2023 (4) TMI 1157 - AT - Income Tax

Conversion of limited scrutiny into complete scrutiny - whether AO has exceeded the jurisdiction in enquiring into the issues relating to unsecured loans even before prior to 14.12.2017 when the case was converted into complete scrutiny which is against the provisions of Act? - HELD THAT - CBDT Instruction No. 5/2016, we are of the considered view that the 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. CBDT has 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 - Decided in favour of assessee.

Issues Involved:
1. Conversion of limited scrutiny to complete scrutiny.
2. Addition 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. Conversion of Limited Scrutiny to Complete Scrutiny:
The primary legal issue challenged was the conversion of the limited scrutiny to complete scrutiny by the Assessing Officer (AO) on 14.12.2017. The appellant argued that the AO issued notices broadening the scope of scrutiny before obtaining the necessary approval for complete scrutiny, which is against the provisions of the Act. The Tribunal noted that the AO had indeed issued notices calling for information on secured and unsecured loans on 20.02.2017, well before the conversion date, thus exceeding his jurisdiction. The Tribunal cited CBDT Instruction No. 5/2016, emphasizing that any conversion from limited to complete scrutiny must be based on credible material and not on mere suspicion. The Tribunal found that the AO did not adhere to these guidelines, rendering the assessment order null and void. Consequently, the Tribunal quashed the assessment order, deeming it a nullity and bad in law.

2. Addition of Rs. 80,00,000/- as Unexplained Cash Credit:
The Tribunal did not adjudicate this issue on its merits since the assessment order was quashed on legal grounds related to the conversion of scrutiny. Therefore, the addition of Rs. 80,00,000/- as unexplained cash credit under Section 68 became academic in nature and was not addressed.

3. Addition of Rs. 42,747/- for Gardening Expenses:
Similar to the second issue, the Tribunal did not address the addition of Rs. 42,747/- for gardening expenses on its merits due to the quashing of the assessment order on legal grounds.

4. Addition of Rs. 70,262/- for Administrative Expenses:
The Tribunal did not adjudicate the addition of Rs. 70,262/- for administrative expenses on its merits, as the primary legal issue led to the quashing of the entire assessment order.

5. Addition of Rs. 42,193/- for Interest on TDS, Income Tax, and Service Tax:
The Tribunal did not address the addition of Rs. 42,193/- for interest on TDS, income tax, and service tax on its merits due to the quashing of the assessment order on legal grounds.

Conclusion:
The Tribunal allowed the appeal of the assessee on the legal issue of the improper conversion of limited scrutiny to complete scrutiny, rendering the assessment order null and void. Consequently, the Tribunal did not adjudicate the other issues on their merits, as they became academic in nature. The appeal of the revenue was dismissed as infructuous.

← Previous Next →