2021 (3) TMI 3 - AT - Income Tax

Conversion of limited security to complete security - income from undisclosed source - assessee has made more withdrawal against the available deposit - HELD THAT - AO issued four notices u/s. 142(1) all the notices were duly replied by the ld. A.O. though assessee case was selected for limited scrutiny but in each facts, Ld. A.O. went beyond contents of earlier facts. As per CBDT Circular, Ld. A.O. can only examine those issues which the case has been selected or the issues mentioned therein. If the A.O. of the view that there is a potential escapement of income, he may convert the limited scrutiny in to complete scrutiny. But view should be reasonable view based on credible available or material available on record. And in this case, approval of the Pr.CIT/CIT is required and such approval shall be accorded by the Pr.CIT/CIT in writing after being satisfied about merit of the issues. Necessitating complete scrutiny in that case but in the case in our hand, no prior permission was taken by the assessee. The only purpose for the selection of the case was mistaken cash deposit which is Assessing Officer extended to other issues such as how Chartered Accountant can deposit such huge cash deposit and withdrawal the cash. Same is not permissible under law particularly when case was selected for limited scrutiny. In the result, appeal of the assessee is allowed on legal ground however we do not want to go into the merit of the case.

Summary

Issues Involved:
1. Legality of the assessment order under Section 143(3) of the IT Act, 1961.
2. Addition of ?83,67,590/- based on the difference worked out by the A.O.
3. Consideration of other cash outflows over and above the cash deposited into the bank.
4. Admissibility of additional legal ground regarding the necessity of prior approval for the addition made by the A.O.

Detailed Analysis:

1. Legality of the Assessment Order:
The Assessee challenged the assessment order under Section 143(3) of the IT Act, 1961, claiming it was "illegal, unlawful and against the principles of natural justice." The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the order, which the Assessee further contested in the appellate tribunal.

2. Addition of ?83,67,590/-:
The A.O. made an addition of ?83,67,590/- based on the difference in the cash book submitted during the assessment proceedings. The CIT(A) upheld the A.O.'s decision, stating that the Assessee failed to substantiate his claim during both the assessment and appellate proceedings. The Assessee argued that other cash outflows should have been considered before arriving at the difference.

3. Consideration of Other Cash Outflows:
The Assessee contended that the A.O. and CIT(A) did not consider other cash outflows over and above the cash deposited into the bank amounting to ?1,39,85,200/-. The Assessee had submitted month-wise details of cash receipts and expenses during the assessment proceedings, which were on record but seemingly ignored.

4. Admissibility of Additional Legal Ground:
The Assessee raised an additional legal ground in the second statutory appeal, arguing that the addition of ?83,67,590/- was unsustainable due to the absence of prior approval from the administrative Commissioner as required by the Board's Instruction for "CASS" assessment. The tribunal admitted this additional ground, emphasizing its legal significance and the lack of need for new fact-finding.

Tribunal's Findings:

A. CBDT Circular Compliance:
The tribunal referred to CBDT Circular No. 20/2015 and Circular No. DGIT(VIG.)/HQ/SI/2017-18. These circulars stipulate that in limited scrutiny cases, the A.O. cannot extend inquiries beyond the specified issues without prior approval from the Pr. CIT/CIT. The tribunal noted that the A.O. issued multiple notices under Section 142(1), each time expanding the scope of inquiry beyond the original issue of cash deposits.

B. Procedural Lapses:
The tribunal observed that the A.O. did not obtain the necessary approval from the Pr. CIT/CIT to convert the limited scrutiny into complete scrutiny, as required by the CBDT Circulars. This procedural lapse rendered the A.O.'s actions impermissible under the law.

C. Conclusion:
The tribunal concluded that the A.O.'s actions were not permissible under law, particularly since the case was selected for limited scrutiny. The appeal was allowed on legal grounds, and the tribunal did not delve into the merits of the case.

Final Judgment:
The appeal filed by the Assessee was allowed, and the order was pronounced in open court on 22-02-2021.

Order Pronounced:
The tribunal allowed the appeal, emphasizing the importance of adhering to procedural guidelines and obtaining necessary approvals for expanding the scope of scrutiny.