2020 (11) TMI 772 - AT - Income Tax

Limited scrutiny V/S complete scrutiny - assessment order passed under section 143(3) - Scope of limited scrutiny - no prior approval and the permission of the PCIT before conversion of scrutiny - disallowance made under section 14A - HELD THAT - The case of the assessee was selected for limitedprior approval and the permission of the PCIT scrutiny through CASS - no administrative approval from the competent authority was obtained by the AO for converting the case of the assessee from limited scrutiny into complete scrutiny case. We find that instruction no. 5 of 2016 dated 14.07.2016 issued by CBDT has inter alia laid down the procedure which is required to be followed by the AO to consider the case which are originally earmarked for limited scrutiny to complete scrutiny and also requires the administrative approval from PCIT / CIT. Before us Revenue has neither pointed out any distinguishing features in the facts of the present case and that of Urban Improvement Cooperative Bank Limited 2020 (4) TMI 531 - ITAT DELHI nor has placed any material on record to demonstrate that the order of the Tribunal in the case of Urban Improvement Cooperative Pvt. Ltd., (supra) has been set aside/ stayed/ overruled by higher judicial forum. We therefore, following the aforesaid decision of the Coordinate Bench in the case of Urban Improvement Co-operative Pvt. Ltd. (supra) and for similar reasons hold that the impugned assessment order passed by the AO under section 143(3) to be null and void - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 14A r/w Rule-8D
2. Conversion of limited scrutiny into complete scrutiny without administrative approval

Analysis:

1. Disallowance under section 14A r/w Rule-8D:
The appeal was filed against the order of the Commissioner of Income Tax related to Assessment Year 2015-16. The assessee, engaged in various businesses, filed its return of income electronically, which was selected for scrutiny through CASS. The assessment was framed under section 143(3), determining the total income before adjustment of brought forward losses. The CIT(A) dismissed the appeal of the assessee, leading to the current appeal. The grounds raised by the assessee mainly challenged the disallowance of a specific amount under section 14A r/w Rule-8D. The AR argued that the AO did not have the administrative approval to convert the case from limited scrutiny to complete scrutiny, as required by CBDT instructions. The AR also contended that the AO did not record the mandatory satisfaction for disallowing the expenditure under section 14A. Additionally, the AR argued that the calculation made by the AO for the disallowance was incorrect. The DR supported the lower authorities' order. The Tribunal found that the AO did not obtain administrative approval for converting the case to complete scrutiny, as mandated by CBDT instructions. Citing a similar case, the Tribunal held the assessment order to be null and void, allowing the assessee's appeal.

2. Conversion of limited scrutiny into complete scrutiny without administrative approval:
The issue of converting the case from limited scrutiny to complete scrutiny without administrative approval was crucial in this judgment. The Tribunal highlighted the requirement for administrative approval from PCIT/CIT when expanding the scope of scrutiny beyond limited scrutiny. The Tribunal referred to CBDT instructions and previous decisions to emphasize the necessity of obtaining prior approval before widening the scope of scrutiny. The Tribunal ruled that without administrative approval, the assessment order was null and void. This issue played a significant role in determining the validity of the assessment order and ultimately led to the allowance of the assessee's appeal.