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2020 (8) TMI 263 - AT - Income TaxConversion of limited scrutiny into a complete scrutiny - Assumption of jurisdiction by AO for Complete Scrutiny whereas the case was selected for Limited Scrutiny under CASS - HELD THAT - Approval shall be accorded by the PCIT/ CIT in writing after being satisfied about the merits of the issue necessitating complete scrutiny in that particular case. When these fact was pointed to the learned Sr. Departmental Representative, he could not state any of the approval accorded by the CIT or PCIT in writing or there is no satisfaction of CIT/ PCIT recorded in this case. Even otherwise, the escapement pointed out in the assessment order is limited to interest of fixed deposit amounting to ₹ 1,72,158/- whereas, the circular put a limit of ₹ 10 lacs, this being a case of Metro city like Bombay. None of the above conditions are met by the Assessing Officer for converting limited scrutiny into a complete scrutiny. Now, the question arises whether the Circular is binding on the Revenue authorities or not. Identical issues of conversion of limited scrutiny into a complete scrutiny by the decision of Hon ble Andhra Pradesh High court in the case of Smt. Nayana P. Dedhia 2004 (8) TMI 99 - ANDHRA PRADESH HIGH COURT and Amal Kumar Ghosh 2014 (4) TMI 244 - CALCUTTA HIGH COURT AO has travelled beyond his jurisdiction for converting limited scrutiny case into complete scrutiny case. Hence, we quash the assessment order as well as the order of Commissioner of Income Tax (Appeals). - Decided in favour of assessee.
Issues Involved:
1. Assumption of jurisdiction by the Assessing Officer for "Complete Scrutiny" while the case was selected for "Limited Scrutiny" under CASS for the Assessment Year 2015-16. Issue-wise Detailed Analysis: 1. Assumption of Jurisdiction for "Complete Scrutiny": The primary issue raised by the assessee concerns the jurisdiction of the Assessing Officer (AO) in conducting a "Complete Scrutiny" when the case was originally selected for "Limited Scrutiny" under the Computer Aided Scrutiny Selection (CASS) for the Assessment Year 2015-16. The assessee contended that the AO exceeded his jurisdiction by addressing issues beyond those specified for limited scrutiny, which were "Minimum Alternate Tax (MAT) Liability mismatch" and "Unsecured loans." Assessment Proceedings and Notices: The assessee filed its return of income electronically, and the case was selected for scrutiny under CASS, with statutory notices under sections 143(3) and 142(1) of the Income-tax Act, 1961, being duly served. The AO, however, made additions on new issues, specifically interest on Fixed Deposit Receipts (FDR), treating it as income from other sources amounting to ?1,72,158/-, which was not part of the original limited scrutiny parameters. CIT(A)'s Decision: The Commissioner of Income Tax (Appeals) [CIT(A)] rejected the assessee's contention, stating that there are no legal restrictions in section 143(2) that limit the AO's powers as suggested by the appellant. The CIT(A) noted that a limited scrutiny case could be converted into a complete scrutiny case with the prior approval of the concerned Principal Commissioner of Income Tax (Pr. CIT) or Commissioner of Income Tax (CIT), and the appellant had not provided evidence that such approval was not obtained. Assessee's Argument: The assessee argued that the Central Board of Direct Taxes (CBDT) circular issued under section 119 of the Act, which is binding on the jurisdictional authorities, was not followed. The assessee cited decisions from the Hon’ble Supreme Court in UCO Bank Vs. CIT and the Hon’ble Calcutta High Court in Amal Kumar Ghosh Vs. ACIT, which held that CBDT circulars are binding on revenue authorities. The assessee also referred to the Hon’ble Andhra Pradesh High Court's decision in CIT Vs. Smt. Nayana P. Dedhia, which invalidated the conversion of limited scrutiny to complete scrutiny without proper approval. Tribunal's Analysis: The Tribunal examined the facts and found that the AO had indeed conducted scrutiny beyond the specified issues of MAT liability mismatch and unsecured loans. The CBDT Circular No. 20/2015 outlines the procedure for converting limited scrutiny into complete scrutiny, requiring prior written approval from the Pr. CIT/CIT and satisfaction of conditions such as potential income escapement exceeding ?10 lakhs for metro cities. The AO did not meet these conditions, and there was no evidence of the required approval. Legal Precedents: The Tribunal referred to the Hon’ble Supreme Court's decision in UCO Bank, which emphasized that CBDT circulars are binding on the department to ensure uniform administration of the law. The Tribunal also relied on the decisions of the Hon’ble Andhra Pradesh and Calcutta High Courts, which invalidated similar unauthorized conversions of scrutiny cases. Conclusion: The Tribunal concluded that the AO had exceeded his jurisdiction by converting a limited scrutiny case into a complete scrutiny case without adhering to the prescribed guidelines and obtaining the necessary approvals. Consequently, the assessment order and the order of the CIT(A) were quashed, and the appeal of the assessee was allowed on the jurisdictional issue. Result: The appeal of the assessee was allowed. Order Pronounced: The order was pronounced in the open court on 17.06.2020.
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