2023 (11) TMI 405 - AT - Income Tax

Additions beyond the scope of limited scrutiny assessment - Conversions of Limited Scrutiny to Extensive Scrutiny - as a result addition of long term capital gain AND disallowing the deduction claimed u/s. 54F - AR argued that the notice issued u/s. 143(2) was a limited scrutiny to verify the huge cash deposit - HELD THAT - CASS is a system driven identification of returns for limited scrutiny. The picking up of a return under CASS for scrutiny must be restricted only to the selected reason. Therefore procedurally, the Ld.AO must confine the scrutiny to the limited reasons selected under CASS. Details in respect of sale deed / purchase deed, the exemption claimed by the assessee in the return of income were also called for along with the details of large cash deposits. However we note that no steps has been taken to convert the limited scrutiny into complete scrutiny wherein the AO could have had the jurisdiction to verify other details. Under such circumstances, we are of the considered view that the Ld.AO has overstepped his jurisdiction by making an addition in the hands of the assessee by disallowing the deduction claimed u/s. 54F. We direct the Ld.AO to delete the disallowance so made. Unexplained Cash Deposits/income u/s. 69A r.w.s 115BBE - cash received from contract receipts is not acceptable as Assessee has not provided any confirmation or any documents/contract agreements from his clients to prove that he has undertaken and performed the contract work, nor submitted the statement of affairs of his business to support the income earned - HELD THAT - Total cash deposited during the relevant Financial Year is Rs. 41,19,500/-. AO has made disallowance of Rs. 43,39,000/- u/s. 69A r.w. 115BBE of the act. There is a disparity in the cash deposit as per the statement filed by the assessee, scanned and reproduced hereinabove vis-a-vis the observation of the Ld.AO in para 5 of the assessment order. The summary of the total deposits provided by the assessee reveals that in Canara Bank account there is a deposit of Rs. 37 Lakhs and in State Bank of Mysore account, a sum of Rs. 4,19,500/- was deposited. Assessee has not provided any details as to the source of such cash deposited for the relevant financial year except for stating that these are business receipts - we remand this issue back to the Ld.AO for necessary verification in accordance with law. Assessee is directed to file all relevant details in respect of the source of actual cash deposited into the bank accounts in order to exonerate himself from the rigour of section 69A r.w. 115BBE of the Act. Ground partly allowed for statistical purpose

Summary

Issues Involved:
1. Conversion of Limited Scrutiny to Extensive Scrutiny.
2. Addition of Long Term Capital Gain.
3. Cash Deposits treated as unexplained under Section 69A of the Act.

Summary:

Issue 1: Conversion of Limited Scrutiny to Extensive Scrutiny

The assessee argued that the notice issued under Section 143(2) was for limited scrutiny to verify large cash deposits, but the Assessing Officer (AO) widened the scope without following due process. The Tribunal noted that the AO failed to convert the limited scrutiny to complete scrutiny as required by CBDT Instruction No. 7/2014. The Tribunal held that the AO overstepped his jurisdiction by making an addition under Long Term Capital Gains (LTCG) without proper conversion of scrutiny. Therefore, the disallowance made by the AO was directed to be deleted, and ground no. 2 raised by the assessee was allowed.

Issue 2: Addition of Long Term Capital Gain

The AO observed that the assessee failed to provide necessary documents to support the exemption claimed under Section 54 for the reinvestment of capital gains in another agricultural land. The AO concluded that the exemption claimed was not eligible as the new asset was not purchased within the prescribed period, and thus, the entire sale consideration was brought to tax under LTCG. The CIT(A) affirmed the AO's decision, stating that the exemption was not applicable as per the IT Act. The Tribunal, however, found that the AO's action of extending the scrutiny scope without proper procedure was invalid and directed the deletion of the disallowance.

Issue 3: Cash Deposits treated as unexplained under Section 69A of the Act

The AO treated cash deposits of Rs. 43,39,000/- as unexplained income under Section 69A, as the assessee failed to provide sufficient evidence regarding the source of these deposits. The CIT(A) upheld this addition. The Tribunal noted a disparity in the cash deposit amounts and observed that the assessee did not provide adequate details to explain the source of cash deposits, merely stating they were business receipts. The Tribunal remanded this issue back to the AO for necessary verification, directing the assessee to provide relevant details to substantiate the source of cash deposits. Consequently, ground no. 3 was partly allowed for statistical purposes.

Conclusion:

The appeal filed by the assessee was allowed for statistical purposes, with directions for the AO to verify the source of cash deposits and delete the disallowance under LTCG due to procedural lapses in converting limited scrutiny to complete scrutiny.