2019 (4) TMI 416 - AT - Income Tax

Case selected under CASS - limited scrutiny - case of assessee was selected for scrutiny under CASS on the ground that the assessee had shown low profit before interest and tax - no permission from the superior authorities extension of scope of scrutiny to other issues and making addition on such issues, where the case of assessee was picked up for scrutiny under CASS - HELD THAT - We hold that in the absence of any approval received from Pr.CIT / CIT, there is no merit in the order of AO in making any addition other than on the issues selected under CASS. Thus, the assessment order passed in the present case suffers from infirmity and the same is quashed.

Issues Involved:
1. Validity of assessment order due to jurisdictional issue.
2. Addition of ? 1,539,405/- based on 8% profit on gross receipt.
3. Rejection of deduction under Section 80P(2)(a)(vi) of the Income-tax Act.
4. Non-compliance with CBDT instructions regarding scrutiny under CASS.

Issue-wise Detailed Analysis:

1. Validity of Assessment Order Due to Jurisdictional Issue:
The primary issue raised by the assessee was the jurisdictional validity of the assessment order. The assessee contended that the case was selected for scrutiny under the Computer Aided Scrutiny Selection (CASS) for a limited purpose, specifically for low profit before interest and tax. The assessee argued that any addition or disallowance beyond the scope of the limited scrutiny required prior approval from the Commissioner, which was not obtained. The Tribunal referred to CBDT Instruction No.5/2016, which mandates that in cases of limited scrutiny, the scope cannot be expanded without the Commissioner’s approval. The Tribunal also cited previous judgments, including the Pune Bench’s decision in Suresh Jugraj Mutha Vs. Addl.CIT and Nazare Vikas Karyakari Seva Sahakari Society Ltd. Vs. ITO, which supported the assessee’s contention. Consequently, the Tribunal held that the assessment order was invalid due to the lack of necessary approval for expanding the scope of scrutiny.

2. Addition of ? 1,539,405/- Based on 8% Profit on Gross Receipt:
The assessee challenged the addition of ? 1,539,405/- made by the Assessing Officer (AO) by adopting an 8% profit on the gross receipt, despite the assessee maintaining regular audited books of account. The Tribunal did not delve into the merits of this issue independently, as the jurisdictional issue rendered the assessment order invalid. Therefore, this ground became academic and was not adjudicated separately.

3. Rejection of Deduction Under Section 80P(2)(a)(vi) of the Income-tax Act:
The assessee also contested the disallowance of the deduction claimed under Section 80P(2)(a)(vi) of the Act. Similar to the second issue, the Tribunal did not address this ground separately due to the invalidity of the assessment order on jurisdictional grounds. As a result, this issue also became academic.

4. Non-compliance with CBDT Instructions Regarding Scrutiny Under CASS:
The Tribunal emphasized the importance of adhering to CBDT instructions regarding the scope of scrutiny under CASS. It reiterated that any expansion of the scope of scrutiny beyond the issues identified by CASS requires prior approval from the Commissioner. The Tribunal noted that the AO had not obtained such approval before making additions unrelated to the initial reason for scrutiny. This non-compliance with CBDT instructions was a critical factor in the Tribunal’s decision to invalidate the assessment order.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, primarily on the ground of the jurisdictional issue. It held that the assessment order was invalid due to the AO’s failure to obtain the necessary approval for expanding the scope of scrutiny beyond the issues identified under CASS. Consequently, the other grounds of appeal became academic and were not adjudicated separately. The decision in ITA No.1589/PUN/2018 was applied mutatis mutandis to ITA No.1590/PUN/2018, resulting in both appeals being allowed.

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