Paluri Raghavan Gopala Vs ACIT (ITAT Delhi)
Delhi ITAT: AO Cannot Travel Beyond Issue Specified in Limited Scrutiny-Section 54F Disallowance Beyond “Cash Deposit” Issue Invalid; Revised Return Replaces Original Return
Paluri Raghavan Gopala v. ACIT – ITA No. 4846/Del/2025, AY 2015-16, order dated 24.06.2026 – Delhi ITAT
The assessee’s case was selected for limited scrutiny under CASS. The notice u/s 143(2) dated 25.07.2016 specifically mentioned cash deposits in the savings bank account as the issue requiring examination. However, during assessment, the AO went beyond this issue, denied the assessee’s exemption claimed u/s 54F and treated the capital gains as business income.
The ITAT examined the actual notice u/s 143(2) and found that it mentioned only cash deposits as the issue for limited scrutiny. The AO’s mere assertion in the assessment order that transfer of properties was also part of the scrutiny could not enlarge the scope of the notice. Consequently, examination and disallowance of the Section 54F claim amounted to travelling beyond the permissible scope of limited scrutiny.
There was another significant issue concerning the assessee’s revised return. The original return filed on 26.08.2015 disclosed income of ₹57.71 lakh, while a revised return filed on 22.08.2016 reduced the returned income to ₹50 lakh. The AO nevertheless proceeded on the basis of the original return and ignored the revised return.
Relying upon the Tripura High Court in Tripura State Electricity Corporation Ltd. v. Pr. CIT, the Tribunal reiterated that once a valid revised return is filed, the original return stands obliterated. Since the AO computed income starting with ₹57.71 lakh disclosed in the original return, it was evident that the revised return had been completely ignored.
Accordingly, the ITAT allowed the assessee’s additional grounds and deleted the impugned addition.
Key takeaway: In a limited scrutiny assessment, the AO cannot examine and make additions on an issue not specified in the Section 143(2) notice merely by subsequently stating that such issue was also within the scope of scrutiny. Further, once a valid revised return u/s 139(5) is filed, it substitutes and obliterates the original return and the assessment cannot be framed by simply ignoring it.
Cases Discussed
- Tripura State Electricity Corporation Ltd. Vs. Pr.CIT, Shillong (Tripura HC), (2025) (8) TMI 1193 (Tripura HC)
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is preferred by the assessee against the order dated 11.06.2025 of the Ld. National Faceless Appeal Centre (NFAC) Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN & Order No: ITBA/NFAC/S/250/2025-26/1076933960(1) arising out of the assessment order dated 28.12.2017 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the ACIT, Circlel-2, Ghaziabad for AY: 2015-16.
2. On hearing both sides we find that assesse has raised additional ground which have been pressed outrightly and for convenience, we reproduced the additional ground:
“2. On the facts and circumstances of the case, the Ld. CIT(A) has erred both org facts and in law in confirming the disallowance of claim under section 54F of the Act made by the AO which was beyond the scope of limited scrutiny under CASS.
3(i) On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in confirming the action of the AO in not considering the revised return of income filed under section 139(5) of the Act, which was validly filed within the prescribed time limit, and in passing the assessment order on the basis of the original return.
(ii) That the assessment is bad in law as no valid notice under section 143(2) was issued with respect to the revised return of income.
(iii) That the assessment framed under section 143(3) on the basis of the original return, which stood replaced by the revised return, is bad in law and liable to be quashed.”
3. In regard to additional ground No. 1 we find that assesse has asserted that the case of the assesse was selected for limited scrutiny on the basis of examination of cash deposit. However, ld. Assessing Officer has ended up making an assessment by denying exemptions claimed u/s 54F of the Act and treating the capital gain of the assesse as business income. Ld. DR has however submitted that the scope of limited scrutiny it permits assessing officer to examine the claim of capital gains and for that purpose he has relied upon the assessment order wherein assessing officer has recorded that the case of assesse was selected for scrutiny to examine large cash deposit in saving bank account and assesse has also transferred one or more properties during the year.
4. After taking into consideration the copy of notice u/s 143(2) available at page No. 5 of the paper book we find that when the notice dated 25.07.2016 was issued which merely mentioned cash deposit as the issue for examination under limited scrutiny. Thus, mere assertion of assessing officer that the issue of transfer of properties being part of limited scrutiny in the assessment order is not sufficient and certainly travelling beyond the limited scrutiny notice u/s 143(2) of the Act the issue has been completed.
5. In regard to 2ndAdditional ground of appeal we find that assesse had filed return of income u/s 139(1) of the Act as original return on 26.08.2015 the copy of same is available at page No.1 and a revised return was filed on 22.08.2016 copy of which is available at page No. 2 of the paper book.
Assessee had reported total income of Rs.57,71,360/- in original return and the same was reduced to Rs.50,00,830/- in the revised return. The case of assesse is that assessing officer has not taken into consideration the revised return and while issuing notice u/s 143(2) of the Act return dated 25.08.2015 is only referred for being selected for scrutiny. Ld. DR has submitted that as the revised return was filed after notice u/s 143(2), therefore, on the basis of revised return no further cognizance was to be taken.
6. However, we find that the issue seems to be settled in favour of the assesse by decision of Hon’ble Tripura High Court in the case of Tripura State Electricity Corporation Ltd. Vs. Pr.CIT, Shillong (2025) (8) TMI 1193 (Tripura HC) wherein Hon’ble High Court has held that once revised return is filed the original return stand obliterated. We find that in the case of assesse when the assessment order was passed while re-computing taxable income on the basis of disallowance of capital gain and considering the same to be under the head of business income. Assessing officer has taken return income of Rs.57,71,360/- which admittedly was a return income in the original return dated 26.08.2015. Thus, a revised return seems to be completely ignored by the assessing officer. On the basis of aforesaid discussion we are of the considered view the additional ground raised deserves to be sustained. Accordingly, the appeal of the assesse is allowed and the impugned addition is deleted.
Order pronounced in the open court on 24.06.2026
