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2023 (4) TMI 29 - AT - Income TaxScope of limited scrutiny - Conversion of limited scrutiny to complete scrutiny - CIT(A) upholding the assessment framed by the AO wherein the AO has completed the assessment on the basis of complete scrutiny whereas the notices calling for details and information from the assessee were issued prior to the date on which the approval for complete scrutiny was given under the Act - HELD THAT - AO has exceeded his jurisdiction in enquiring into those issues beyond the scope of limited scrutiny even prior to the date of conversion which is in clear violation of mandate given by CBDT in the said Circular and has been held by the Co-ordinate Bench of Delhi in the case of Dev Milk Foods Pvt. Ltd. 2020 (6) TMI 317 - ITAT DELHI to be bad in law. We note that CBDT has in para 4 of the said instruction clarified that in a limited scrutiny, the scrutiny assessment proceedings would initially be confined only to issues and questionnaire, enquiry, investigation etc. would be restricted to such issues in the limited scrutiny. Only upon conversion of such case to complete scrutiny after following the procedure laid down as stated the AO may examine the issues other than the issues involved in the limited scrutiny but in the present case the procedures were not followed and assessment was conducted in violation of this Instruction. In our opinion, the order passed by the AO is bad in law and cannot be sustained for the said reason. Accordingly we quash the assessment order as nullity and bad in law. Issue raised by the assessee in ground no. 1 is allowed.
Issues Involved:
1. Legality of converting limited scrutiny to complete scrutiny. 2. Treatment of Rs. 80,00,000/- as unexplained cash credit under Section 68. 3. Addition of Rs. 42,747/- for gardening expenses. 4. Addition of Rs. 70,262/- for administrative expenses. 5. Addition of Rs. 42,193/- for interest on TDS, income tax, and service tax. Issue-Wise Detailed Analysis: 1. Legality of Converting Limited Scrutiny to Complete Scrutiny: The assessee challenged the legality of the assessment framed by the AO, arguing that the AO exceeded jurisdiction by converting limited scrutiny to complete scrutiny without following proper procedures. The AO issued notices calling for information beyond the scope of limited scrutiny before obtaining formal approval for complete scrutiny on 14.12.2017. The Ld. CIT(A) acknowledged this procedural lapse but did not provide a clear finding, leading to the appeal. The Tribunal found that the AO conducted enquiries on issues beyond the limited scrutiny scope prior to formal conversion, violating CBDT Instruction No. 5/2016. This instruction mandates that conversion to complete scrutiny should be based on credible material, not mere suspicion. The Tribunal cited precedents from the Co-ordinate Bench of Chandigarh and Delhi, which quashed assessments in similar circumstances. Consequently, the Tribunal quashed the assessment order as nullity and bad in law. 2. Treatment of Rs. 80,00,000/- as Unexplained Cash Credit: The AO treated Rs. 80,00,000/- received from three entities as unexplained cash credit under Section 68. The Ld. CIT(A) upheld this action, concluding that the assessee failed to prove the identity, genuineness, and creditworthiness of the parties despite corroborating evidence. Since the Tribunal quashed the assessment order on legal grounds, this issue became academic and was not adjudicated. 3. Addition of Rs. 42,747/- for Gardening Expenses: The AO added Rs. 42,747/-, being 20% of the gardening expenses, which the Ld. CIT(A) confirmed. The Tribunal did not adjudicate this issue as the primary legal issue led to the quashing of the assessment order. 4. Addition of Rs. 70,262/- for Administrative Expenses: The AO added Rs. 70,262/-, being 20% of the administrative expenses, which the Ld. CIT(A) confirmed. Similar to the gardening expenses, this issue was not adjudicated due to the quashing of the assessment order. 5. Addition of Rs. 42,193/- for Interest on TDS, Income Tax, and Service Tax: The AO added Rs. 42,193/- for interest on TDS, income tax, and service tax, which the Ld. CIT(A) confirmed. This issue also became academic and was not adjudicated due to the quashing of the assessment order. Conclusion: The Tribunal allowed the assessee's appeal on the primary legal issue of converting limited scrutiny to complete scrutiny without following proper procedures, rendering the assessment order null and void. Consequently, the other issues became academic and were not adjudicated. The revenue's cross-appeal was dismissed as infructuous. The order was pronounced on 23rd February 2023.
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