2020 (5) TMI 46 - AT - Income Tax

Conversion of limited scrutiny into complete scrutiny assessment u/s 143(3) - No approval by the appropriate authority for converting the limited scrutiny into complete scrutiny - case of the assessee was selected for limited scrutiny through CASS - jurisdiction of AO by passing the impugned order u/s 143(3) for the reason that case was initially selected for limited scrutiny and without seeking permission from the competent authority to convert limited scrutiny into complete scrutiny, the addition has been made - HELD THAT - AO neither in the assessment order nor in the assessment proceedings (as apparent from the notings in the order sheet place on record) has stated that he has sought and has been granted any approval by the appropriate authority for converting the limited scrutiny into complete scrutiny or travelling beyond the matter for which the matter was initially selected for limited scrutiny - nothing has been brought to our notice during the course of hearing by the ld DR that such approval was sought by the AO and has been granted by the appropriate authority. AO has taken up the fresh issue of unexplained investment for purchase of immovable property, which has no connection with the issue of sale of immovable property for which the matter was selected for limited scrutiny, without seeking prior approval of the competent authority. The addition so made u/s 69 is liable to be quashed as the order passed by the AO would be nullity as beyond his jurisdiction in absence of requisite approval from the competent authority. The instructions issued by CBDT from time to time are clear on this point. AO can thus widen the scope of scrutiny where the matter was initially selected for scrutiny assessment. However, the condition precedent for such action of the AO is that he has to follow the procedure so laid down and seek prior approval of the competent authorities. In the instant case, it is an admitted fact that no such approval has been taken by the Assessing officer. It is therefore, a case where the CBDT Instructions which are binding on the Assessing officer have not been followed by him. It is a consistent position taken by various Benches of the Tribunal including Jaipur Benches that where the Assessing officer has taken up fresh issue without converting limited scrutiny to complete scrutiny by taking prior approval of the competent authority, then the said order passed by the Assessing officer will be nullity as beyond his jurisdiction. We set aside and quash the order passed by the AO u/s 143(3) of the Act and ground no. 1 of the assessee s appeal is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) in limited scrutiny cases.
2. Addition of ?10,00,000 as unexplained investment under Section 69.
3. Invocation of Section 115BBE by the AO.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer in Limited Scrutiny Cases:
The primary issue raised by the assessee was the challenge to the jurisdiction of the AO in making additions beyond the scope of limited scrutiny. The assessee argued that the case was selected for limited scrutiny to examine capital gains/loss on the sale of property. However, the AO made an addition regarding the unexplained investment in the purchase of property under Section 69 without converting the limited scrutiny into complete scrutiny and without obtaining the necessary approval from the competent authority. The Tribunal noted that the AO had accepted the assessee's explanation that there was no sale of immovable property during the year, thus no capital gains were involved. Despite this, the AO proceeded to make an addition related to the purchase of property, which was beyond the scope of the limited scrutiny. The Tribunal emphasized that as per CBDT Instruction No. 5 of 2016, the AO must seek approval from the competent authority to convert a limited scrutiny into a complete scrutiny. Since no such approval was obtained, the Tribunal concluded that the AO exceeded his jurisdiction, rendering the addition under Section 69 invalid.

2. Addition of ?10,00,000 as Unexplained Investment under Section 69:
The AO made an addition of ?10,00,000 under Section 69, treating it as unexplained investment in the property. The Tribunal found that this addition was not related to the issue for which the case was selected for limited scrutiny (i.e., capital gains/loss on the sale of property). Since the AO did not obtain the necessary approval to expand the scope of the scrutiny, the addition under Section 69 was deemed beyond his jurisdiction and was quashed.

3. Invocation of Section 115BBE by the AO:
The assessee also challenged the invocation of Section 115BBE by the AO. However, since the Tribunal set aside the entire order passed by the AO due to the jurisdictional issue, the question of invoking Section 115BBE became academic and was not adjudicated upon. The Tribunal dismissed this ground as infructuous.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside and quashing the order passed by the AO under Section 143(3) due to the lack of jurisdiction in making additions beyond the scope of limited scrutiny without obtaining the necessary approval. The Tribunal did not adjudicate on the merits of the addition under Section 69 and the invocation of Section 115BBE, as these issues became academic following the jurisdictional finding. The appeal was thus allowed in favor of the assessee.