2023 (6) TMI 1345 - AT - Income Tax

Scope of limited scrutiny proceedings - disallowance U/s. 40A(3) as beyond the scope of limited scrutiny - AR argued that the AO has travelled beyond his powers in verifying the cash withdrawals where the case was selected under CASS for Limited Scrutiny for the purpose of verifying the cash deposits into the bank account of the assessee thus AO has no jurisdiction to make disallowance U/s. 40A(3) without converting the assessment into complete scrutiny proceedings - HELD THAT - We find that the Ld. AO has not taken approval from the Ld. Pr. CIT for verification of the cash withdrawals which is beyond the scope of the limited scrutiny for which the assessee s case is opened for the purpose of verification of the huge cash deposits into the bank account of the assessee. There is no dispute by the Ld. AO regarding the satisfaction of the cash deposits for which the limited scrutiny purpose was initiated. As far as the limited scrutiny proceedings are concerned the scrutiny has to be limited to the parameters selected for the purpose of scrutiny only to the specific issues and not beyond that under any circumstances. In case if the Ld. AO wants to take up the case for complete scrutiny first the Ld. AO has to convert the limited scrutiny into complete scrutiny case and then he may take up the case for complete scrutiny with the prior approval of the Ld. Pr. CIT / CIT concerned after being satisfied about the issue of converting it into a complete scrutiny. In the instant case we find that no such approval has been granted to the Ld. AO to travel beyond the verification of the cash deposits. AO also not found any material against the assessee with respect to the cash deposits into the bank accounts of the assessee. In view of the above discussions we find that the Ld. AO has travelled beyond his jurisdiction in disallowing the cash withdrawals being payments made to various fishermen by invoking the provisions of section 40A(3) of the Act is not valid in law and therefore we are inclined to quash the order passed by the Ld. AO U/s. 143(3) r.w.s 144B and allow the Grounds raised by the assessee.

Summary

Issues Involved:
The appeal against the order of the Ld. Commissioner of Income Tax (Appeals) regarding disallowance under section 40A(3) of the Income Tax Act, 1961 without proper jurisdiction and approval.

Facts of the Case:
The assessee, a Fish Commission Agent, filed his return of income for the AY 2018-19. The case was selected for limited scrutiny to verify cash deposits. The Ld. AO disallowed cash withdrawals exceeding limits under section 40A(3) and added to total income. Assessee appealed before Ld. CIT(A)-NFAC, contesting that the AO exceeded limited scrutiny without proper permission. Ld. CIT(A)-NFAC upheld the AO's order. Assessee appealed again, raising grounds challenging the disallowance and jurisdiction of the AO.

Legal Grounds Raised:
1. Contrary order of Ld. CIT(A) to facts and law.
2. Lack of notice under section 143(2) by AO with jurisdiction.
3. Disallowance under section 40A(3) beyond scope of limited scrutiny.
4. Unjustified confirmation of disallowance by Ld. CIT(A).
5. Any other grounds to be raised during hearing.

Decision and Reasoning:
The Ld. AO exceeded jurisdiction by disallowing cash withdrawals without converting to complete scrutiny as per CBDT directions. The AO did not seek approval for verifying cash withdrawals, beyond the limited scrutiny purpose of verifying cash deposits. Limited scrutiny must be confined to selected parameters. No material found against the assessee regarding cash deposits. The disallowance under section 40A(3) for payments to fishermen was deemed invalid. The order under section 143(3) r.w.s 144B of the Act was quashed, and grounds 3 and 4 raised by the assessee were allowed. The appeal of the assessee was allowed.

Separate Judgment:
No separate judgment was delivered by the judges in this case.