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2023 (10) TMI 774 - AT - Income TaxScope of limited scrutiny - jurisdiction of AO to add delayed payment of provident fund - as argued case was selected for limited scrutiny and the provident fund was not the subject matter of the limited scrutiny - HELD THAT - As in a limited scrutiny the jurisdiction of the AO is confined to those items which were the subject matter of the limited scrutiny and in case the AO has come across any item of disallowances or escaped income then the AO has first to form a reasonable opinion on the same and obtain a prior approval of the competent authority to convert the limited scrutiny into a complete scrutiny and only then the said addition can be made and not otherwise. In the present case the AO has not converted the limited scrutiny into complete scrutiny and therefore, the addition made is without jurisdiction. As relying on Sukhdham Infrastructures LLP 2023 (4) TMI 1157 - ITAT KOLKATA we hold that the addition made by the AO is without jurisdiction and is accordingly directed to be deleted. Addition u/s 14A r.w. Rule 8D - Mandation to record satisfaction - HELD THAT - AO has simply invoked the provisions of Rule 8D of the Rules without recording any satisfaction as is mandatory by Section 14 before resorting to the provisions of Section 14A - recording of satisfaction is prerequisite for invoking Section 14A of the Act r.w. Rule 8D of the Rules failing which the addition made by the AO cannot be sustained. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Appeal filed by the assessee is allowed.
Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) in limited scrutiny cases. 2. Confirmation of addition under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962. Summary: Issue 1: Jurisdiction of the Assessing Officer (AO) in Limited Scrutiny Cases The primary issue raised by the assessee was the jurisdiction of the AO to add Rs. 1,01,714/- on account of delayed payment of provident fund, which was not the subject matter of the limited scrutiny. The case was selected for limited scrutiny for six specific items, excluding the provident fund. The AO, without converting the limited scrutiny into complete scrutiny, added the delayed payment of provident fund to the income of the assessee. The tribunal found that the AO's jurisdiction in a limited scrutiny is confined to the items specified for scrutiny. Any additional items require the AO to form a reasonable opinion and obtain prior approval from the competent authority to convert the limited scrutiny into complete scrutiny. The tribunal referenced the decision in Sukhdham Infrastructures LLP vs. ITO, which emphasized the need for credible material and administrative approval for such conversion. The tribunal concluded that the AO exceeded his jurisdiction by making the addition without converting the limited scrutiny into complete scrutiny, thus the addition was deemed without jurisdiction and was directed to be deleted. Issue 2: Confirmation of Addition under Section 14A read with Rule 8DThe second issue was the confirmation of an addition of Rs. 45,516/- by the Ld. CIT(A) under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962. The AO found that the assessee had earned dividend income of Rs. 1,02,477/- claimed as exempt without making any corresponding disallowance for expenses incurred to earn the said income. The AO applied Rule 8D to compute the disallowance. However, the tribunal noted that the AO invoked Rule 8D without recording any satisfaction as required by Section 14A. Recording of satisfaction is a prerequisite for invoking Section 14A read with Rule 8D. The tribunal set aside the order of the Ld. CIT(A) and directed the AO to delete the addition. Conclusion:The appeal filed by the assessee was allowed, quashing the assessment order as nullity and bad in law for exceeding jurisdiction in the limited scrutiny case and for failing to record satisfaction before invoking Section 14A read with Rule 8D.
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