2022 (6) TMI 255 - AT - Income Tax

Conversion of 'Limited scrutiny' to 'Complete Scrutiny' - competent authority for expanding the scope of Limited Scrutiny - addition u/s.69A r.w.s. 115BBE - approval from the competent authority for expanding the scope of Limited Scrutiny or not? - unexplained deposit of cash in the bank account - HELD THAT - AO has not made any addition qua the deposit of cash for which the case was selected under scrutiny. Accordingly, we hold that the AO has exceeded his jurisdiction by treating the closing cash in hand as income from undisclosed sources which was not mandated under the Limited Scrutiny notice issued u/s 143(2). DR before us has not brought anything on record justifying that the Limited Scrutiny was converted by the Assessing Officer under normal scrutiny after obtaining necessary approval from the appropriate authority. We are also not convinced with the argument of the DR that the issue raised by the AO is limited to the cash in hand available at the end of the financial year under consideration - as because if we admit the contention of the learned DR then the same will be beyond the scope of limited scrutiny as there was no question raised in the notice issued for the limited scrutiny under section 143(2) of the Act for the cash balance. The right course of action for the AO was to take the approval from the competent authority for expanding the scope of Limited Scrutiny to the regular assessment but he failed to do so. Thus, in our considered view inaction of the AO should not cause any harassment to the assessee. As relying on RAJESH JAIN VERSUS INCOME-TAX OFFICER, WARD-1, JIND 2005 (4) TMI 629 - ITAT CHANDIGARH we are not convinced with the finding of the authorities below. As such the entire issue should have been limited to the extent of the dispute raised in the notice u/s 143(2) for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus the ground of appeal of the assessee is allowed.

Summary

Issues:
Validity of assessment under section 143(3) - Expansion of limited scrutiny assessment without approval.

Analysis:
The appeal was filed by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-4, Ahmedabad, regarding the assessment order passed under section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2015-16. The Assessee raised multiple grounds of appeal challenging various actions of the authorities. The primary issue raised was the validity of the assessment framed under section 143(3) on the basis that the Assessing Officer (AO) expanded the scope of limited scrutiny assessment without necessary approval. The Assessee, engaged in the retail business of readymade garments, declared total income under presumptive tax as per section 44AD of the Act. The AO made an addition of Rs. 5,98,200 as income from undisclosed sources based on cash deposits in the bank, which the Assessee contested. The Assessee contended that the case was selected for limited scrutiny, and the AO did not convert it to normal scrutiny under section 143(3), thus exceeding jurisdiction.

The Tribunal analyzed the relevant CBDT instructions regarding limited scrutiny cases, emphasizing that the AO in limited scrutiny can only examine issues for which the case was selected unless there is a potential escapement of income based on credible information. The Tribunal observed that the notice for limited scrutiny did not mention examination of closing cash in hand, which was treated as income by the AO. The Tribunal held that the AO exceeded jurisdiction by adding the closing cash in hand as income from undisclosed sources, not mandated under the limited scrutiny notice. It was noted that the AO did not obtain necessary approval to convert limited scrutiny to regular assessment, as required by CBDT instructions, thus acting beyond authority.

Referring to a precedent, the Tribunal highlighted that in limited scrutiny cases, the AO's jurisdiction is restricted to issues mentioned in the notice, and the Commissioner (Appeals) cannot exceed the AO's powers. The Tribunal concluded that the AO's actions were beyond the limited scrutiny scope, and the Assessee's appeal was allowed on technical grounds. Other issues raised by the Assessee on merit were deemed infructuous due to the technical success. Therefore, the appeal was partly allowed, and the issues on merit were dismissed as infructuous.

In conclusion, the Tribunal's decision focused on the validity of the assessment under section 143(3) concerning the expansion of limited scrutiny assessment without proper approval, emphasizing adherence to jurisdictional limits and procedural requirements outlined in CBDT instructions for limited scrutiny cases.