Tribunal deems assessment unlawful due to procedural irregularity, partially allows assessee's appeal.

The Tribunal found that the Assessing Officer (AO) acted unlawfully by making additions outside the limited scrutiny scope without approval from the administrative Commissioner. The Tribunal deemed the assessment order "bad in law and void-ab initio," leading to the dismissal of other grounds of appeal as academic. The disallowance of interest paid to the bank and the rejection of Long Term Capital Gain (LTCG) claim were not adjudicated upon due to the primary procedural irregularity. The appeal of the assessee was partly allowed based on these findings.

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Issues Involved:
1. Legality of additions made by the Assessing Officer (AO) outside the scope of limited scrutiny under Computer Aided Scrutiny Selection (CASS) without prior approval from the administrative Commissioner.
2. Disallowance of interest paid to the bank.
3. Rejection of the claim of Long Term Capital Gain (LTCG) and treating the surplus from the sale of plots and agricultural land as business income.

Detailed Analysis:

1. Legality of Additions Outside Limited Scrutiny:
The primary issue raised by the assessee was that the AO made additions beyond the scope of the limited scrutiny for which the case was selected under CASS without obtaining the necessary approval from the administrative Commissioner. The limited scrutiny was initially intended to examine the source of cash deposits in the savings bank account.

The assessee argued that the AO's actions violated the Board's instructions, which mandate that any extension of scrutiny beyond the specified issues requires written approval from the concerned Commissioner. The assessee supported this argument with references to Board’s Instruction No.07/2014 and other relevant circulars, emphasizing that the AO did not follow the required procedure.

The Tribunal agreed with the assessee, noting that the AO did not obtain the necessary approval before extending the scope of scrutiny to include interest disallowance and denial of deduction under Section 54 of the Income Tax Act. The Tribunal cited previous decisions, including those of the Pune Bench, which had ruled in favor of the assessee under similar circumstances. Consequently, the Tribunal held that the assessment order was "bad in law and void-ab initio," rendering the other grounds of appeal academic.

2. Disallowance of Interest Paid to the Bank:
The AO had disallowed an interest claim of Rs. 1,89,991/- on a loan taken from Jalgaon Janta Sahakari Bank, arguing that the loan was not utilized as per the law. The CIT(A) upheld this disallowance.

Given the Tribunal's decision on the primary issue of the legality of the assessment order, the ground related to the disallowance of interest was deemed academic and was not adjudicated upon.

3. Rejection of Long Term Capital Gain (LTCG) Claim:
The AO rejected the assessee's claim of LTCG on the sale of plots and agricultural land, treating the surplus as business income instead. The CIT(A) confirmed this treatment, leading to an addition of Rs. 9,89,538/-.

As with the interest disallowance, this issue also became academic following the Tribunal's ruling that the assessment order was void-ab initio due to procedural irregularities in extending the scope of scrutiny without proper approval.

Conclusion:
The Tribunal concluded that the AO's failure to obtain the necessary approval from the administrative Commissioner before extending the scope of scrutiny rendered the assessment order invalid. Consequently, the Tribunal held that the assessment order was "bad in law and void-ab initio," and the other grounds of appeal were dismissed as academic. The appeal of the assessee was partly allowed.

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