2024 (7) TMI 132 - AT - Income Tax

Scope of limited scrutiny - case of the assessee was selected for scrutiny for the limited purpose as mentioned in the notice u/s. 143(2) , viz. whether the cash deposits were made from disclosed sources - addition u/s. 56(2)(vii)(b) based on the difference between Fair Market Value (FMV) of the property purchased by the assessee vis- -vis the actual consideration - as argued case of the assessee was selected for limited scrutiny , but the A.O, thereafter, had traversed beyond the scope of his jurisdiction and made an addition with respect to an issue which had never formed the basis for selection of the case for such limited scrutiny assessment. HELD THAT - As case of the assessee was selected for limited scrutiny for two-fold reasons viz, (i) large cash deposits in her savings bank account; and (ii) assessee has transferred one and more properties during the year. Be that as it may, if the A.O's report regarding reasons for selecting the assessee's case for limited scrutiny is taken as correct even then the addition u/s. 56(2)(vii)(b) is not found to be justified. As addition made u/s. 56(2)(vii) had been made by the A.O with respect to difference between Fair Market Value (FMV) of the property purchased by the assessee as against the actual consideration for which the property was purchased vide registered deed, addition made u/s. 56(2)(vii)(b) of the Act by the A.O as regards the deficit consideration paid for purchase of the property by the assessee by no means can be brought within the meaning of transfer of properties by the assessee . Accordingly, the addition made by the A.O u/s. 56(2)(vii)(b) does not form the basis for selection of the assessee's case of limited scrutiny . As decided in M/s.Suraj Diamond Dealers Pvt. Ltd. 2019 (12) TMI 26 - ITAT MUMBAI A.O in a case of limited scrutiny assessment only after obtaining approval from the Pr. Commissioner of Income Tax/Commissioner of Income Tax can traverse beyond the reasons for which the case was selected for limited scrutiny after converting the same into complete scrutiny. It was observed by the Tribunal that in all other cases, the A.O would be divested of his jurisdiction from traversing on issues which did not fall within the limited purpose for which the case was selected for scrutiny assessment. A.O had grossly erred in law and facts of the case in making an addition u/s. 56(2)(vii)(b), i.e. on an issue which did not form part of the reasons for selecting the assessee's case for limited scrutiny. Grounds of appeal No.1 to 4 raised by the assessee are allowed.

Issues Involved:
1. Scope of Limited Scrutiny
2. Addition under Section 56(2)(vii)(b)
3. Jurisdiction of Assessing Officer (AO)
4. Procedural lapses in communication
5. Charging of interest under Section 234A and Section 234B

Issue-wise Detailed Analysis:

1. Scope of Limited Scrutiny:
The primary issue revolves around whether the Assessing Officer (AO) exceeded the scope of limited scrutiny. The assessee contended that the AO made an addition on an issue not stipulated for limited scrutiny under Computer Aided Scrutiny Selection (CASS). The case was selected for limited scrutiny to verify "large cash deposits in her bank account." However, the AO made an addition under Section 56(2)(vii)(b) based on the difference between the Fair Market Value (FMV) of the property and the actual consideration. The Tribunal observed that the AO traversed beyond his jurisdiction by making an addition on an issue that did not form the basis for the limited scrutiny selection.

2. Addition under Section 56(2)(vii)(b):
The AO added Rs. 22,13,000 to the assessee's income under Section 56(2)(vii)(b) of the Income-tax Act, 1961, based on the difference between the FMV of the property (Rs. 66,13,000) and the actual consideration (Rs. 44,00,000). The Tribunal noted that this addition did not fall within the scope of the limited scrutiny, which was confined to verifying large cash deposits. The Tribunal cited several judicial pronouncements to support the view that the AO cannot exceed the scope of limited scrutiny without proper approval.

3. Jurisdiction of Assessing Officer (AO):
The Tribunal emphasized that the AO can only traverse beyond the scope of limited scrutiny after obtaining approval from the Principal Commissioner of Income Tax/Commissioner of Income Tax. In this case, no such approval was obtained. The Tribunal referred to the CBDT Instruction No. 20/2015, which mandates that scrutiny in cases selected through CASS should be confined to the specific reasons/issues for which the case was picked up. The Tribunal concluded that the AO's action of making an addition under Section 56(2)(vii)(b) was beyond his jurisdiction.

4. Procedural lapses in communication:
The assessee argued that the CIT(Appeals) sent notices to the wrong email ID, despite updating the ITBA portal. This led to a violation of natural justice as the appellant could not make submissions. The Tribunal noted that the CIT(Appeals) had issued multiple notices, but there was no response from the assessee. The Tribunal cited judicial pronouncements emphasizing that an appeal does not merely mean filing but effectively pursuing it. The Tribunal upheld the CIT(Appeals) decision due to the assessee's non-compliance and failure to respond to the notices.

5. Charging of interest under Section 234A and Section 234B:
The assessee contested the charging of interest under Sections 234A and 234B. However, the Tribunal did not delve into detailed discussions on this issue as it was consequential to the primary issues discussed above. The Tribunal disposed of this ground in the same terms as the primary issues.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(Appeals) and vacating the addition of Rs. 22,13,000 made by the AO under Section 56(2)(vii)(b). The Tribunal emphasized that the AO had exceeded his jurisdiction by making an addition on an issue that did not form the basis for the limited scrutiny selection. The Tribunal reiterated the importance of adhering to the scope of limited scrutiny and obtaining proper approvals before expanding the scope. The procedural lapses in communication were also acknowledged, but the primary focus remained on the jurisdictional overreach by the AO.

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