Narendra Kumar Singh Vs ITO (ITAT Patna)
Income Tax Appellate Tribunal (ITAT) Patna has overturned an assessment order in the case of Narendra Kumar Singh against the Income Tax Officer (ITO), ruling that the Assessing Officer (AO) overstepped the bounds of a limited scrutiny assessment by making additions on issues not initially selected for examination. The decision, dated November 18, 2024, for Assessment Year 2017-18, underscores the critical importance of adhering to the scope of limited scrutiny as defined by Central Board of Direct Taxes (CBDT) instructions.
The case originated from an appeal filed by Narendra Kumar Singh against an order from the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. A pivotal additional ground of appeal was raised by the assessee’s counsel: that the assessment order, dated December 19, 2019, was beyond the jurisdiction of the AO. The original limited scrutiny, initiated through the Computer Aided Scrutiny Selection (CASS) system, was specifically for “Large Cash Deposits in Bank account(s) during the year.” However, the assessee contended that all additions made by the AO were on issues distinct from this limited scrutiny selection.
The assessee’s representative argued that this jurisdictional issue was a legal one, arising directly from the assessment records, and thus required no further factual verification. Strong reliance was placed on the Supreme Court’s decision in National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 0383, which supports the admission of a new legal ground at the appellate stage if it does not require fresh facts. Despite the Departmental Representative’s objection that the issue had not been raised before lower authorities, the ITAT admitted the additional ground for adjudication, citing the National Thermal Power Co. Ltd. precedent and acknowledging that the assessment was not converted to a complete scrutiny as per CBDT Circular/Instruction No. 3/2017 dated February 21, 2019.
Background of the Case: Narendra Kumar Singh had filed his return of income on July 29, 2017, declaring a total income of Rs. 8,31,760/-. His case was subsequently selected for limited scrutiny via CASS to verify large cash deposits in bank accounts. A notice under Section 143(2) of the Income Tax Act was issued on August 10, 2018, explicitly stating the limited scope of the scrutiny.
During the assessment proceedings, the AO requested various documents and explanations, which the assessee reportedly did not fully comply with. Consequently, the assessment was framed under Section 144 of the Act on December 19, 2019, leading to two significant additions. The first addition, amounting to Rs. 1,02,17,061/-, was attributed to the peak credit of unexplained deposits in two bank accounts (Canara Bank A/c No. 14254 and ICICI Bank A/c No. 19877). The second addition of Rs. 34,43,814/- was made on account of under-reported income, identified by the AO from Form 26AS. Notably, the issue of limited scrutiny was not raised during the initial appellate proceedings, where the additions were confirmed on merits.
Tribunal’s Observations and Verdict: The ITAT, after reviewing the rival contentions, records, and relevant CBDT Circular No. 3/2019, observed that the AO did not make any additions specifically related to the “large cash deposits” which was the original subject of the limited scrutiny. Instead, the additions were for peak credit of unexplained deposits, which were not entirely cash deposits, and for under-reporting of income based on Form 26AS. The Tribunal noted that while the assessee had deposited Rs. 1,73,10,349/- in the Canara Bank account (with cash deposits of Rs. 4,01,390/-) and Rs. 6,26,597/- in the ICICI Bank account (with cash deposits of Rs. 96,565/-), the additions were not directly linked to these specific cash deposits.
The ITAT emphasized that the AO proceeded to make these additions without converting the limited scrutiny into a complete scrutiny, a mandatory requirement under CBDT Instruction No. 3/2017 dated February 21, 2019. This non-compliance was deemed a jurisdictional flaw.
Judicial Precedents: The Tribunal’s decision found support in several judicial precedents:
