Invalid conversion from limited to complete scrutiny without proper approval or credible material under section 69A

ITAT Guwahati held that AO's conversion of limited scrutiny to complete scrutiny was invalid as it lacked necessary approval from competent authority and was not based on credible material showing possibility of income understatement. The conversion violated CBDT mandate requiring reasonable view based on reliable information with direct nexus to under-assessment. Additionally, the addition under section 69A regarding unsecured loans was deleted as assessee had discharged burden by providing complete details including PAN numbers, identity, and creditworthiness of creditors through banking channels. AO failed to bring controverting material despite issuing notices under section 131. Appeal decided in favor of assessee.

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Issues Involved:
1. Validity of the assessment order under Section 143(3).
2. Addition of Rs. 33,50,000/- under Section 69A of the Income Tax Act, 1961.
3. Disallowance of set-off loss of Rs. 1,00,572/- against income from business and profession.

Summary of Judgment:

Issue 1: Validity of the Assessment Order
The assessee argued that the assessment order passed under Section 143(3) was erroneous as the case was selected for limited scrutiny but was converted into complete scrutiny without proper approval. The Tribunal noted that the Assessing Officer (AO) issued notices beyond the scope of limited scrutiny without obtaining necessary approval from the competent authority. The Tribunal referred to CBDT Instruction No. 5/2016, which mandates that conversion from limited to complete scrutiny requires credible material and administrative approval. The Tribunal held that the AO's action was against the spirit of CBDT instructions and thus, the assessment order was bad in law.

Issue 2: Addition under Section 69A
The AO added Rs. 33,50,000/- as unexplained money under Section 69A, citing that the loan givers did not appear in response to summons. The assessee provided the names, addresses, PAN numbers, and bank statements of the loan givers, proving their identity and creditworthiness. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in CIT vs. Orissa Corpn. (P) Ltd., which held that once the assessee provides sufficient evidence, the burden shifts to the AO to disprove the genuineness of the transactions. The Tribunal found that the AO did not pursue further inquiries and failed to bring any material to rebut the evidence provided by the assessee. Consequently, the Tribunal deleted the addition of Rs. 33,50,000/-.

Issue 3: Disallowance of Set-off Loss
The AO disallowed the set-off loss of Rs. 1,00,572/- against income from business and profession. Since the Tribunal decided the primary issues in favor of the assessee, the remaining issues were deemed consequential and did not require separate adjudication.

Conclusion
The Tribunal allowed the appeal of the assessee, holding that the assessment order was invalid due to improper conversion from limited to complete scrutiny, and deleted the addition of Rs. 33,50,000/- under Section 69A. The disallowance of set-off loss was also overturned as a consequence of the primary findings. The appeal was allowed for statistical purposes.

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