2023 (1) TMI 707 - AT - Income Tax

Selection of cases for scrutiny - Addition u/s 68 or 69A - investment made by the firm, the financial transactions of the appellant were scrutinised and eventually the cash deposits made into her bank accounts were brought to tax - scope of limited scrutiny proceedings under CASS selected for the reason of verification of source of investment in immovable property which was not at all, purchased by the assessee individual but by the partnership firm wherein the assessee was a partner - appellant s case was selected for scrutiny under CASS mechanism limiting the scope thereof to verification of large investment made by the assessee - HELD THAT - In the absence of any large investment made by the appellant during the impugned assessment year under adjudication, the scope of limited scrutiny meets dead-end, however the Ld. FAA without following the CBDT instruction No. 7/2014, 20/2015 and 5/2016 and also the CBDT letter dated 13 No. 2017, plagiarized the firm s investment into the hands of assessee and opined that the said addition should have been carried out u/s 69A as unexplained money instead of bringing to tax as cash credit u/s 68 of the Act. All the more we find that, the very basis of initiation of scrutiny assessment is the large investment made by the firm wherefore the appellant is one of the signatory partners. However it shall be worthy to note that, for the impugned year the appellant has made no investment in her individual capacity so has to trigger any basis for scrutiny assessment on the prescribed criteria of investment, thus the very basis of initiation of scrutiny in the appellant s case fails, consequently the impugned assessment stand with no legs in the eyes of law, and we hold as such in the light of ratio laid down in the case of CIT Vs Best Plastics (P) Ltd 2006 (4) TMI 53 - HIGH COURT, DELHI Also it shall not be out of the box to quote the decision of Hon ble Jurisdictional Bombay High Court in Bombay Cloth Syndicate Vs CIT 1992 (9) TMI 7 - BOMBAY HIGH COURT whereby their lordship have held that, the instruction issued by the mother body i.e. CBDT undisputedly are binding on the department and any action in violation thereof renders it as untenable in law, consequently in the extant case, assessment been carried out in violation of instruction issued by CBDT deserves to be quashed, ergo we set-aside the first appellate order passed u/s 250 and quash the order of assessment passed u/s 143(3) of the Act as bad in law. Appeal of assessee allowed.

Issues:
Challenge to order of CIT(A) regarding addition made under sections 68 and 69A of the Income-tax Act, 1961; Benefit of peak credit in bank account withdrawals and subsequent deposits; Admission of additional evidence and agricultural income; Nature of limited scrutiny and jurisdiction challenge; Rejection of additional grounds; Interpretation of re-constructed cash book.

Analysis:

1. Challenge to CIT(A) Order on Sections 68 and 69A:
The appellant contested the CIT(A) order, arguing that the addition made under section 68 by the AO was illegal and should have been under section 69A. The Tribunal noted that the case was selected for limited scrutiny under CASS for verifying large investments. However, as the appellant did not make any large investment individually but through a partnership firm, the addition under section 68 was deemed incorrect. The Tribunal held that the CIT(A) erred in not following CBDT instructions and quashed the assessment order.

2. Peak Credit in Bank Account:
The appellant sought the benefit of peak credit for cash withdrawals and subsequent deposits in the bank account. The Tribunal did not delve into this issue as the primary focus was on the incorrect addition under section 68 and the jurisdictional errors in the assessment process.

3. Admission of Additional Evidence and Agricultural Income:
The appellant raised concerns about the admission of additional evidence and agricultural income, which the CIT(A) did not address. However, the Tribunal's decision primarily revolved around the incorrect application of sections 68 and 69A, rendering the discussion on additional evidence and agricultural income secondary in this judgment.

4. Nature of Limited Scrutiny and Jurisdiction Challenge:
The appellant challenged the nature of limited scrutiny and jurisdiction of the AO. The Tribunal found that the initiation of scrutiny assessment based on the firm's investment, without individual investments by the appellant, was flawed. Citing legal precedents, the Tribunal held that the assessment order was in violation of CBDT instructions and, therefore, set aside both the CIT(A) order and the assessment order.

5. Rejection of Additional Grounds:
The Tribunal noted that the original and additional grounds did not comply with ITAT Rules, specifically Rule 8. However, the Tribunal's decision primarily focused on the substantive issue of incorrect application of sections 68 and 69A, leading to the quashing of the assessment order.

6. Interpretation of Re-Constructed Cash Book:
The appellant contended that the CIT(A) misinterpreted the re-constructed cash book. While this issue was raised, the Tribunal's decision centered on the jurisdictional and procedural errors in the assessment process rather than the specific interpretation of financial documents.

In conclusion, the Tribunal allowed the appeal of the appellant, primarily due to the incorrect application of sections 68 and 69A, the flawed nature of limited scrutiny, and the violation of CBDT instructions. The judgment highlighted the importance of adherence to legal procedures and guidelines in conducting assessments under the Income-tax Act, ultimately leading to the quashing of the assessment order.

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