2024 (1) TMI 1188 - AT - Income Tax

Tax officer exceeded jurisdiction by making additions beyond original assessment scope without required approval under section 147

The ITAT Raipur held in favor of the assessee on two grounds. First, regarding validity of reopening under section 147, the AO failed to make any addition ... Validity of Reopening of assessment u/s 147 - receipt of interest income - HELD THAT:- Admittedly, it is a matter of fact borne from record that the A.O while framing assessment vide his order passed u/s. 143(3)/147 had not made any addition qua the very reason for which the case of the assessee company was reopened u/s. 147. We find substance in the claim of the AR that in absence of any addition having been made by the A.O as regards the very reason based on which the case of the assessee company was reopened u/s. 147 then no valid jurisdiction could have there been assumed by him to frame assessment u/s. 147 of the Act. Our aforesaid view is fortified by the judgement of Jet Airways (I) Ltd. [2010 (4) TMI 431 - HIGH COURT OF BOMBAY]. At this stage, we may herein observe that the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Jet Airways (I) Ltd. (supra) had been followed in case MAJOR DEEPAK MEHTA [2011 (11) TMI 462 - CHATTISGARH HIGH COURT] Considering the fact that the A.O in the present case before us, had wrongly assumed jurisdiction and made the impugned additions vide his order passed u/s. 143(3)/147 we herein quash the same. Decided in favour of assessee. Validity of scrutiny assessments - converting the “limited scrutiny” into “complete scrutiny” - additions on items not covered under scope of limited scrutiny - HELD THAT:- As is discernible from the assessment order the case of the assessee company was selected for “limited scrutiny” for the following reason: “(i) Large share premium received during the year (verify applicability of Section 56(2)(viib)” Admittedly, it is a matter of fact borne from record which has not been rebutted by the Ld. DR that the A.O at no stage of the assessment proceedings had obtained approval of the Pr. CIT for converting the “limited scrutiny” into “complete scrutiny” as provided by the CBDT Circular No. 20/2015 [F. No.225/269/2015-ITA-II], dated 29.12.2015. Considering we find, that as stated by the AR, and rightly so, the scope of jurisdiction of the A.O while framing the “limited scrutiny” was circumscribed by the very purpose/reason, for which, the case of the assessee company was selected for scrutiny assessment. Accordingly, we find substance in the claim of the AR that the A.O had clearly exceeded his jurisdiction by making disallowances/additions which never formed the basis for selection of the case of the assessee company for “limited scrutiny”. Our aforesaid view is fortified by the order of the Co-ordinate Bench of the Tribunal, Raipur in the case of Aryadeep Complex (P) Ltd [2022 (8) TMI 383 - ITAT RAIPUR]. Considering the fact that the A.O in the present case before us, had wrongly assumed jurisdiction and made the impugned additions/disallowances vide his order passed u/s. 143(3) we herein vacate the same. Decided in favour of assessee. Issues Involved:1. Validity of jurisdiction assumed by the Assessing Officer (A.O) under Sections 143(3)/147.2. Additions confirmed by the Commissioner of Income-tax (Appeals) under Sections 2(22)(e) and 40(a)(ia).3. Disallowance of interest expenses on an estimated basis.4. Scope of limited scrutiny and the jurisdiction of the A.O in making additions beyond the specified issues.Summary:Issue 1: Validity of Jurisdiction Assumed by A.O under Sections 143(3)/147The primary issue was whether the A.O had validly assumed jurisdiction and framed the assessment under Sections 143(3)/147. The A.O reopened the case based on the reason to believe that the assessee had received interest income of Rs. 7,21,147/- which had escaped assessment. However, the A.O did not make any addition regarding this interest income but made independent additions. The Tribunal found that since the A.O did not make any addition regarding the reason for reopening the assessment, he could not assume valid jurisdiction to make other additions. This view was supported by the judgment in CIT Vs. Jet Airways (I) Ltd. (2011) and other judicial pronouncements. Consequently, the Tribunal quashed the assessment for lack of valid jurisdiction.Issue 2: Additions Confirmed by CIT(A) under Sections 2(22)(e) and 40(a)(ia)The CIT(A) confirmed the addition of Rs. 91,16,214/- as deemed dividend under Section 2(22)(e) and Rs. 1,23,312/- under Section 40(a)(ia). The Tribunal did not delve into the merits of these additions as it had already quashed the assessment due to the invalid assumption of jurisdiction by the A.O.Issue 3: Disallowance of Interest Expenses on an Estimated BasisThe CIT(A) also confirmed the disallowance of Rs. 82,208/- out of interest expenses on an estimated basis. Similar to the other additions, the Tribunal refrained from adjudicating this issue due to the quashing of the assessment for lack of valid jurisdiction.Issue 4: Scope of Limited Scrutiny and Jurisdiction of A.OFor the assessment year 2015-16, the A.O made additions on issues not covered under the scope of limited scrutiny. The Tribunal observed that the case was selected for limited scrutiny to verify the applicability of Section 56(2)(viib) regarding large share premium received. The A.O made additions/disallowances on issues beyond this scope without obtaining the necessary approval to convert the limited scrutiny into complete scrutiny. The Tribunal found that the A.O exceeded his jurisdiction by making these additions, relying on CBDT Instruction No. 20/2015 and various judicial pronouncements. Consequently, the Tribunal vacated the additions/disallowances made by the A.O for the assessment year 2015-16 as well.Conclusion:Both appeals of the assessee company were allowed. The Tribunal quashed the assessments for both assessment years 2013-14 and 2015-16 due to the invalid assumption of jurisdiction by the A.O and the exceeding of jurisdiction in the case of limited scrutiny.