Case Law Details
Shri Prabir Das Vs ITO (ITAT Guwahati)
The issue under consideration is whether the AO can expand the assessment from ‘Limited Scrutiny’ to ‘Complete Scrutiny’ without following the procedure as laid by the CBDT Circular?
In the present case, the assessee had filed return of income. Later the case of the assessee was selected for ‘Limited Scrutiny’ which fact was conveyed to the assessee by notice issued u/s. 143(2) of the Act. In this notice u/s. 143(2) of the Act, it was clearly stated that the assessee’s case was selected by CASS only for ‘Limited Scrutiny’ regarding one issue only i.e. “whether stock has been valued correctly or not ?” The legal issue is whether the AO could have made this addition u/s 68 when the fact remains that the assessee’s case was selected for Limited Scrutiny only for the reason that whether stock has been valued correctly or not?
ITAT states that, since the CBDT Circular issued u/s. 119 of the Act is binding on the department/AO as held by the Hon’ble Apex court and High Courts, the AO was bound by it and without taking approval in writing from Pr CIT/CIT could not have enquired into other issues other than the issue for which the assessment was selected for Limited Scrutiny. Here, the AO without following the procedure as stated, supra has expanded his jurisdiction without approval which action of AO is held to be without jurisdiction and, therefore, is bad in law and, therefore, the assessee succeeds and the addition made by the AO u/s 68 is null in the eyes of law and, therefore, it has to be deleted.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal preferred by the assessee is against the order of the Ld. CIT(A), Shillong dated 11.06.2019 for AY 2016-17.
2. At the outset, the Ld. AR Shri Sanjay Modi, FCA drew our attention to ground no.2 which reads as under:
“2. For that the Ld. CIT(A) ought to have hold that the addition of Rs.59,19,909/- made by the ld. AO by invoking provisions of section 68 of the Act in the proceedings initiated for limited scrutiny is without jurisdiction and bad in law.”
3. The Ld. AR drawing our attention to the aforesaid ground submitted that the assessee is aggrieved by the action of the AO to have expanded the assessment from ‘Limited Scrutiny’ to ‘Complete Scrutiny’ without following the procedure as laid by the CBDT Circular No. 20/2015 dated 29.12.2015; and subsequent instruction on the same dated 14.07.2016 (para 4) and circular dated 30.11.2017 (para 3). According to Ld. AR, the AO had issued notice u/s. 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) on 20.09.2017 wherein it was clearly stated that the assessee’s case was selected by CASS (computer aided scrutiny selection) for ‘Limited Scrutiny’e. for only one issue i.e. whether stock has been valued correctly or not ? According to the Ld. AR, the AO erred in expanding the jurisdiction to make addition of Rs.59,19,907/- u/s. 68 of the Act which was not specified in the ‘Limited Scrutiny’ notice issued u/s. 143(2) of the Act dated 20.09.2017. According to the Ld. AR, the CBDT circular/Instruction No. 20/2015 dated 29.12.2015 has clearly laid down the procedure to be followed in case if the AO wishes to expand the scrutiny from the ‘Limited Scrutiny’ to ‘Complete Scrutiny’ which is given in para 3, which reads as under:
“a. In ‘Limited Scrutiny’ cases, the reasons/issues shall be forthwith communicated to the assessee concerned.
b. The Questionnaire under section 142(1) of the Act in ‘Limited Scrutiny’ cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the ‘Limited Scrutiny’ issues.
c. These cases shall be completed expeditiously in a limited number of hearings.
d. During the course of assessment proceedings in ‘Limited Scrutiny’ cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. Five lakhs (for metro charges, the monetary limit shall be Rs. Ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for ‘Complete Scrutiny’ with the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about merits of the issues(s) necessitating ‘Complete Scrutiny’ in that particular case. Such cases shall be monitored by the Range head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For this present purpose, ‘Metro charges’ would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad).”
4. According to the Ld. AR, from a bare reading of the aforesaid instruction of the CBDT which has been issued by it u/s. 119 of the Act, it is clear that the AO while issuing questionnaire u/s. 142(1) of the Act in ‘Limited Scrutiny’ cases shall remain confined only to the specific issues for which case has been picked up for scrutiny and it has been made very clear that the scope of enquiry shall be restricted to the ‘Limited Scrutiny’ issue. It has been further clarified by the CBDT that if the AO comes to know that there is potential escapement of income exceeding Rs. 5 lacs (for metropolitan cities Rs. 10 lacs) requiring substantial verification on any other issues, then the case should be taken up for ‘Complete Scrutiny’ with the approval of the Pr. CIT/CIT concerned and, thereafter, the approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about the merits of the issues necessitating ‘Complete Scrutiny’ in that particular case. Further, it is also stated that such cases shall be monitored by the Range Head concerned. So, the Ld. AR contended that from a perusal of the order sheet, [copy of which is placed at pages 5 to 9 of the paper book] maintained by the AO would reveal that he [the AO] has not taken the approval of Pr. CIT/CIT. The ld. AR, pointed out that there is no whisper of the approval granted by the Pr. CIT/CIT in writing allowing the AO to expand the scope of assessment from ‘Limited Scrutiny’ to ‘Complete Scrutiny’. Therefore, according to Ld. AR, the action of the AO to make the addition of Rs.59,19,902/- u/s. 68 of the Act is bad in law. For this proposition, the Ld. AR relied on the orders of the Tribunal, Jaipur Bench in the case of Late Smt. Gurbachan Kaur Vs. DCIT, ITA No. 692/JP/2019 (AY: 2014-15) order dated 05.12.2019; Mumbai Bench decision in M/s. Nitin Killawala Vs. ITO, ITA No. 1611/M/2013 (AY: 2008-09) order dated 16.09.2015; Chindagarh bench decision in Shri Vijay Kumar Vs. ITO, ITA No. 434/Chd/2019 (AY: 2014-15) order dated 12.09.2019.
