Notice for initiation of complete scrutiny assessment proceeding prior to receipt of approval by Pr. CIT i.e. in anticipation of approval is invalid
ABCAUS Case Law Citation:
ABCAUS 3214 (2019) (01) ITAT
Important case law relied upon by the parties:
M/s. CBS International Projects Pvt. Ltd vs CIT
In the instant case, the appeal by the assessee was directed against the order of the CIT(A). The assessee was inter alia aggrieved by the order of the CIT(A) in rejecting the ground that the action of the Assessing Officer (AO) in converting the case of Limited Scrutiny into case of Complete Scrutiny in complete disregard of various instructions issued by CBDT was bad in law. Hence the assessment order passed was null & void.
The case of the assessee was selected for limited scrutiny under CASS whereby the AO initiated proceedings by issue notice u/s 143(2) of the Act only on the issue of introduction of capital/ increase in the capital.
Subsequently, the AO has converted the limited scrutiny into complete scrutiny and issued notice u/s 142(1) of the Act. Assessment was framed by making disallowance of the claim of deduction u/s 54B of the Act.
Before the Tribunal, the assessee contended that there was nothing in the assessment order to show that the AO had sought any permission or approval for conversion of limited scrutiny to complete scrutiny. Therefore, the initiation of proceedings by the AO for complete scrutiny by issuing notice u/s 142(1) was without jurisdiction and authority.
The assessee also referred to various CBDT Instructions in this regard and submitted that there was a gross violation of instructions CBDT which rendered the assessment order null and void.
The Revenue submitted that the AO had converted the limited scrutiny to complete scrutiny only after taking the approval from the Pr. CIT. That the AO sent a proposal of conversion of limited scrutiny to full scrutiny vide and Pr.CIT accorded the approval for complete scrutiny from limited scrutiny vide his letter dated one day prior to the notice issued u/s 142(1) of the Act for complete scrutiny.
However, the assessee, in rejoinder, submitted that the alleged proposal and approval accorded by the Pr. CIT was an afterthought and pre-dated. The AO had not mentioned anything in the assessment order regarding any proposal for conversion of limited scrutiny to full scrutiny and the assessee was also not intimated about the said proposal of conversion of limited scrutiny to full scrutiny.
Therefore, it was contended that the said proposal and approval were nothing but an afterthought documents prepared by the department. He referred to the letter of Addl. CIT communicating the approval which was received by the AO much after. Therefore, initiation of proceedings by issue of notice u/s 142(1) for full scrutiny was without the alleged approval communicated and in the knowledge of the AO.
The Tribunal observed that there was no dispute that scope of enquiry in case selected for limited scrutiny under CASS is only to the extent of the issue for which case was selected for scrutiny under CASS.
It was further noted that CBDT had issued instructions from time to time in this respect and had specifically instructed the taxing authorities that scope of enquiry should be limited to verification of all the particulars for which limited scrutiny was taken up under CASS. As per the Instructions (including latest CBDT instruction no 5/2016), such an approval shall be accorded by the Pr.CIT/DIT in writing after being satisfied about the merits of the issue (s) necessitating wider and detailed scrutiny in the case.
The Tribunal noted that it had taken the consistent view on this issue in the series of decisions that if the AO has taken up the issue of scrutiny without converting the limited scrutiny to complete scrutiny by taking a prior approval from the competent authority then the said order passed by the AO will be in nullity and beyond his jurisdiction.
Also the Tribunal noted that though the AO had mentioned that approval was accorded by the Pr.CIT one day before and consequently he had initiated proceedings of complete scrutiny by issuing notice. However, the said approval of Pr.CIT was communicated to the AO only afterwards. The Tribunal opined that the notice u/s 142(1) issued for initiation of complete scrutiny assessment proceeding was prior to the receipt of the approval accorded by the Pr.CIT and thus it is apparent that AO had initiated the proceedings for full/ complete/ comprehensive scrutiny in anticipation of approval to be accorded by the Pr.CIT.
The Tribunal further noted that it is also mandated by CBDT Instructions that competent authority has to grant approval only after satisfying itself about the requirements of comprehensive scrutiny of the case. Further the AO is also required to intimate the assessee regarding conversion of limited scrutiny to the complete scrutiny in such cases.
The Tribunal held that the issue taken up by the AO regarding disallowance of deduction u/s 54B was prior to the necessary approval communicated to the AO and therefore, in the absence of communication in writing to the AO about the approval, the assumption of jurisdiction by the AO was invalid.
Consequently, the addition made by the AO by denying the deduction u/s 54B was held to be not sustainable and the same was deleted.
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