2024 (11) TMI 962 - AT - Income Tax

Order of assessment in excess of jurisdiction vested in the AO in relation to Limited Scrutiny - additions made by the AO were not subject matter of limited scrutiny - HELD THAT - We observe that undisputedly the case of the assessee was selected for scrutiny for examination and verification of large cash deposits during the impugned financial year. However upon verification of facts by the ld. AO during the course of assessment proceedings the AO did not make any addition after verification of Bank accounts towards large cash deposits. However he made two additions of Rs. 1, 02, 17, 061/- on peak credit of unexplained deposits which were not on account of cash deposits and second in respect of under misreporting of income of Rs. 34, 43, 814/- as per Form 26AS. It is pertinent to state that during the course of hearing AO noticed that the assessee has deposited Rs. 1, 73, 10, 349/- in Canara Bank account out of which cash deposit was of Rs. 4, 01, 390/- whereas credit entries of Rs. 6, 26, 597/- in ICICI Bank account were there out of which cash deposit was of Rs. 96, 565/- during the financial year. We note that the assessee did not comply with the show-cause notice issued by the ld. AO and finally ld. AO framed the assessment under section 144 of the Act vide order dated 19.12.2019 making two additions as stated above. Therefore it is abundantly clear that the additions made by AO were not in respect of the issue which was the subject matter of the limited scrutiny as is apparent from the notice issued under section 143(2) of the Act dated 10.08.2018 and the AO passed the assessment order by making the above said additions without converting the limited scrutiny into complete scrutiny in terms of Circular issued by CBDT bearing No. 3/2017 dated 21.02.2019. In our opinion the said additions made by the ld. Assessing Officer are without jurisdiction and cannot be sustained. The above issue is also covered by the decision of Vudatha Vani Rao 2024 (6) TMI 63 - ITAT VISAKHAPATNAM wherein the issue has been decided in favour of the assessee by holding that the additions made in the assessment order which were not subject matter of the limited scrutiny are beyond the jurisdiction of the ld. Assessing Officer and therefore have to be deleted. Appeal of the assessee is allowed.

Summary

Issues: Jurisdiction of Assessing Officer in Limited Scrutiny Assessment

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2017-18. During the hearing, the counsel for the assessee raised an additional ground challenging the jurisdiction of the Assessing Officer (AO) to make additions beyond the limited scrutiny scope. The AO had made additions not related to the limited scrutiny issue of large cash deposits in bank accounts. The counsel relied on the decision of the Hon'ble Apex Court in National Thermal Power Co. Ltd. Vs. CIT to support the admission of the additional ground for adjudication.

The Departmental Representative (D.R.) argued that the issue was not raised before the lower authorities and should be dismissed. However, the Tribunal admitted the additional ground for adjudication based on the facts and the legal position established in the National Thermal Power Co. Ltd. case. The facts revealed that the AO made additions unrelated to the limited scrutiny issue, despite not converting the limited scrutiny into complete scrutiny as per CBDT Circular/Instruction No.3/2017. The Tribunal observed that the additions made by the AO were beyond jurisdiction and not sustainable.

The assessee's return was selected for limited scrutiny to verify large cash deposits in bank accounts. The AO, however, made additions unrelated to cash deposits, leading to the challenge of jurisdiction. The Tribunal noted that the AO did not convert limited scrutiny into complete scrutiny as required by CBDT Circular, and the additions made were not in line with the limited scrutiny issue. Citing the PCIT vs. Weilburger Coatings (India) Pvt. Limited case, the Tribunal held that the AO's actions were without jurisdiction. Additionally, a similar decision in Vudatha Vani Rao vs. Income Tax Officer supported the deletion of such additions.

In light of the judicial precedents and the facts of the case, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the additions made beyond the limited scrutiny issue. The appeal was allowed based on the additional ground challenging the AO's jurisdiction. The Tribunal did not adjudicate on other grounds on merits, leaving them open for future consideration if necessary.