tax as unexplained cash credits.
3. Aggrieved, the assessee preferred an appeal before the CIT(A) stating that the statutory notice u/s 143(2) was issued without intimating the issues that have been identified for examination under limited scrutiny under CASS, which is against the guidelines of the CBDT on this subject and that the AO has erred in exceeding the limits as laid down under limited scrutiny by calling for information other than the issues covered under limited scrutiny and, thus, the assessment order was passed without jurisdiction. The other grounds raised by the assessee were that the addition of Rs. 1,16,40,800/- towards peak cash deposits is erroneous as the AO did not consider that the contract receipts to the extent of Rs. 93,65,000/- were also deposited in to the bank account and that the assessee has offered income on the same at 8% u/s 44AD of the Act. He also submitted that the appellant had himself offered additional income of Rs. 30,25,000/-in the revised computation of the income during the course of assessment and if the same is considered, there is no need for any addition as the entire amount of Rs. 1,16,40,800/- has already been offered to tax.
3.1 The CIT(A), however, confirmed the assessment order by observing that the addition made by the AO is an agreed addition and therefore the assessee cannot challenge it subsequently without bringing any distinguishable facts on record. As regards the validity of the notice u/s 143(2) in violation of CBDT Circular, he held that the assessee’s return of income was selected for limited scrutiny under CASS and the said issues were made known to the assessee during the assessment proceedings and after receiving the assessee’s submissions and consideration thereof only, the assessment u/s 143(3) was completed. Therefore, according to the CIT(A), provisions of section 292B and 292BB would apply to asesssee’s case and, hence, assessment is valid. Against this order of CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal:
“1. The Ld.CIT (A) erred both on facts and in law by dismissing the appeal.
2. The Ld.CIT (A) ought to have fairly adjudicated the case basing on the facts and circumstances of the case, grounds of appeal ,submissions and clarifications filed by the assessee.
3. The Ld.CIT (A) erred in confirming the addition made by AO without considering that facts and circumstances of the case.
4. The Ld. CIT(A) ought to have appreciated that the statutory notice issued u/s 143(2) was without intimating the issues that have been identified for examination under limited scrutiny under CASS, which is against the guidelines of the CBDT on this subject.
5. The Ld. CIT(A) ought to have appreciated that AO erred in exceeding the limits as laid down under limited scrutiny CASS by calling for other information other than the issues covered under limited scrutiny is, thus the assessment is without jurisdiction and is invalid.
6. The Ld. CIT(A) ought to have fairly appreciated that AO erred in making addition of Rs.1,16,40,800/ – towards peak cash deposit without considering that the contract receipts to the extent of Rs.93,65,000/ -,was also deposited in the bank account.
7. The Ld. CIT (A) erred by not properly appreciating the fact that the appellant has offered the additional income of Rs.30,25,000/ -in the revised computation of income during the course of assessment.
8. The Ld. CIT (A) ought to have well appreciated that the assessee has offered income at 8 percent of the contractual receipts u/s 44AD of the Act.
9. The Ld. CIT(A)ought to have fairly appreciated that an income of Rs.7,49,200/- was offered on the contract amount of Rs.93,65,000/- and balance of Rs.30,25,000/ – needs to be considered for addition.
10. The Ld.CIT(A) erred in dismissing the appeal merely because the AR of the assessee was shown to have agreed to the addition, without bringing on record any corroborative evidence to show as to which form of corresponding asset the above amount is lying with the assessee.
11. The Ld.CIT(A)ought not have come to a conclusion that the AR of the assessee has agreed to the addition, Since no quasi judicial assessment can be made based on agreement between AO and the assessee without having a corroborative evidence brought on record in relation to such addition.
12. The Ld.CIT(A) merely on the contention of the AR that the amount of Rs.7,49,000/- may be reduced from the peak credit of Rs.1,23,90,000/- came to a conclusion that AR of the assessee has agreed for the addition.
13. The Ld.CIT(A)ought to have fairly appreciated that cash credit in savings bank account of the assessee have been made from disclosed sources of income of the assessee.
14. The Ld.CIT(A) erred in not appreciating the documentary evidences submitted by the assessee in support of his claim.
15. The Appellant may add or alter or amend or modify or substitute or delete and or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
3.2 In addition to the above, vide letter dated 02/03/2020, the assessee has raised the following additional grounds of appeal:
16.`As per the ratio laid down by the Honourable Supreme Court of India in the case of National Thermal Power Co. Ltd v. CIT (1998) 229 ITR 383 (SC), the Hon’ble ITAT has jurisdiction to examine the question of law which has been taken before the ITAT for the first time though not taken before the first appellate authority.
