In a recent judgement of Hon’ble ITAT Jaipur pronounced on 27.02.2020 in case of Shri Sita Ram Swami v. The ITO, Ward 4(5), Jaipur it was held that AO cannot travel beyond the scope of limited scrutiny and cannot take up a fresh issue which has no connection with the original issue of limit scrutiny without prior approval of appropriate authority to convert limited scrutiny into complete scrutiny.
Assessee’s case was selected for limited scrutiny through CASS on the issue of “whether any capital gain/loss on sale of property has been correctly shown in the return of income by assessee”. Assessee submitted relevant documents and further the assessee was asked whether any immovable property was purchased by him and ultimately, addition was made u/s 69 of the Act.
In response to above query assessee stated that CBDT has issued various instructions on this issue and in the instant year also, the CBDT issued Instruction No. 5 of 2016 dated 14.07.2016 as per which, for converting a limited scrutiny into complete scrutiny, approval of ld CIT was required to be taken by the Assessing Officer which has not been taken in the present case. It was accordingly submitted that in view of the specific direction given by CBDT, once the AO has taken up the case for limited scrutiny, he cannot travel beyond the issue selected for scrutiny and making addition u/s 69 of the Act.
Reliance was placed on the following decisions:
1. Smt. Gurbachan Kaur vs DCIT (in ITA No. 692/JP/2019 vide order dated 05.12.2019),
2. Manju Kaushik vs. DCIT (in ITA No. 1419/JP/2019 vide order dated 09.12.2019),
3. Ravi Prakash Khandelwal vs. DCIT (in ITA No. 665/LKW/2017 dated 08.11.2019) and
4. Shashi Bhushan Majoor vs. ITO (in ITA No. 1590/Pune/2018 dated 04.04.2019).
However the contention of assessee was not accepted by Assessing officer or CIT(A) and therefore assessee went before Hon’ble ITAT.
Observation of Hon’ble ITAT:
During the course of assessment proceedings it was submitted that assessee submitted before the Assessing officer that he has not sold any immovable property during the year, the Assessing Officer has taken the said submissions on record and has not recorded any adverse findings in this regard. In other words, the Assessing officer has accepted the explanation of the assessee that there was no transaction of any sale of immovable property by the assessee during the financial year relevant to impugned assessment year and therefore, the question of earning any capital gain and not showing the same in return of income did not arise at all.
Assessing officer has thereafter proceeded to examine whether the assessee has purchased any immovable property as apparent from the order sheet entry dated 19.12.2017 and an addition of Rs 10 lacs has thereafter been made u/s 69 of the Act towards unexplained investment in the property. We find that this transaction of purchase of property is not emanating from the same issue for which the matter was selected for limited scrutiny as the assessee has not sold any immovable property during the year and therefore, the question of making the investment in the purchase of property from the sale consideration so received doesn’t arise.
In the instant case, we find that the Assessing Officer neither in the assessment order nor in the assessment proceedings (as apparent from the notings in the order sheet place on record) has stated that he has sought and has been granted any approval by the appropriate authority for converting the limited scrutiny into complete scrutiny.
The instructions issued by CBDT from time to time are clear on this point. During the course of hearing, our reference was drawn to CBDT Instructions no. 5 of 2016 dated 14.07.2016, the contents thereof read as under:
“Subject: Direction regarding scope of enquiry in cases under ‘Limited Scrutiny’ selected through CASS 2015 & 2016-regd.-
Vide Instruction No. 20/2015 dated 29.12.2015 in File of even number, Board has laid down Standard Operating Procedure for handling of cases under ‘Limited Scrutiny’ which were selected through Computer Aided Scrutiny Selection in ‘CASS Cycle 2015’. In these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny. However, in revenue potential cases, it was further provided that ‘Complete Scrutiny’ could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT.
2. In order to ensure that maximum objectivity is maintained in converting a case falling under ‘Limited Scrutiny’ into a ‘Complete Scrutiny’ case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up ‘Complete Scrutiny’ in a case which was originally earmarked for ‘Limited Scrutiny’, the Assessing Officer (‘AO’) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under ‘Complete Scrutiny’. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable.
3. Further, while forming the reasonable view, the Assessing Officer would ensure that:
a. there exists credible material or information available on record for forming such view;
b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and
c. there must be a direct nexus between the available material and formation of such view.
4. It is further clarified that in cases under ‘Limited Scrutiny’, the scrutiny assessment proceedings would initially be confined only to issues under ‘Limited Scrutiny’ and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to ‘Complete Scrutiny’ after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in ‘Limited Scrutiny’. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting ‘Complete Scrutiny’ in such cases.
5. It is also clarified that once a case has been converted to ‘Complete Scrutiny’, the AO can deal with any issue emerging from ongoing scrutiny proceedings notwithstanding the fact that the reason for such issue have not been included in the Note.
6. To ensure proper monitoring in cases which have been converted from ‘Limited Scrutiny’ to ‘Complete Scrutiny’, it is suggested, that provisions of section 144A of the Act may be invoked in suitable cases. To prevent possibility of fishing and roving enquiries in such cases, it is desirable that these cases should invariably be picked up while conducting Review or Inspection by the administrative authorities.
7. The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are pending scrutiny cases as well as cases selected/being selected under the CASS 2016.
8. The contents of this Instruction may be brought to the notice of all for necessary compliance.
9. Hindi version to follow.
(Rohit Garg)
Deputy Secretary to the Government of India”
In light of the above discussions and in the entirety of facts and circumstances of the case, we set aside and quash the order passed by the AO u/s 143(3) of the Act and ground no. 1 of the assessee’s appeal is allowed.
Thus based on above judgement it is clear that assessing officer cannot travel beyond scope of limited scrutiny and if he wishes to examine some other points or go beyond scope of limited scrutiny he needs to take prior approval of CIT and convert limited scrutiny into completed scrutiny.
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