- Bookmark
- Share
- CaseIQ
Shri Prabir Das, Karimganj v. Income Tax Officer, Ward-Karimganj, Karimganj
Tribunal Order Summary — ITA No. 395/Gau/2019 (Prabir Das), AY 2016-17
Factual and Procedural Background
The assessee, Shri Prabir Das, filed a return of income for AY 2016-17 on 15.12.2016 declaring income of Rs. 8,17,530/-. The assessee’s case was selected under CASS for Limited Scrutiny and a notice under section 143(2) of the Income-tax Act, 1961 was issued on 20.09.2017 specifying that the scrutiny was limited to a single issue: whether stock was valued correctly.
During assessment proceedings the Assessing Officer (AO) referred to a survey conducted on 04.09.2017 at premises of two third parties (M/s. Assam Textiles and M/s. Mahavir Textiles) and obtained information of transfers from those parties to the assessee. The AO expanded the scope of enquiry beyond the limited issue and made an addition of Rs.59,19,909/- under section 68 of the Act (the assessee states the correct total as Rs.58,63,329/-).
The assessee appealed to the Commissioner (Appeals), Shillong (order dated 11.06.2019). The present appeal is against that order before the Income Tax Appellate Tribunal (ITAT), Guwahati. The principal contested point before the Tribunal was whether the AO validly expanded a Limited Scrutiny to Complete Scrutiny without following the procedure laid down in CBDT Circulars (requiring written approval of the Pr. CIT/CIT).
Legal Issues Presented
- Whether the Assessing Officer could expand the scope of assessment from Limited Scrutiny to Complete Scrutiny and make additions under section 68 without obtaining prior written approval of the Pr. CIT/CIT as required by CBDT Circular No. 20/2015 dated 29.12.2015 and subsequent related instructions/circulars?
- Whether an objection to lack of jurisdiction (i.e., non-compliance with the CBDT procedure for expanding scrutiny) can be raised before the Tribunal even though it was not raised before the Commissioner (Appeals)?
Arguments of the Parties
Appellant's Arguments (Assessee / Ld. AR Shri Sanjay Modi, FCA)
- The assessee's case was selected for Limited Scrutiny (per the section 143(2) notice dated 20.09.2017) confined to the single issue of stock valuation; the notice did not contemplate examination under section 68.
- The AO expanded the assessment into Complete Scrutiny and made an addition under section 68 without following the mandatory procedure set out in CBDT Circular No. 20/2015 (29.12.2015), instruction dated 14.07.2016 (para 4) and circular dated 30.11.2017 (para 3).
- CBDT instructions require that if an AO proposes to expand a Limited Scrutiny to Complete Scrutiny because of potential escapement exceeding specified monetary thresholds, the AO must obtain written approval of the Pr. CIT/CIT after being satisfied about the merits; the AO must also have the case monitored by the Range Head. The AO failed to obtain such written approval in this case (no record of approval in the order sheet pages 5–9).
- Accordingly, the addition of Rs.59,19,909/- under section 68 is without jurisdiction and bad in law and should be deleted.
- The objection is a purely legal point going to jurisdiction which, relying on NTPC v. CIT (229 ITR 383 (SC)), can be raised before the Tribunal despite not having been raised before the CIT(A).
- Assessee relied on several Tribunal decisions that, according to the AR, support the proposition that expansion without written approval is impermissible (cited Jaipur, Mumbai and Chandigarh bench orders).
Respondent's Arguments (Revenue / Ld. DR)
- The issue of lack of written approval was not raised before the Commissioner (Appeals), and therefore cannot be raised for the first time before the Tribunal.
- The CBDT circular (30.11.2017, para 1) explaining the rationale for Limited Scrutiny seeks to prevent fishing inquiries; however, in this case facts came to the AO's notice (survey at third parties showing transfers totalling approximately Rs.58–59 lakhs), which prompted queries to the assessee.
