2023 (6) TMI 276 - AT - Income Tax

Scrutiny assessment - Disallowance of expenses - assessment beyond the issue for which the case was selected for scrutiny - submissions of assessee that the case of the assessee was taken for limited scrutiny and the AO traversed beyond its jurisdiction - HELD THAT - There is no dispute with regard to the fact that the case of the assessee was selected for limited scrutiny assessment in respect of issue of remuneration paid by the firm. AO while framing the assessment disallowed the expenses claimed by the assessee. It is the case of the assessee that while disallowing the expenses the Assessing Authority traversed beyond its jurisdiction. DR could not controvert the fact that the case was selected for scrutiny in respect of remuneration paid by the firm and it was not to verify the correctness of the claim related to the expenses. Therefore, without approval by the Competent Authority for making assessment beyond the issue for which the case was selected for scrutiny, is beyond jurisdiction of the learned Assessing Authority. Hence, the addition made by the Assessing Authority is hereby deleted. Decided in favour of assessee.

Summary

Issues Involved:
The issues involved in the judgment are the disallowance of expenses claimed by the assessee, applicability of section 44ADA of the Income Tax Act, charging of interest under sections 234B & 234C, and the jurisdiction of the Assessing Officer in a limited scrutiny assessment.

Disallowance of Expenses:
The assessee claimed expenses of Rs. 14,49,445 for earning remuneration from a partnership firm and other professional receipts. The Assessing Officer disallowed the expenses as the assessee failed to bifurcate them for earning remuneration from the firm. The CIT(A) upheld this decision, stating that expenses against salary are not eligible for deduction, and the appellant could not separate expenses related to individual profession and firm remuneration. However, the Tribunal found that the AO exceeded jurisdiction by disallowing expenses beyond the limited scrutiny issue, and thus deleted the addition.

Applicability of Section 44ADA:
The CIT(A) applied section 44ADA, allowing 50% of total receipts as expenses for professional receipts, but disallowing expenses related to remuneration from the firm. The Tribunal noted that the appellant's individual professional activity and firm business should be treated separately. As the appellant could not bifurcate expenses, the AO correctly disallowed them. The Tribunal, however, found the AO exceeded jurisdiction and deleted the addition.

Charging of Interest under Sections 234B & 234C:
The CIT(A) upheld the charging of interest under sections 234B & 234C, stating it is mandatory and no appeal lies unless there is an apparent non-application of mind. The Tribunal observed that the appellant did not point out any such circumstances, and thus dismissed the grounds against the interest charges.

Jurisdiction of Assessing Officer in Limited Scrutiny Assessment:
The Tribunal found that the Assessing Officer went beyond the limited scrutiny issue of remuneration paid by the firm when disallowing expenses. Without approval to assess beyond the selected issue, the AO exceeded jurisdiction. Therefore, the Tribunal deleted the addition made by the AO and allowed the appeal of the assessee.