Madras High court decides if a writ can be filed if the ITAT has remanded a matter back to the AO, and the AO has exceeded the scope of the remand.
Case: Neetaa Suneel Shah v. Income Tax Officer
- Revenue reopened the assessment for the year 2010-2011 in 2015 for evasion of tax to the tune of about INR 25 lakhs through client code modification.
- After rejecting the objections of the assessee the AO added the money to income from Short Term Capital Gains.
- Assessee’s appeal to CIT was also dismissed.
- The assessee further appealed to the ITAT. The tribunal found that relevant facts were not produced by the assessee and remanded the issue to the AO for re-adjudication after verifying the details of the client code modifications.
- The AO, after remand, went into other issues which he had originally accepted. and made an addition of about INR 60 lakhs.
Forum: Madras High Court
Judge: K. Ravichandra Baabu
For assessee: Sandeep Bagmar
For revenue: D. Prabhu Mukunth Arunkumar
Cases relied on
- Revenue argued that the writ petition is not maintainable as a statutory appellate remedy is available.
- The assessee had modified client codes in the guise of correcting an error and was able to show a loss to reduce his tax liability. The re-assessment was ordered disallow such artificial losses, and since all the issues are interlinked, it was justified to consider the other issues in order to determine the issue pertaining to the addition of INR 25 lakhs and hence there is no violation of principles of natural justice.
- The only issue under consideration by the AO was the addition of INR 25 lakhs and the AO was bound to limit the scope of his examination to that particular issue.
- The AO has gone beyond the scope of the remand by considering other issues such as bought/forward losses.
- Even in respect of the issue remanded, the Assessing Officer has changed the head from Short Term Capital Gains to Undisclosed Sources under Section 68 of the IT Act, without giving any prior notice to the assessee. This is a violation of principles of natural justice.
High Court’s Order
- The High Court held that the AO has exceeded the scope of remand in examining issues which did not form the subject-matter of the remand.
- It held that AO’s decision pertaining to the two issues which were not the subject of the appeal is invalid.
- However, as the assessee was not put on notice, when the AO changed the head from ‘Short term capital gains’ to ‘Undisclosed Sources under Section 68’ for the addition of INR 25,05,304, the High Court directed that the matter be remanded back to the AO but this time the assessee be put on notice.
- The re-assessment shall be only with respect to the issue pertaining to income from Short Term Capital Gains other than under Section 111A and consequential addition of Rs. 25,05,304.
- The writ petition was thus allowed.
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