- The assessee failed to respond satisfactorily to the AO's queries and failed to establish genuineness of the transactions, which led the AO to draw adverse inference and make the addition under section 68. Thus the AO's action in making the addition could not be faulted and the Tribunal should not interfere with the Commissioner (Appeals) order upholding the addition.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Late Smt. Gurbachan Kaur v. DCIT, ITA No. 692/JP/2019 (AY: 2014-15), order dated 05.12.2019 (Tribunal, Jaipur Bench) | Relied upon by the assessee's counsel to support the proposition that expansion of scrutiny without required approvals is impermissible. | The decision was listed among Tribunal precedents relied upon by the assessee; the Tribunal noted the precedents were placed before it while considering the CBDT circulars and related case law. |
| M/s Nitin Killawala v. ITO, ITA No. 1611/M/2013 (AY: 2008-09), order dated 16.09.2015 (Tribunal, Mumbai Bench) | Relied upon by the assessee's counsel to support the legal position on limits of Limited Scrutiny and procedure for expansion. | The Tribunal recorded that this Mumbai Bench decision was relied upon by the assessee in support of his contention; the Tribunal considered the set of circulars and case law collectively in its reasoning. |
| Shri Vijay Kumar v. ITO, ITA No. 434/Chd/2019 (AY: 2014-15), order dated 12.09.2019 (Tribunal, Chandigarh Bench) | Relied upon by the assessee's counsel as an authority for the proposition that expansion without prescribed approval is contrary to the CBDT procedure. | The decision was one of the Tribunal orders cited by the assessee; the present Tribunal noted the precedents were placed before it when assessing the correctness of the AO's action. |
| NTPC v. CIT, 229 ITR 383 (Supreme Court) | Cited by the assessee to support the proposition that a legal issue going to jurisdiction can be raised at any forum, even if not raised earlier. | The assessee relied on this Supreme Court authority to justify raising the jurisdictional challenge before the Tribunal; the Tribunal recorded this submission in the rejoinder. |
Court's Reasoning and Analysis
The Tribunal examined the factual matrix and the relevant CBDT circulars and case law referred to by the parties. The principal factual points relied upon by the Tribunal were:
- The assessee filed return on 15.12.2016 declaring an income of Rs.8,17,530/-.
- The AO's section 143(2) notice dated 20.09.2017 specifically informed the assessee that the case was selected under CASS for Limited Scrutiny confined to the single issue whether stock valuation was correct.
- The AO relied on information from a survey conducted on 04.09.2017 at premises of third parties (M/s. Assam Textiles and M/s. Mahavir Textiles) indicating transfers to the assessee totaling amounts in the order of Rs.41.78 lakhs and Rs.16.85 lakhs respectively, which cumulatively formed the basis for additions under section 68.
The Tribunal then considered the CBDT Circular No. 20/2015 dated 29.12.2015 and subsequent instructions/circulars (14.07.2016 and 30.11.2017) which, as described in the proceedings, require that:
- In Limited Scrutiny cases the questionnaire and scope of enquiry remain confined to the specific issues;
- If during Limited Scrutiny the AO perceives potential escapement of income exceeding specified monetary thresholds necessitating substantial verification of other issues, the case may be taken up for Complete Scrutiny only with prior written approval of the Principal CIT/CIT after being satisfied about the merits; such cases should be monitored by the Range head;
- Only after such written approval is obtained can the procedure governing Complete Scrutiny (and departure from the Limited Scrutiny constraints) be invoked.
The Tribunal reviewed the assessment record (order sheet pages 5–9) and found no record of any written approval by the Pr. CIT/CIT authorizing expansion from Limited Scrutiny to Complete Scrutiny. The Revenue's representative (Ld. DR) conceded on perusal that no written approval was shown on the order sheet.
The Tribunal noted that CBDT instructions are issued under section 119 of the Act and are binding on departmental authorities, a proposition supported by decisions of the Apex Court and various High Courts as referenced in the order. Consequently, where the AO did not obtain the prescribed written approval, the expansion of scope and enquiry fell outside the jurisdiction conferred by the Limited Scrutiny selection.
