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2019 (2) TMI 1748 - AT - Income TaxScrutiny assessment - Validity of the assessment order framed u/s 143(3) - return selected for scrutiny assessment for limited scrutiny - higher turnover returned in Service Tax Return as compared to ITR and mismatch in profit before tax as per profit and loss account and schedule BP of return Verification of MAT liability - HELD THAT - AO can widen the scope of scrutiny even if it is selected for scrutiny assessment under CASS. However, the condition precedent for such action of the Assessing Officer is that he has to seek prior approval of the higher authorities. A perusal of the assessment order shows that the AO has not mentioned as to when the permission from the PCIT was sought to make further enquiries in the case of the assessee. Considering the facts of the case in totality, in the light of the CBDT Instructions mentioned hereinabove, qua notice u/s 143(2) of the Act, we are of the considered opinion that the assessment order so framed by the Assessing Officer is not in consonance with Instruction of the CBDT and, therefore deserves to be quashed. The order of the ld. CIT(A) is accordingly set aside. 17. Since we have quashed the assessment order, we do not find it necessary to dwell into the merits of the case.
Issues Involved:
1. Validity of the assessment order framed under Section 143(3) of the Income-tax Act, 1961. 2. Merits of the disallowances made by the Assessing Officer. Detailed Analysis: 1. Validity of the Assessment Order: - Ground No. 1: The assessee challenged the validity of the assessment order framed under Section 143(3) of the Income-tax Act, 1961. The return was selected for limited scrutiny on two specific issues: higher turnover returned in the Service Tax Return compared to the Income Tax Return (ITR) and mismatch in profit before tax as per the profit and loss account and schedule BP of the return (Verification of MAT liability). - Assessment Proceedings: The assessee filed a return declaring a loss of ?4.11 crores, which was selected for limited scrutiny through CASS. The scrutiny was limited to verifying the higher turnover in the Service Tax Return and the mismatch in profit before tax. The Assessing Officer was satisfied with the explanations provided by the assessee on these issues but made additional disallowances on other issues, including interest, advertisement, brokerage & commission, and legal and professional charges. - Objection by Assessee: The assessee objected to these additional disallowances, contending that the scope of the limited scrutiny was exceeded without proper authorization. - CIT(A) Observations: The CIT(A) dismissed the assessee's objection, noting that the Assessing Officer followed CBDT Instruction No. 20/2015, emphasizing the two issues identified by CASS. - Tribunal's Consideration: The Tribunal examined the CBDT Instructions No. 20/2015 and 7/2014, which clarify that in cases of limited scrutiny, the scope of enquiry should be confined to the specific reasons/issues for which the case was selected. Any expansion of the scope requires prior approval from higher authorities (PCIT/CIT). - Finding: The Tribunal found that the Assessing Officer did not seek prior approval from the PCIT for expanding the scope of scrutiny. Therefore, the assessment order was not in compliance with the CBDT Instructions and was deemed erroneous and bad in law. - Conclusion: The Tribunal quashed the assessment order due to non-compliance with the prescribed procedures for limited scrutiny cases. 2. Merits of the Disallowances: - Ground No. 2: This ground pertained to the merits of the disallowances made by the Assessing Officer, including interest, advertisement, brokerage & commission, and legal and professional charges. - Tribunal's Decision: Since the assessment order was quashed on the grounds of procedural non-compliance, the Tribunal did not find it necessary to delve into the merits of the disallowances. Final Outcome: - The appeal of the assessee was allowed, and the assessment order was quashed. - The Tribunal pronounced the order in the open court on 28.02.2019.
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