17.(a) The Ld. CIT(A) ought to have appreciated that the impugned assessment is invalid abinitio on the ground that the scrutiny notice issued u/s 143(2) is erroneous which is not curable u/s 292B and 292BB of the Act.
(b)The Ld. CIT(A) ought to have appreciated that the scrutiny notice issued u/s 143(2) is in violation of clauses 3(a) & 3(b) of CBDT Instruction NO.20/2015 dated 29.12.2015 issued in relation to scrutiny cases selected under Computer Aided Scrutiny Section (CA SS)
(c) The Ld. CIT(A) ought to have appreciated that since the relevant column in the scrutiny notice u/s 143(2) of the Act has, admittedly, been left blank without specifying the issue identified for examination, the very notice is invalid thereby rendering the impugned assessment invalid abinitio.
(d) The Ld. CIT(A) erred in holding that the format of the notice u/s 143(2) of the Act is not a statutory format and, therefore, it is not mandatory that the Assessing Officer should incorporate the issues in respect of which the case was selected for scrutiny.
(e) The Ld. CIT (A) ought to have appreciated that merely because the assessee has not raised any objection and has participated in the assessment proceedings, it cannot be said that the impugned defective notice issued u/s 143(2) of the Act would be cured.
(f)The Ld. CIT(A) erred in holding that omission on the part of the Assessing Officer in mentioning the issues on the basis of which the case was selected for Limited Scrutiny is not fatal as to the proceedings initiated.
(g) The Ld. CIT(A) erred in holding that the notice u/s 143(2) in which the issues identified for Limited Scrutiny are not mentioned, is otherwise in substance and effect in conformity with the intent and purpose of the Act.
(h) The Ld. CIT(A) erred in holding that the assessment order passed u/s 143(3) of the Act cannot be rendered as void abinitio.
18. Without prejudice to other grounds, the Ld. CIT(A) erred in holding that after having made a clear and unequivocal admission before the Assessing Officer for agreed addition and without there being any retraction from such admission, the assessee has no right of appeal against the assessment order passed.
19. The Ld.CIT(A) erred in confirming the addition made u/s 68 of the act which is invalid since bank statement cannot be elevated into to the status of regular books of accounts as per meaning in the sec 2(12A) r.w.s 44AA of the IT Act, 1961.
20. Without prejudice to other grounds, the Ld. CIT(A) erred in dismissing the grounds of appeal raised on merits of the case, as not maintainable.
21. The Appellant may add or alter or amend or modify or substitute or delete and/ or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
4. The matter was taken up for hearing through Video Conferencing and both the parties were heard extensively.
4.1 The grounds of appeal 1 to 3 and 15 & additional ground of appeal No. 21 are general in nature and hence need no adjudication. They are accordingly rejected. The other grounds of appeal and the additional grounds of appeal are against the validity of the notice u/s 143(2) and the merits of the addition.
5. The ld. counsel for the assessee prayed for admission of the additional grounds of appeal by stating that all the necessary facts are on record and the issue raised by the assessee in these grounds is a legal issue, which has been considered by the CIT(A) and that the grounds are against the specific findings of the CIT(A).
6. The ld. DR, on the other hand, opposed the admission of additional grounds.
7. After considering the material on record in the light of above submissions, we find that these additional grounds of appeal are not actually additional grounds as the validity of the notice u/s 143(2) was raised by the assessee before the CIT(A) who adjudicated the same and these grounds now raised are the arguments against the findings of the CIT(A). Therefore, we deem it fit and proper to admit these additional grounds of appeal.
8. Since, the validity of the notice u/s 143(2) was questioned, during the course of hearing on earlier dates, ld. DR was directed to produce the assessment records before us and the same was produced before us on 25/11/2020.
9. The undisputed facts of the case are that the assessee filed his return of income on 05/01/2017 offering the income from business u/s 44AD of the Act. He has shown gross receipts at Rs. 93,55,000/- and offered the income @ 8% of the same, i.e. at Rs. 7,49,200/-. It is also not in dispute that the assessment was picked up for limited scrutiny through CASS. The points for which the assessment was taken up for scrutiny as per the document produced by the ld. DR during the course of hearing are as under:
