2019 (8) TMI 1120 - AT - Income Tax

Scrutiny through CASS - No approval taken - the loss on sale of shares was not shown in the original return but claimed in revised return - HELD THAT - The case of the assessee was selected for limited scrutiny to examine the issue of commodity transaction/ derivatives (futures) transactions as mentioned by the AO in the body of the assessment order itself. AO in the instant case converted the limited scrutiny case to a full fledged scrutiny case which is evident from the assessment order. CBDT vide Instruction No.5/2016 dated 14.07.2016 and instruction No.225/402/2018 dated 28.11.2018 has issued certain guidelines for converting a limited scrutiny case to complete the scrutiny which is binding on the department. The Board has clearly mentioned that in a limited scrutiny case the AO cannot travel beyond the issues for which the case was selected and in case the AO wants to expand its scope of enquiry/ investigation other than the issues on which the case was selected for scrutiny, then in that case mandatory approval from the PCIT or CIT or PDIT or DIT has to be obtained. A perusal of the Assessment Order shows that no such approval has been taken. Deem it proper to restore the issue to the file of the AO with a direction to verify as to whether such approval has been taken and in case no such approval has been taken then the addition so made by the Assessing Officer and upheld by the CIT(A) stands deleted.The additional ground raised by the assessee is accordingly allowed. Revised return - AO alleged that assessee cannot take the advantage of provisions of section 139(5) by deliberately making the omission or wrong statement - HELD THAT - It is not a deliberate omission but an inadvertent error. Further, there is no decision of the Hon ble Jurisdictional High Court on this issue. It is the settled proposition of law that when two views are possible on an issue, the view which is favourable to the assessee has to be followed. CIT(A) should not have upheld the action of the AO in not considering the revised return filed. I, therefore, set aside the order of the CIT(A) and direct the AO to consider the revised return as in accordance with law. The ground raised by the assessee is accordingly allowed.

Summary

Issues Involved:
1. Whether the Assessing Officer (AO) exceeded the scope of limited scrutiny.
2. The validity of the revised return filed by the assessee.
3. The disallowance of loss claimed from the sale of shares.
4. The addition of ?13,60,000 as unexplained cash deposit under Section 68 of the IT Act.

Issue-wise Detailed Analysis:

1. Scope of Limited Scrutiny:
The assessee's case was selected for limited scrutiny to examine commodity transactions/derivatives (futures) transactions. The AO converted this limited scrutiny case into a full-fledged scrutiny without obtaining mandatory approval from the administrative PCIT/CIT/PDIT/DIT as required by CBDT Instruction No.5/2016 dated 14.07.2016 and Instruction No.225/402/2018 dated 28.11.2018. The Tribunal found that the AO did not adhere to these guidelines, making the additions unsustainable. Consequently, the Tribunal restored the issue to the AO to verify whether such approval was taken. If no approval was taken, the additions made by the AO and upheld by the CIT(A) would be deleted.

2. Validity of Revised Return:
The assessee filed a revised return under Section 139(5) declaring a total income of ?5,90,400, which included a loss from the sale of shares not claimed in the original return. The AO rejected this revised return, relying on the Supreme Court's decision in CIT Vs. Raman Chettiar, arguing that the omission was deliberate. The CIT(A) upheld this view, citing similar judgments. However, the Tribunal referred to the Gujarat High Court's decision in PCIT Vs. Babu Bhai Ramanbhai Patel, which held that a revised return filed under Section 139(5) replaces the original return, provided it is filed within the prescribed time. The Tribunal found that the omission was inadvertent, not deliberate, and directed the AO to consider the revised return as per law.

3. Disallowance of Loss from Sale of Shares:
The AO disallowed the loss claimed from the sale of shares in the revised return, arguing that the original return did not disclose this loss. The Tribunal, however, noted that the revised return should be accepted as it was filed within the time limits and replaced the original return. The Tribunal directed the AO to consider the revised return and the loss claimed therein.

4. Addition of ?13,60,000 as Unexplained Cash Deposit:
The AO added ?13,60,000 as unexplained cash deposit under Section 68, noting that the assessee received consultancy charges in cash from 101 persons, each amount below ?20,000. The Tribunal found that the AO exceeded the scope of limited scrutiny and did not obtain the necessary approval to convert it into a full-fledged scrutiny. The Tribunal restored the issue to the AO to verify if the required approval was taken. If not, the addition would be deleted.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO to verify compliance with procedural requirements for converting limited scrutiny to full scrutiny and to consider the revised return as per law. The Tribunal emphasized adherence to CBDT instructions and the principle of natural justice. The order pronounced on 21.08.2019.