2022 (5) TMI 1331 - AT - Income Tax

Addition u/s 68 - Assessee was unable to prove that it carried out any business of jewellery or job receipts and, therefore, AO is justified in taxing the entire receipts from income from other sources liable to be added u/s 68 - HELD THAT - Here in this case, the scope of assessment was circumscribed to the issue flagged in limited scrutiny through CASS to examine the cash deposits during the demonetisation period, i.e., 09.11.2016 to 30.12.2016 - AO instead of examining this issue has travelled beyond and has held that entire receipts shown by the assessee as business income is income from undisclosed sources and entire receipts have been added u/s 68 of the Act. First of all, there is no cash deposits post-demonetisation period i.e. 09.11.2016 to 30.12.2016, albeit present appeal pertains to FY 2014-15 and in this year only cash deposited in the bank account on various dates, which is clear from the bank statement and which has been stated to be received from job receipts and making of jewellery. Thus, the entire premise on which case was selected for scrutiny was non-existent and accordingly, AO could not have travelled beyond that for enlarging the scope of assessment by making addition on a different ground. The CBDT vide its Instruction No.20/2015 dated 29.12.2015 and Instruction No.5/2016 dated 14.07.2016 has categorically held that AO cannot travel beyond the scope of limited scrutiny and in case the AO wants to convert the limited scrutiny into complete scrutiny then he has to seek approval from concerned Pr.CIT or CIT which has to be given in writing after getting satisfaction from the merits on the issues. In this case, no approval has been taken by the AO from concerned Pr.CIT/CIT before making any addition beyond the scope of limited scrutiny. Accordingly, we hold that the entire addition which has been made cannot be sustained and the same is beyond the scope and violation of limited scrutiny. Accordingly, on this ground alone, the addition is deleted and the appeal of the assessee is allowed.

Summary

Issues:
Challenge to addition of Rs. 7,40,505.00 on various grounds including jurisdictional issues, rejection of books of accounts, and sustaining additions under section 68.

Analysis:

Challenge to Addition of Rs. 7,40,505.00:
The assessee contested the addition of Rs. 7,40,505.00 on multiple grounds, including the assertion that the CIT(A) erred in law and fact in confirming the addition. The AO held that the entire receipts shown from the business of jewellery were bogus, leading to the addition under section 68 of the Income-tax Act. The CIT(A) upheld this decision, stating that the assessee failed to prove the genuineness of the business transactions. However, the assessee argued that the case was selected for limited scrutiny based on incorrect grounds related to cash deposits during demonetization, which were not applicable to the relevant assessment year. The fund flow statement for the fiscal year 2014-15 showed cash deposits of only Rs. 2,43,000, contrary to the amount added by the AO. The assessee provided documentary evidence to support the legitimacy of the transactions, challenging the AO's conclusions.

Jurisdictional Issues:
The assessee raised jurisdictional issues, contending that the assessment was conducted by a non-jurisdictional officer and that no order was passed under section 127 before transferring the file. The AO's actions were criticized for exceeding the scope of limited scrutiny without proper authorization. The ITAT highlighted that the AO's expansion of the assessment beyond the specified scope was impermissible without approval from the concerned authorities, as per CBDT instructions. The failure to obtain necessary approval rendered the additional assessment beyond the limited scrutiny invalid, leading to the deletion of the disputed addition.

Rejection of Books of Accounts:
The CIT(A) upheld the rejection of the books of accounts by the AO, leading to the addition under section 68. However, the ITAT found that the AO's decision was based on an incorrect premise, as the case was selected for scrutiny on erroneous grounds not relevant to the assessment year under review. The ITAT emphasized that the AO's actions were in violation of the limited scrutiny mandate and lacked the required approval to expand the assessment scope. Consequently, the ITAT ruled in favor of the assessee, deeming the addition unsustainable and allowing the appeal.

In conclusion, the ITAT's judgment revolved around the incorrect selection of the case for scrutiny, the unauthorized expansion of the assessment scope, and the lack of approval for additional assessments beyond limited scrutiny. The ITAT deemed the disputed addition invalid due to these jurisdictional and procedural flaws, ultimately ruling in favor of the assessee and allowing the appeal.