2024 (2) TMI 151 - AT - Income Tax

Enlarging the scope of limited scrutiny - changing limited to complete scrutiny - scientific research expenditure disallowance and disallowance u/s 14A - HELD THAT - It remains an uncontroverted fact that the case of the assessee was selected for limited scrutiny for the reason Unsecured loans from persons who have not filed their Return of Income. Apart from this there is no mention of any other approval taken by the Assessing Officer to examine the issues of donation for scientific research expenditure as well as disallowance u/s 14A of the Act. It is discernible from the fact that the two issues relating to scientific research expenditure and disallowance u/s 14A of the Act are not connected to the issue of unsecured loans. It is also not the case that while examining the issue of unsecured loans the ld. Assessing Officer found some connection with the issues of scientific research expenditure or disallowance u/s 14A of the Act. Thus it is an admitted fact that the AO exceeded his jurisdiction provided for limited scrutiny by disallowing the claim of scientific research expenditure u/s 35(1)(ii) and disallowance under section 14A of the Act. We are of the considered view that in absence of any prior permission from competent authority for enlarging the scope of limited scrutiny or changing the same to complete scrutiny, AO was not within his jurisdiction to make the disallowance u/s 35(1)(ii) and 14A. Addition u/s 68 - unexplained unsecured loans - HELD THAT - Since the assessee has duly discharged its primary onus by filing all necessary evidence which in our considered view are sufficient enough to prove the identity and creditworthiness of the share subscriber and genuineness of the transaction to explain the nature and source of the alleged cash credit. We fail to find any infirmity in the finding of the CIT(A) holding that the assessee has established the identity and creditworthiness of the loan creditors and genuineness of the loan transactions received by the assessee as well as the amalgamated companies during the year. Thus, no interference is called for in the finding of the ld. CIT(A) on this issue of addition u/s 68. Revenue appeal dismissed.

Issues Involved:

1. Deletion of addition made under Section 68 of the Income Tax Act.
2. Independent inquiry by the Assessing Officer (AO).
3. Establishing identity and creditworthiness of loan creditors.
4. Deletion of addition made as bogus donation under Section 35(1)(ii).
5. Withdrawal of recognition for donations by CBDT.
6. Restriction of addition under Section 14A of the Income Tax Act.
7. Jurisdiction of AO in limited scrutiny cases.

Summary:

1. Deletion of Addition under Section 68:
The revenue challenged the deletion of Rs. 10,07,00,000/- added under Section 68 of the Income Tax Act by the CIT(A). The Tribunal observed that the assessee provided comprehensive documentation to establish the identity, creditworthiness, and genuineness of the loan creditors. The CIT(A) found that the AO had not conducted any independent inquiry to verify the transactions and merely doubted the identity and creditworthiness based on unserved notices. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had discharged its primary onus and the AO failed to bring contrary evidence.

2. Independent Inquiry by AO:
The Tribunal noted that the AO did not conduct any independent inquiries or summon the loan creditors to verify the genuineness of the transactions. The AO's reliance on general observations about shell companies was insufficient without specific evidence against the assessee's claims. The Tribunal emphasized that the AO must act reasonably and conduct proper investigations to form an objective opinion.

3. Establishing Identity and Creditworthiness:
The Tribunal upheld the CIT(A)'s finding that the assessee had satisfactorily established the identity and creditworthiness of the loan creditors through PAN, CIN, audited financial statements, and bank statements. The Tribunal reiterated that the initial burden of proof lies on the assessee, which shifts to the revenue once the assessee provides credible evidence.

4. Deletion of Addition as Bogus Donation:
The revenue's appeal included grounds related to the deletion of Rs. 63,00,000/- claimed as bogus donation under Section 35(1)(ii). The Tribunal noted that the AO had exceeded the scope of limited scrutiny without prior approval from the Principal Commissioner of Income Tax (PCIT). The Tribunal held that the AO's disallowance was beyond jurisdiction and upheld the CIT(A)'s deletion of the addition.

5. Withdrawal of Recognition for Donations:
The revenue argued that the donations were fake as the recognition of the donee institutions was withdrawn by CBDT. However, the Tribunal found that the AO had not obtained prior approval to examine this issue, which was beyond the scope of limited scrutiny. The Tribunal upheld the CIT(A)'s decision to delete the addition.

6. Restriction of Addition under Section 14A:
The revenue's appeal included grounds related to the restriction of addition under Section 14A. The Tribunal noted that the AO had made the addition under Rule 8D without prior approval to expand the scope of scrutiny. The Tribunal upheld the CIT(A)'s decision to restrict the addition.

7. Jurisdiction in Limited Scrutiny Cases:
The Tribunal emphasized that the AO had exceeded the jurisdiction provided for limited scrutiny by making disallowances under Sections 35(1)(ii) and 14A without obtaining prior approval from the PCIT. The Tribunal held that such actions were beyond the AO's jurisdiction and upheld the CIT(A)'s deletions.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objections, holding that the AO had exceeded jurisdiction in limited scrutiny and the assessee had satisfactorily established the identity, creditworthiness, and genuineness of the loan transactions.

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