2019 (4) TMI 366 - AT - Income Tax

Scope of limited scrutiny - Other disallowance not covered in notice - contravention and violation of binding circular of CBDT in Instruction No.7/2014 dt.26.09.2014 - HELD THAT - We notice that Assessing Officer has verified the expenses etc., which is not the mandate of limited scrutiny. The CBDT directives are binding on the Assessing Officer and in case, Assessing Officer finds that the assessment has to be made on extensive basis due to the reason that there are incidences of tax evasion found. Assessing Officer can extend the assessment by taking due permission from CIT/Pr.CIT. In this case, there is no issue of any tax evasion and the Assessing Officer suo motto did the extensive assessment even though the mandate was to make limited scrutiny. Rejection of books of accounts u/s 145 - estimation of income net profit @5% of the cost of stock put for sale - HELD THAT - For the sake of judicial precedent, we are intended to proceed with the estimation but the issue before us is not on rejection of books or estimation of income. Before us, whether limited scrutiny mandate can be extended. As per the CBDT directive, Assessing Officer cannot do so without following proper procedure. In the given case, Assessing Officer has made extensive assessment without mandate. Therefore, we need to restrict ourselves to address this issue. However, we direct the Assessing Officer to accept the books of account since he has not found any discrepancies in verification of deposits and turnover as per limited mandate.- the ground raised by assessee is allowed.

Summary

Issues:
1. Validity of assessment order beyond the scope of scrutiny under CASS.
2. Rejection of books of accounts by Assessing Officer.
3. Estimation of income without pinpointing defects in book maintenance.
4. Sustainability of income estimation in line of business.
5. Approval of adhoc disallowance without proper identification of expenditure heads.

Issue 1:
The appeal challenged the assessment order's validity, contending that the Assessing Officer exceeded the limited scrutiny scope authorized by CASS. The appellant argued that the assessment on unauthorized issues violated jurisdiction and CBDT circulars. The Tribunal acknowledged the limited mandate under CASS and emphasized that Assessing Officers must follow proper procedures to extend assessments. Despite the nature of the business hindering proper record-keeping, the Tribunal directed acceptance of the books of account due to no discrepancies found in deposits and turnover verification within the limited scrutiny mandate.

Issue 2:
The Assessing Officer rejected the books of accounts due to deficiencies in voucher support for claimed expenditures, invoking section 145(3) and estimating net profit at 5%. The appellant contested the rejection, asserting that the weakness in maintaining some vouchers did not warrant overall rejection. The Tribunal noted that despite the lack of proper vouchers, the Assessing Officer did not identify discrepancies in deposits and turnover. The Tribunal allowed the appeal, emphasizing that rejection of books or income estimation was not the issue, but rather the unauthorized extension of limited scrutiny.

Issue 3:
The appellant challenged the sustainability of income estimation, arguing that the rate was impractical for the business. The Tribunal recognized the unique challenges in the appellant's line of business and the need to consider statutory levies in profit estimation. While acknowledging the need for a reasonable profit rate, the Tribunal did not delve into the income estimation issue, focusing instead on the unauthorized extension of the assessment beyond limited scrutiny.

Issue 4:
The Assessing Officer approved an adhoc disallowance of ?30,000 without proper identification of expenditure heads, leading to the appellant's appeal. The Tribunal highlighted the lack of proper identification of disallowed expenses and the absence of authorized scrutiny for electricity accounts. The Tribunal allowed the appeal, emphasizing the necessity for proper identification and verification of expenses before disallowance.

This comprehensive analysis of the judgment addresses the various issues raised in the appeal and the Tribunal's findings on each issue, focusing on the legality, procedural compliance, and reasonableness of the assessment and income estimation in the appellant's case.