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2020 (6) TMI 673 - AT - Income TaxExpansion of scrutiny from the Limited Scrutiny to Complete Scrutiny - Addition u/s 68 - proceedings initiated for limited scrutiny - Assessee s case was selected by CASS (computer aided scrutiny selection) for Limited Scrutiny i.e. for only one issue i.e. whether stock has been valued correctly or not but AO expanding the jurisdiction to make addition u/s. 68 which was not specified in the Limited Scrutiny notice issued u/s. 143(2) - HELD THAT - Perusal of the order sheet does not indicate that the AO has taken the approval of the Pr. CIT/CIT for expanding the assessment from Limited Scrutiny to Complete Scrutiny. DR fairly conceded this fact after perusal of the order sheet that no approval in writing was taken by the AO for expanding the scope of assessment so as to make the addition u/s. 68 of the Act. Since the CBDT Circular issued u/s. 119 of the Act is binding on the department/AO as held by the Hon ble Apex court and High Courts, the AO was bound by it and without taking approval in writing from Pr CIT/CIT could not have enquired into other issues other than the issue for which the assessment was selected for Limited Scrutiny. Here, the AO without following the procedure has expanded his jurisdiction without approval which action of AO is held to be without jurisdiction - Addition is null in the eyes of law and, therefore, it has to be deleted - Decided in favour of assessee.
Issues:
1. Expansion of assessment from Limited Scrutiny to Complete Scrutiny without following CBDT Circulars. 2. Jurisdiction of AO to make additions under section 68 of the Income-tax Act. Issue 1: Expansion of assessment from Limited Scrutiny to Complete Scrutiny without following CBDT Circulars The appellant challenged the AO's action of expanding the assessment from Limited Scrutiny to Complete Scrutiny without following the procedure outlined in CBDT Circulars. The appellant contended that the AO erred in expanding the jurisdiction without obtaining written approval from the Pr. CIT/CIT, as mandated by the Circulars. The AO had made additions under section 68 of the Act without proper authorization. The Tribunal noted that the AO did not seek written approval before expanding the assessment, as required by the Circulars. The AO's action was deemed to be without jurisdiction and against the law. The Tribunal held that the addition made by the AO during Complete Scrutiny was null and ordered its deletion. The appellant succeeded on this issue, and the appeal was partly allowed. Issue 2: Jurisdiction of AO to make additions under section 68 of the Income-tax Act The AO made additions under section 68 of the Income-tax Act based on findings from a survey conducted on third parties. The appellant argued that since the case was selected for Limited Scrutiny regarding stock valuation, the AO could not have expanded the assessment without proper approval. The AO's decision to make additions without following the CBDT Circulars was challenged. The Tribunal agreed with the appellant that the AO's actions were not in accordance with the Circulars, rendering the additions made under section 68 invalid. The AO's failure to obtain written approval from the Pr. CIT/CIT before expanding the assessment was a critical flaw. The Tribunal ruled in favor of the appellant, stating that the additions were made without jurisdiction and should be deleted. The other grounds raised by the appellant were dismissed as not pressed by the appellant. This judgment highlights the importance of adhering to procedural requirements outlined in CBDT Circulars when expanding assessments from Limited Scrutiny to Complete Scrutiny. Failure to obtain proper approval before making additions under the Income-tax Act can render such actions invalid and against the law. The Tribunal emphasized the significance of following prescribed procedures to ensure the legality and validity of assessment expansions and additions made by Assessing Officers.
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