Income Tax, Issue Update

Disallowances regarding issues not covered in limited scrutiny

Case: Atul Gupta vs Addl. CIT, Delhi ITAT

The question here is: Can the assessing officer exceed his jurisdiction and make additions or disallowances on other issues which were not part of limited scrutiny?

 it was an undisputed fact that the instant case was picked up for ‘limited scrutiny’ on two specific issues. It was also an undisputed fact that neither any permission was sought by the Assessing Officer to expand the scope of limited scrutiny in the instant case nor such permission was ever granted by the Principal Commissioner of Income Tax/Commissioner of Income Tax in this case to inquire into any other issue during assessment proceedings.

There are several assessment related procedural issues that one can take in the appeal. We have several such issues on Telescope like Jurisdiction of tax authorities to grant stay of demand on payment of an amount lesser than prescribed percent of disputed tax demand and the like.
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Facts

  • The Assessee was an individual deriving income from business, salary, income from other sources and also income from capital gains. The return of income for the captioned year was filed declaring a net taxable income of Rs.44.94 lakhs.
  • The case was selected for limited scrutiny and the reasons for scrutiny selection under CASS were unsecured loans from persons who have not filed their return of income and sales consideration of property in return of income being less than sales consideration reported in Form 26QB.
  • Subsequently, in the assessment order, the Assessing Officer did not make any addition on any of the two issues for which the case was selected for limited scrutiny. However, the Assessing Officer did not restrict himself to the two specific issues for which scrutiny was opened instead made an addition of Rs. 2.51 Crs under section 50C of the Act and also made another addition of Rs. 8.36 lakhs by disallowing the total cost of acquisition of another land sold by the Assessee.

Key points

  • In the present facts of the case, it was an undisputed fact that the instant case was picked up for ‘limited scrutiny’ on two specific issues. It was also an undisputed fact that neither any permission was sought by the Assessing Officer to expand the scope of limited scrutiny in the instant case nor such permission was ever granted by the Principal Commissioner of Income Tax/Commissioner of Income Tax in this case to inquire into any other issue during assessment proceedings.
  • Further, the Assessing Officer while passing the assessment order had not drawn any adverse inference against the Assessee on either of the two issues on which the case was picked up for limited scrutiny under CASS. There was no valid basis for the Assessing Officer to inquire into other issues while conducting a limited scrutiny, without taking the mandatory permission from the Principal Commissioner of Income Tax/ Commissioner of Income Tax.
  • Therefore, when the CBDT instructions did not permit the Assessing Officer to travel beyond the issues which were authorized by the Board, it was held that the addition made by the Assessing Officer in case of the Assessee was beyond his jurisdiction.

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