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Rs. 113.46 Crore Section 68 Addition Fails Due to Jurisdictional Defect

Case Law Details

TaxGuru Citation
2025 taxguru.in 12934
Case Name
Aadarsh Surana Vs DCIT (ITAT Chennai)
Date of Judgement/Order
Only available for paid members
Related Assessment Year
2017-18
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Aadarsh Surana Vs DCIT (ITAT Chennai)

Limited Scrutiny Breach Proves Fatal: ITAT Chennai Quashes ₹113.46 Cr Section 68 Addition for Want of PCIT Approval

 Chennai ITAT has allowed the Assessee’s appeal &  quashed the assessment order u/s 143(3) holding it to be void ab initio, as the AO illegally travelled beyond the scope of limited scrutiny without obtaining mandatory prior approval of the PCIT, in clear violation of binding CBDT Instructions.

Assessee’s case was selected for limited scrutiny only on two issues — (i) expenses relating to exempt income & (ii) capital. However, the AO made multiple additions, including:

  • ₹115.26 crore u/s 68 for increase in capital (out of which ₹113.46 crore was sustained by CIT(A)),
  • ₹4.30 crore u/s 69 towards alleged unexplained investment (later deleted by AO u/s 154), &
  • ₹25,152 u/s 14A.

Tribunal held that:

  • Addition u/s 69 (unexplained investment) was clearly outside the limited scrutiny mandate, &  no PCIT approval was ever obtained.
  • Subsequent rectification u/s 154 cannot cure a jurisdictional defect existing on the date of assessment.
  • CBDT Instructions on limited scrutiny are binding u/s 119, &  violation thereof renders the assessment without jurisdiction.
  • Jurisdictional defect cannot be justified on the plea that only “disciplinary action” lies against the AO.

Having quashed the assessment itself, the ITAT did not adjudicate the merits of:

  • Section 68 addition relating to business succession claimed as exempt u/s 47(xiv), &
  • Gifts from father & brothers claimed as non-taxable u/s 56(2)(x).

Accordingly, the entire assessment order was set aside, &  all additions including ₹113.46 crore u/s 68 stood deleted consequentially. Appeal allowed in full.

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Author Info

CA Vijayakumar Shetty
Qualification: CA in Practice
Company: Shetty & Co, Chartered Accountants, Mangalore
Location: Mangalore, Karnataka
Articles Published: 6,911

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