Limited scrutiny permits enquiry into issues flowing from the lead material, while undecided merits grounds require fresh appellate adjudication.

In limited scrutiny, the Assessing Officer may examine matters that arise directly from the lead material on which the case was selected, and consequential additions based on that enquiry do not exceed jurisdiction. On the facts, cash deposit information led to examination of the source of the deposit and related capital gain claim, so the jurisdictional challenge failed. However, the first appellate authority had ruled only on jurisdiction and had not adjudicated the substantive additions concerning long-term capital gain, expenses, and deduction. Those merits issues were therefore restored for fresh, reasoned adjudication.

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Issues: (i) Whether the Assessing Officer exceeded the scope of limited scrutiny by examining and making additions beyond the AIR reason for cash deposit. (ii) Whether the additions on merits required fresh adjudication by the first appellate authority.

Issue (i): Whether the Assessing Officer exceeded the scope of limited scrutiny by examining and making additions beyond the AIR reason for cash deposit.

Analysis: The case was selected through CASS on the basis of cash deposit information. The assessment proceedings showed that the inquiry into the source of the deposit led to examination of the capital gain claim and related consequential additions. On these facts, the scrutiny remained connected with the very lead material on which the case was selected, and the assessment did not travel beyond the permitted sphere of enquiry.

Conclusion: The challenge to the jurisdiction exercised in limited scrutiny was rejected, and the finding that the Assessing Officer had not exceeded his jurisdiction was upheld.

Issue (ii): Whether the additions on merits required fresh adjudication by the first appellate authority.

Analysis: The first appellate authority had decided only the jurisdictional objection and had not adjudicated the merits of the additions relating to long-term capital gain, disallowance of expenses, and denial of deduction. In the absence of findings on those substantive grounds, they required consideration at the appellate stage with a proper speaking order.

Conclusion: The merits grounds were restored to the first appellate authority for fresh adjudication.

Final Conclusion: The appeal succeeded only to the extent of remand on the merits grounds, while the jurisdictional challenge to limited scrutiny failed.

Ratio Decidendi: In limited scrutiny, the Assessing Officer may examine and make consequential additions arising from the very lead material on which the case was selected, but substantive grounds not adjudicated by the first appellate authority must be decided afresh by that authority.

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