Having found that the AO expanded the scope of assessment without compliance with the CBDT-prescribed written approval requirement, the Tribunal held that such action was without jurisdiction. The Tribunal therefore concluded that the addition made under section 68 (Rs.59,19,909/- as per AO; assessee disputes minor arithmetical total) was null in law and required deletion.
The Tribunal also recorded that other grounds advanced by the assessee were not pressed before the Tribunal and accordingly those grounds were dismissed.
Holding and Implications
CORE RULING: The appeal is PARTLY ALLOWED. The addition of Rs.59,19,909/- made by the Assessing Officer under section 68 of the Income-tax Act by expanding the assessment from Limited Scrutiny to Complete Scrutiny without obtaining the prior written approval of the Pr. CIT/CIT (as required by CBDT Circular No. 20/2015 and related instructions) was held to be without jurisdiction and therefore deleted.
Direct Consequences for the Parties
- The addition of Rs.59,19,909/- (impugned addition under section 68) is deleted.
- The appeal of the assessee is partly allowed to the extent of deletion of that addition; other grounds not pressed were dismissed.
Broader Implications
The Tribunal's decision rests on enforcement of the CBDT-prescribed procedure for expanding a Limited Scrutiny to Complete Scrutiny and the binding nature of those instructions on departmental officers. The opinion does not purport to lay down a new legal principle beyond applying the existing CBDT circulars and cited authorities; accordingly, no new precedent purporting to alter the law generally is claimed by the Tribunal in this order.
Order pronounced in open court on 26 June, 2020. Members: (Dr. A. L. Saini) (Aby. T. Varkey).
Per Shri A.T.Varkey, JM This appeal preferred by the assessee is against the order of the Ld. CIT(A), Shillong dated 11.06.2019 for AY 2016-17.
2. At the outset, the Ld. AR Shri Sanjay Modi, FCA drew our attention to ground no.2 which reads as under:
2. For that the Ld. CIT(A) ought to have hold that the addition of Rs.59,19,909/- made by the ld. AO by invoking provisions of section 68 of the Act in the proceedings initiated for limited scrutiny is without jurisdiction and bad in law.
3. The Ld. AR drawing our attention to the aforesaid ground submitted that the assessee is aggrieved by the action of the AO to have expanded the assessment from Limited Scrutiny to Complete Scrutiny without following the procedure as laid by the CBDT Circular No. 20/2015 dated 29.12.2015; and subsequent instruction on the same dated 14.07.2016 (para 4) and circular dated 30.11.2017 (para 3). According to Ld. AR, the AO had issued notice u/s. 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act) on 20.09.2017 wherein it was clearly stated that the assessees case was selected by CASS (computer aided scrutiny selection) for Limited Scrutiny i.e. for only one issue i.e. ITA No. 395/Gau/2019 Prabir Das AY- 2016-17 whether stock has been valued correctly or not ? According to the Ld. AR, the AO erred in expanding the jurisdiction to make addition of Rs.59,19,907/- u/s. 68 of the Act which was not specified in the Limited Scrutiny notice issued u/s. 143(2) of the Act dated 20.09.2017. According to the Ld. AR, the CBDT circular/Instruction No. 20/2015 dated 29.12.2015 has clearly laid down the procedure to be followed in case if the AO wishes to expand the scrutiny from the Limited Scrutiny to Complete Scrutiny which is given in para 3, which reads as under: a. In Limited Scrutiny cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in Limited Scrutiny cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the Limited Scrutiny issues. c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in Limited Scrutiny cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. Five lakhs (for metro charges, the monetary limit shall be Rs. Ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for Complete Scrutiny with the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about merits of the issues(s) necessitating Complete Scrutiny in that particular case. Such cases shall be monitored by the Range head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For this present purpose, Metro charges would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad).
