2022 (1) TMI 1091 - AT - Income Tax

Conversion of limited scrutiny to a complete one - scope of enquiry under 'Limited Scrutiny' - HELD THAT - The reason of the assessee's limited scrutiny herein was regarding the assessee's cash deposit in savings account(s) as more than the turnover only. And that the AO had duly taken note of the fact that the assessee had made huge cash deposits in his OD account whilst sending his proposal to the PCIT There is no material on record which could indicate the assessee to have either declared or explained source of his cash deposits made in the undisclosed bank account concerned. A perusal of the assessment order sufficiently reveals that it was only after the assessee's failure to explain source of his deposits and other issues that the AO sought for PCIT's approval in issue which stood accepted on 22.12.2016. We observe in this factual backdrop that the Assessing Officer's failure, if at all, in issuing notice of complete notice to the assessee between 22.12.2016 to 31.12.2016 was only a procedural one only which could not be held to have vitiated the entire assessment proceedings as a non-est one as held in the CIT(A)'s order under challenge. We therefore reverse lower appellate findings to this effect and restore the Revenue's sole substantive ground raised in the instant appeal back to the Assessing Officer for his afresh factual verification/adjudication qua all the issues following subject matter of complete scrutiny as per law within three effective opportunities of hearing.

Summary

Issues:
1. Validity of assessment under limited scrutiny converted to complete scrutiny without proper procedure and notice to the assessee.

Analysis:
The judgment pertains to an appeal by the Revenue for the Assessment Year 2014-15 arising from the Commissioner of Income Tax (Appeals)-7, Hyderabad's order. The primary issue revolved around the validity of the assessment process under limited scrutiny that was converted to complete scrutiny without following the prescribed procedure and providing notice to the assessee. The CBDT's Instruction No. 5/2016 was crucial in determining the scope of enquiry in cases selected through Computer Aided Scrutiny Selection (CASS) and the conversion from limited to complete scrutiny. The CIT(A) quashed the assessment, deeming it invalid due to non-compliance with the CBDT instructions.

The case was initially selected for limited scrutiny in 2015, focusing on a specific issue related to cash deposits in a bank account. However, the Assessing Officer proceeded to convert the scrutiny to complete without intimating the assessee or issuing a show cause notice. The AO collected material on the issue before conversion, sought permission from the Pr. CIT, and completed the assessment without further communication to the assessee. The CIT(A) found this process to be in violation of CBDT instructions, rendering the assessment invalid.

During the appeal, the Revenue argued that the CIT(A) erred in annulling the assessment without providing an opportunity to the assessee after the conversion to complete scrutiny. The Revenue contended that the assessee failed to explain the source of cash deposits, leading to the conversion. The Tribunal noted the procedural lapse in not issuing a notice to the assessee during the conversion period. However, it held that this procedural error did not invalidate the entire assessment process. The Tribunal reversed the CIT(A)'s decision and remanded the case to the Assessing Officer for factual verification and adjudication following the complete scrutiny process.

In conclusion, the Tribunal allowed the Revenue's appeal for statistical purposes, emphasizing the importance of adhering to procedural requirements and providing the assessee with opportunities for explanation and defense during the assessment process. The judgment underscored the significance of following CBDT instructions and ensuring procedural fairness in tax assessments.