2020 (9) TMI 763 - AT - Income Tax

Complete Scrutiny v/s Limited scrutiny - Expansion of scope of limited scrutiny - speculation loss - mismatch between turnover reported in the audit report vis- -vis turnover in the Income Tax Return - HELD THAT - Assessee appeared before AO along with the books of accounts and has reconciled the mismatch between turnover reported in the audit report vis- -vis turnover in the Income Tax Return and AO has not taken any adverse view in respect of this issue for which the CASS has selected the return of income of the assessee for scrutiny u/s 143(3). CBDT Circular issued u/s 119 of the Income Tax Act is binding on the Income Tax Authorities.The Assessing Officer s jurisdiction is limited to the issue identified by the CASS in case of Limited Scrutiny cases. In the assessee s case under consideration the issue of mismatch of sales shown in the audit report vis- -vis ITR was for Limited Scrutiny but the assessing officer has expanded the scope of limited scrutiny without taking permission from the concerned Pr.CIT/CIT, since there is no whisper of any sanction or approval of the Pr.CIT/CIT therefore action of AO to assess the loss is beyond his jurisdiction and in violation of the CBDT circular which he was bound to obey. We find merit in the assessee s grounds of appeal that the action of the AO to make addition on account of loss is beyond jurisdiction and therefore null in the eyes of law and hence we delete the addition. Reopening of cases for last preceding six years - CIT(A) does not have power to give directions to the assessing officer for reopening of cases for last preceding six years and subsequent years of the assessee. Therefore, according to ld Counsel it is illegal and beyond jurisdiction. CIT(A) who is the first appellate authority can do what the AO can do. The first appellate proceedings is an extension of the assessment proceedings. So, it means that what the Assessing Officer cannot do, the CIT(A) cannot do. As per the scheme of the Act when an assessee files a return of income the Assessing Officer accepts the return of income u/s 143(1) of the Act or scrutinize the assessment and pass the order u/s 143(3) of the Act and if the time limit to issue the notice 143(2) has lapsed then assessing officer cannot frame the assessment u/s 143(3) of the Act. The assessing officer can do the assessment for the year for which assessee filed the return of income. The assessing officer can not frame the assessment for preceding years and subsequent years. CIT(A) could not have given directions to the AO for which the AO was not empowered to do, as discussed above and for that we rely on the judgment in the case of B. Mohta 1964 (7) TMI 39 - BOMBAY HIGH COURT - Appeal filed by the assessee is allowed.

Summary

Issues:
1. Condonation of delay in filing appeal
2. Treatment of loss from share trading as speculation loss
3. Directions for reopening of cases
4. Stay on demand issued under section 156

Analysis:

Issue 1: Condonation of delay in filing appeal
The appeal pertains to the assessment year 2014-15 and challenges the order passed by the Commissioner of Income Tax (Appeal)-2. The appellant raised grounds regarding the rejection of the condonation of delay in filing the appeal. The Commissioner held that the appellant's delay was not justified, leading to the appeal before the ITAT. The ITAT examined the submissions made by both parties and noted the contentions raised. The appellant argued against the rejection of the delay condonation, emphasizing the justifiability of the delay. The ITAT reviewed the case in detail, considering the legal aspects and arguments presented, ultimately allowing the appeal.

Issue 2: Treatment of loss from share trading as speculation loss
The assessing officer disallowed the loss claimed by the appellant from share trading, amounting to ?42,97,440, treating it as speculation loss under section 43(5). This decision was challenged by the appellant, contending that the assessing officer exceeded the scope of limited scrutiny without proper authorization. The ITAT analyzed the CBDT Circular, emphasizing that in limited scrutiny cases, the assessing officer's jurisdiction is restricted to identified issues. The ITAT found merit in the appellant's argument, concluding that the assessing officer's action in assessing the loss as speculation loss was beyond jurisdiction. Consequently, the ITAT nullified the addition of ?42,97,440.

Issue 3: Directions for reopening of cases
The appellant contested the directions given by the CIT(A) to the assessing officer for considering reopening cases for the last six years and subsequent years. The appellant argued that the CIT(A) lacked the authority to issue such directions, citing the provisions of section 251 of the Income Tax Act. The ITAT concurred with the appellant, stating that the CIT(A) cannot exceed the powers of the assessing officer. Referring to legal precedents, including the judgment of the Bombay High Court, the ITAT held that the CIT(A) overstepped his jurisdiction by giving directions for reopening cases beyond the assessing officer's authority. Consequently, the ITAT canceled the directions issued by the CIT(A).

Issue 4: Stay on demand issued under section 156
The appellant sought a stay on the demand issued under section 156 until the disposal of the appeal. While this issue was not discussed in detail in the judgment, it can be inferred that the ITAT allowed the appeal, indicating a favorable outcome for the appellant regarding the demand stay request.

In conclusion, the ITAT allowed the appeal filed by the assessee, addressing and resolving all the issues raised in the case, including the condonation of delay, treatment of loss, directions for reopening cases, and the stay on demand issued under section 156.