4. According to the Ld. AR, from a bare reading of the aforesaid instruction of the CBDT which has been issued by it u/s. 119 of the Act, it is clear that the AO while issuing questionnaire u/s. 142(1) of the Act in Limited Scrutiny cases shall remain confined only to the specific issues for which case has been picked up for scrutiny and it has been made very clear that the scope of enquiry shall be restricted to the Limited Scrutiny issue. It has been further clarified by the CBDT that if the AO comes to know that there is potential escapement of income exceeding Rs. 5 lacs (for metropolitan cities Rs. 10 lacs) requiring substantial verification on any other issues, then the case should be taken up for Complete Scrutiny with the approval of the Pr. CIT/CIT concerned and, thereafter, the approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about the merits of the issues necessitating Complete Scrutiny in that particular case. Further, it is also stated that such ITA No. 395/Gau/2019 Prabir Das AY- 2016-17 cases shall be monitored by the Range Head concerned. So, the Ld. AR contended that from a perusal of the order sheet, [copy of which is placed at pages 5 to 9 of the paper book] maintained by the AO would reveal that he [the AO] has not taken the approval of Pr. CIT/CIT. The ld. AR, pointed out that there is no whisper of the approval granted by the Pr. CIT/CIT in writing allowing the AO to expand the scope of assessment from Limited Scrutiny to Complete Scrutiny. Therefore, according to Ld. AR, the action of the AO to make the addition of Rs.59,19,902/- u/s. 68 of the Act is bad in law. For this proposition, the Ld. AR relied on the orders of the Tribunal, Jaipur Bench in the case of Late Smt. Gurbachan Kaur Vs. DCIT, ITA No. 692/JP/2019 (AY: 2014-15) order dated 05.12.2019; Mumbai Bench decision in M/s. Nitin Killawala Vs. ITO, ITA No. 1611/M/2013 (AY: 2008-09) order dated 16.09.2015; Chindagarh bench decision in Shri Vijay Kumar Vs. ITO, ITA No. 434/Chd/2019 (AY: 2014-15) order dated 12.09.2019.
5. Per contra, the Ld. DR contended that the issue raised by the Ld. AR has not been raised before the Ld. CIT(A) and, therefore, this issue according to him, cannot be agitated for the first time before the Tribunal. According to the Ld. DR, the CBDT circular dated 30.11.2017 (para 1) specifically states the reason why this Limited Scrutiny has been advised in certain cases. According to him, this is to prevent AO from going on a fishing enquiry to harass the assessee. According to Ld. DR, in this case even though the assessees case was selected for scrutiny under CASS for Limited Scrutiny, later on it had come to the notice of the AO that the survey was conducted on 04.09.2017 in the case of M/s. Assam Textiles and M/s. Mahavir Textiles (third parties) and it was found that there were transfer of funds to the tune of Rs.41,78,299/- (from M/s. Assam Textiles) and Rs.16,85,030/- (from M/s. Mahavir Textiles) to the assessee. Armed with this information, the AO sought queries from the assessee and since the assessee failed to respond properly to the queries and failed to establish the genuineness of the transaction, the AO drew adverse inference against the assessee and made the addition of Rs.59,19,909/- (though the correct total is Rs.58,63,329/- ).Therefore, according to the Ld. DR, the action of the AO cannot be faulted. Therefore, he wants us not to interfere in the order passed by the Ld. CIT(A). In the rejoinder, the Ld. AR, conceded that this ground was not raised before the Ld. CIT(A). However, he ITA No. 395/Gau/2019 Prabir Das AY- 2016-17 contented that this issue is purely a legal issue raised by the assessee before this Tribunal wherein assessee is challenging the very jurisdiction of AO to expand the scope of enquiry/assessment from Limited Scrutiny to Complete Scrutiny; and since the AO has resorted to an action which was regulated by the CBDT circular which is binding on him and the AOs action of expanding the jurisdiction without taking the approval of Pr. CIT/CIT in writing is without jurisdiction; and, therefore, this being a legal issue which if found to be correct would go to the root of the addition made of Rs.59,19,909/- as raised in ground no.2 which, according to him, can be raised at any forum as decided by the Honble Supreme court in NTPC Vs. CIT 229 ITR 383 (SC) and therefore, he wants us to adjudicate the legal issue. He also pointed out that in the 143(2) notice this issue regarding addition u/s. 68 of the Act was never raised in the Limited Scrutiny notice dated 20.09.2017 wherein the AO has clearly stated that assessees case has been selected only for Limited Scrutiny on one issue i.e. whether stock has been valued correctly or not? So, according to him, the AO could not have expanded the jurisdiction without taking approval from the Pr. CIT/CIT in writing and, therefore, he wants us to delete the addition made u/s. 68 of the Act of Rs.59,19,907/-.
