2023 (3) TMI 1416 - AT - Income Tax

Scope of Limited scrutiny assessment - AO jurisdiction in enquiring into issues beyond the scope of limited scrutiny - CIT(A) in confirming the action of AO in making additions in respect of issues not mentioned in limited scrutiny - HELD THAT - As notice u/s 143(2) issued for limited scrutiny covering four issues namely Receipt of large values foreign remittance, Mismatch in amount paid to related persons u/s 40A(2)(b), Unsecured loans from persons who have not filed their return of income and Loss from currency fluctuations and also subsequent notice issued u/s 142(1) called for further information. In our view this is incomplete disregard of the Instruction No. 5/2016 issued by CBDT on 14.07.2016 which provides that while proposing to take up complete scrutiny which was fixed for limited scrutiny, the AO shall form a reasonable view that there is a possibility of under-assessment of income if the case is not examined under complete scrutiny and that plea has to be on the existence of the credible material not merely on suspicion and conjecture or unreliable sources. We note that the instruction provide that there has to be a direct nexus between the available material and formation of such view. AO has exceeded his jurisdiction in enquiring into those issues beyond the scope of limited scrutiny which is in clear violation of mandate given by CBDT in the said Circular and has been held by the Co-ordinate Bench in the case of Shri Vijay Kumar 2019 (10) TMI 13 - ITAT CHANDIGARH to be bad in law.

Summary

Issues:
The judgment involves determining the jurisdiction of the Assessing Officer (AO) to make additions in an assessment beyond the scope of limited scrutiny under section 143(2) of the Income Tax Act.

Jurisdictional Issue:
The appellant challenged the order of the Ld. Commissioner of Income Tax-5, Kolkata for the assessment year 2015-16, raising concerns about the AO's jurisdiction to make additions not covered in the limited scrutiny. The appellant argued that the AO exceeded his jurisdiction by including issues like set off and carry forward of losses that were not part of the limited scrutiny. The appellant relied on CBDT Instruction No. 5/2016 and precedent cases to support the claim that the AO's actions were beyond the scope of the limited scrutiny.

Admissibility of Additional Ground:
The appellant filed an additional ground challenging the jurisdiction of the AO to make such additions, which the respondent objected to, citing that it was not raised before the AO or Ld. CIT(A). The Tribunal decided to admit the additional ground for hearing, considering it a legal and jurisdictional issue that did not require further verification of facts, following the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383 (SC).

Assessment Proceedings:
The AO's assessment order, framed under section 143(3) of the Act, rejected the set off and carry forward of losses based on a change in share ownership. The appellant contended that the issues of setting off losses were not part of the limited scrutiny, and the AO exceeded his jurisdiction by including them in the assessment. The Tribunal found that the AO's actions violated CBDT Instruction No. 5/2016, which mandates that in limited scrutiny, proceedings must be confined to specific issues, and any expansion requires a reasonable view based on credible material, a view not formed on suspicion or conjecture.

Decision and Conclusion:
After considering the arguments and reviewing the relevant instructions and precedents, the Tribunal held that the AO had exceeded his jurisdiction by including issues beyond the limited scrutiny, rendering the assessment order null and void. The Tribunal quashed the assessment order, stating that it was bad in law and could not be sustained. Consequently, the appeal of the assessee was partly allowed, emphasizing the importance of adhering to the guidelines set forth by the CBDT in conducting assessments.