Addition made by AO in limited scrutiny by extending scope into full scrutiny deleted

Addition made by AO in limited scrutiny by extending scope deleted as AO did not take due permission to convert it into full scrutiny.

ABCAUS Case Law Citation:
ABCAUS 2883 (2019) (04) ITAT

Important Case Laws Cited/relied upon by the parties
CIT Vs. Mekala Balreddy

The appeal in the instant case was filed by the assessee against the order of the Commissioner of Income Tax (Appeals).

The return of the assessee was processed u/s 143(1) of the Income Tax Act, 1961 (the Act). Subsequently, the case was taken up for limited scrutiny under CASS and notices u/s. 142(1) and 143(2) of the Act were issued to the assessee.

On verification of books of account produced and vouchers separately, the AO found that majority of the expenditure claimed under various heads were not supported by proper vouchers. Most of the expenditure under these heads were supported by self-made vouchers which were not amenable for verification with reference to the expenditure booked in the Profit & Loss A/c.

In view of the deficiencies noticed in maintenance of books of account, the AO rejected the books of account maintained by the assessee by invoking the provisions of section 145(3) and estimated the net profit.

Aggrieved, assessee preferred an appeal before the CIT(A), who partly allowed the appeal of assessee.

Aggrieved, assessee preferred an appeal before the Tribunal.

The assessee contended that his case was selected for limited scrutiny to verify the bank deposits whether the deposits were more than the turnover. The Assessing Officer had verified the cash deposits and turnover and found correct. The Assessing Officer completed the assessment beyond the scope of scrutiny without any approval from Pr.CIT. Widening the scope of assessment is against the CBDT in Instruction No.7/2014 dt. 26.09.2014 whereby CBDT had directed that the scope of enquiry by the Assessing Officer should be limited to verification of the aspects stated in the Limited Scrutiny Order.

It was stated that the assessment order was void and invalid as the same was passed without proper jurisdiction. The scrutiny was LIMITED to the aspects authorised by CASS and whereas, the AO had scrutinised the issues not authorised by such CASS order and therefore the assessment order to the extent of unauthorised issues was invalid and void as the same was violative of the jurisdiction.  

The Tribunal noticed that the Assessing Officer had verified the expenses etc., which was not the mandate of limited scrutiny.

The Tribunal opined that the CBDT directives are binding on the Assessing Officer and in case, Assessing Officer finds that the assessment has to be made on extensive basis due to the reason that there are incidences of tax evasion found. Assessing Officer can extend the assessment by taking due permission from CIT/Pr.CIT. However, there was no issue of any tax evasion and the Assessing Officer suo motto did the extensive assessment even though the mandate was to make limited scrutiny.

The Tribunal opined that the issue before it was not on rejection of books or estimation of income, but whether limited scrutiny mandate can be extended.

In view of the fact that as per the CBDT directive, AO cannot do so without following proper procedure and the AO had made extensive assessment without mandate, the Tribunal restricted itself to address that issue only.

Accordingly the Assessing Officer was directed to accept the books of account since he had not found any discrepancies in verification of deposits and turnover as per limited mandate.

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