Tribunal deems tax assessment invalid due to lack of adherence to CBDT Circulars

The Tribunal held that expanding the assessment from Limited Scrutiny to Complete Scrutiny without following CBDT Circulars rendered the Assessing Officer's actions without jurisdiction. The additions made under section 68 of the Income-tax Act were deemed null, and the Tribunal ordered their deletion. The appellant succeeded on this issue, and the appeal was partly allowed. Additionally, the Tribunal ruled that the AO's actions in making additions under section 68 without proper approval were invalid, emphasizing the importance of adhering to procedural requirements outlined in CBDT Circulars to ensure the legality and validity of assessment expansions and additions.

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Issues:

1. Expansion of assessment from Limited Scrutiny to Complete Scrutiny without following CBDT Circulars.
2. Jurisdiction of AO to make additions under section 68 of the Income-tax Act.

Issue 1: Expansion of assessment from Limited Scrutiny to Complete Scrutiny without following CBDT Circulars

The appellant challenged the AO's action of expanding the assessment from Limited Scrutiny to Complete Scrutiny without following the procedure outlined in CBDT Circulars. The appellant contended that the AO erred in expanding the jurisdiction without obtaining written approval from the Pr. CIT/CIT, as mandated by the Circulars. The AO had made additions under section 68 of the Act without proper authorization. The Tribunal noted that the AO did not seek written approval before expanding the assessment, as required by the Circulars. The AO's action was deemed to be without jurisdiction and against the law. The Tribunal held that the addition made by the AO during Complete Scrutiny was null and ordered its deletion. The appellant succeeded on this issue, and the appeal was partly allowed.

Issue 2: Jurisdiction of AO to make additions under section 68 of the Income-tax Act

The AO made additions under section 68 of the Income-tax Act based on findings from a survey conducted on third parties. The appellant argued that since the case was selected for Limited Scrutiny regarding stock valuation, the AO could not have expanded the assessment without proper approval. The AO's decision to make additions without following the CBDT Circulars was challenged. The Tribunal agreed with the appellant that the AO's actions were not in accordance with the Circulars, rendering the additions made under section 68 invalid. The AO's failure to obtain written approval from the Pr. CIT/CIT before expanding the assessment was a critical flaw. The Tribunal ruled in favor of the appellant, stating that the additions were made without jurisdiction and should be deleted. The other grounds raised by the appellant were dismissed as not pressed by the appellant.

This judgment highlights the importance of adhering to procedural requirements outlined in CBDT Circulars when expanding assessments from Limited Scrutiny to Complete Scrutiny. Failure to obtain proper approval before making additions under the Income-tax Act can render such actions invalid and against the law. The Tribunal emphasized the significance of following prescribed procedures to ensure the legality and validity of assessment expansions and additions made by Assessing Officers.

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