5. Per contra, the Ld. DR contended that the issue raised by the Ld. AR has not been raised before the Ld. CIT(A) and, therefore, this issue according to him, cannot be agitated for the first time before the Tribunal. According to the Ld. DR, the CBDT circular dated 30.11.2017 (para 1) specifically states the reason why this ‘Limited Scrutiny’ has been advised in certain cases. According to him, this is to prevent AO from going on a fishing enquiry to harass the assessee. According to Ld. DR, in this case even though the assessee’s case was selected for scrutiny under CASS for ‘Limited Scrutiny’, later on it had come to the notice of the AO that the survey was conducted on 04.09.2017 in the case of M/s. Assam Textiles and M/s. Mahavir Textiles (third parties) and it was found that there were transfer of funds to the tune of Rs.41,78,299/- (from M/s. Assam Textiles) and Rs.16,85,030/- (from M/s. Mahavir Textiles) to the assessee. Armed with this information, the AO sought queries from the assessee and since the assessee failed to respond properly to the queries and failed to establish the genuineness of the transaction, the AO drew adverse inference against the assessee and made the addition of Rs.59,19,909/- (though the correct total is Rs.58,63,329/-).Therefore, according to the Ld. DR, the action of the AO cannot be faulted. Therefore, he wants us not to interfere in the order passed by the Ld. CIT(A). In the rejoinder, the Ld. AR, conceded that this ground was not raised before the Ld. CIT(A). However, he contented that this issue is purely a legal issue raised by the assessee before this Tribunal wherein assessee is challenging the very jurisdiction of AO to expand the scope of enquiry/assessment from ‘Limited Scrutiny’ to ‘Complete Scrutiny’; and since the AO has resorted to an action which was regulated by the CBDT circular which is binding on him and the AO’s action of expanding the jurisdiction without taking the approval of Pr. CIT/CIT in writing is without jurisdiction; and, therefore, this being a legal issue which if found to be correct would go to the root of the addition made of Rs.59,19,909/- as raised in ground no.2 which, according to him, can be raised at any forum as decided by the Hon’ble Supreme court in NTPC Vs. CIT 229 ITR 383 (SC) and therefore, he wants us to adjudicate the legal issue. He also pointed out that in the 143(2) notice this issue regarding addition u/s. 68 of the Act was never raised in the “Limited Scrutiny notice” dated 20.09.2017 wherein the AO has clearly stated that assessee’s case has been selected only for Limited Scrutiny on one issue i.e. whether stock has been valued correctly or not? So, according to him, the AO could not have expanded the jurisdiction without taking approval from the Pr. CIT/CIT in writing and, therefore, he wants us to delete the addition made u/s. 68 of the Act of Rs.59,19,907/-.
6. Having heard both the parties and after carefully going through the contents of the three (3) CBDT Circulars and case laws relied upon , we note that the assessee had filed return of income on 15.12.2016 reflecting an income of Rs.8,17,530/-. Later the case of the assessee was selected for ‘Limited Scrutiny’ which fact was conveyed to the assessee by notice dated 20.09.2017 issued u/s. 143(2) of the Act. In this notice u/s. 143(2) of the Act, it was clearly stated that the assessee’s case was selected by CASS only for ‘Limited Scrutiny’ regarding one issue only i.e. “whether stock has been valued correctly or not ?”. We note from perusal of the assessment order that the AO has referred to a survey conducted at the premises of M/s. Assam Textiles and M/s. Mahavir Textiles on 04.09.2017 (third parties) and that he got information about certain transfer of funds from these two entities to assessee for which he raised question to the assessee and the AO being not satisfied with the replies given by the assessee has made the addition of Rs.59,19,909/- (as per the assessee total is only Rs.58,63,329/-). The legal issue before us is whether the AO could have made this addition when the fact remains that the assessee’s case was selected for Limited Scrutiny only for the reason that whether stock has been valued correctly or not. According to Ld. AR, the AO could not have expanded the jurisdiction/assessment from ‘Limited Scrutiny’ to complete scrutiny without following the procedure as stipulated in the CBDT Circular No. 20/2015 dated 29.12.2015 and other CBDT Circulars on the subject dated 14.07.2016 and 30.11.2017. We note that the AO has not taken approval in writing from the Pr. CIT/CIT in this case before he ventured to expand the scope of assessment from ‘Limited Scrutiny’ to complete scrutiny as prescribed in the CBDT circular which is admittedly binding on him. A perusal of the order sheet placed at pages 5 to 9 of the paper book does not indicate that the AO has taken the approval of the Pr. CIT/CIT for expanding the assessment from Limited Scrutiny to Complete Scrutiny. The Ld. DR fairly conceded this fact after perusal of the order sheet that no approval in writing was taken by the AO for expanding the scope of assessment so as to make the addition u/s. 68 of the Act. Since the CBDT Circular issued u/s. 119 of the Act is binding on the department/AO as held by the Hon’ble Apex court and High Courts, the AO was bound by it and without taking approval in writing from Pr CIT/CIT could not have enquired into other issues other than the issue for which the assessment was selected for Limited Scrutiny. Here, the AO without following the procedure as stated, supra has expanded his jurisdiction without approval which action of AO is held to be without jurisdiction and, therefore, is bad in law and, therefore, the assessee succeeds and the addition made by the AO Rs.59,19,909/- is null in the eyes of law and, therefore, it has to be deleted and we order accordingly. The other grounds not pressed by the Ld. AR, therefore, the grounds raised by the assessee are dismissed.
7. In the result, the appeal of assessee is partly allowed. Order is pronounced in the open court on 26 June, 2020.
Author Bio
Good analysis. Thanks.