6. Having heard both the parties and after carefully going through the contents of the three (3) CBDT Circulars and case laws relied upon , we note that the assessee had filed return of income on 15.12.2016 reflecting an income of Rs.8,17,530/-. Later the case of the assessee was selected for Limited Scrutiny which fact was conveyed to the assessee by notice dated 20.09.2017 issued u/s. 143(2) of the Act. In this notice u/s. 143(2) of the Act, it was clearly stated that the assessees case was selected by CASS only for Limited Scrutiny regarding one issue only i.e. whether stock has been valued correctly or not ?. We note from perusal of the assessment order that the AO has referred to a survey conducted at the premises of M/s. Assam Textiles and M/s. Mahavir Textiles on 04.09.2017 (third parties) and that he got information about certain transfer of funds from these two entities to assessee for which he raised question to the assessee and the AO being not satisfied with the replies given by the assessee has made the addition of Rs.59,19,909/- (as per the assessee total is only Rs.58,63,329/-). The legal issue before us is whether the AO could have made ITA No. 395/Gau/2019 Prabir Das AY- 2016-17 this addition when the fact remains that the assessees case was selected for Limited Scrutiny only for the reason that whether stock has been valued correctly or not. According to Ld. AR, the AO could not have expanded the jurisdiction/assessment from Limited Scrutiny to complete scrutiny without following the procedure as stipulated in the CBDT Circular No. 20/2015 dated 29.12.2015 and other CBDT Circulars on the subject dated 14.07.2016 and 30.11.2017. We note that the AO has not taken approval in writing from the Pr. CIT/CIT in this case before he ventured to expand the scope of assessment from Limited Scrutiny to complete scrutiny as prescribed in the CBDT circular which is admittedly binding on him. A perusal of the order sheet placed at pages 5 to 9 of the paper book does not indicate that the AO has taken the approval of the Pr. CIT/CIT for expanding the assessment from Limited Scrutiny to Complete Scrutiny. The Ld. DR fairly conceded this fact after perusal of the order sheet that no approval in writing was taken by the AO for expanding the scope of assessment so as to make the addition u/s. 68 of the Act. Since the CBDT Circular issued u/s. 119 of the Act is binding on the department/AO as held by the Honble Apex court and High Courts, the AO was bound by it and without taking approval in writing from Pr CIT/CIT could not have enquired into other issues other than the issue for which the assessment was selected for Limited Scrutiny. Here, the AO without following the procedure as stated, supra has expanded his jurisdiction without approval which action of AO is held to be without jurisdiction and, therefore, is bad in law and, therefore, the assessee succeeds and the addition made by the AO Rs.59,19,909/- is null in the eyes of law and, therefore, it has to be deleted and we order accordingly. The other grounds not pressed by the Ld. AR, therefore, the grounds raised by the assessee are dismissed.
7. In the result, the appeal of assessee is partly allowed. Order is pronounced in the open court on 26 June, 2020. Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member Dated :26June, 2020 Jd.(Sr.P.S.) ITA No. 395/Gau/2019 Prabir Das AY- 2016-17 Copy of the order forwarded to:
1. Appellant Shri Prabir Das, M/s. Rabindra Nath Das, Ramani Sagar Road, Karimganj Bazar, Karimganj, Assam-788711
2 Respondent ITO, Ward-Karimganj CIT(A), Shillong CIT-, , Shillong DR, ITAT, Guwahati. /True Copy, By order, Senior Pvt. Secy.
Alert