Limited scrutiny cannot support additions beyond the selected issue, while unexplained cash balance remains taxable without proper evidence.

In a limited scrutiny assessment, unexplained cash in hand was sustained because the assessee did not produce complete books or contemporaneous evidence to prove the nature and source of the cash balance, and later-filed cash book material was not admitted as additional evidence. The Tribunal also held that an addition for mismatch between Form 26AS and the return could not be made where the scrutiny was confined to cash-in-hand verification and the case was not converted into complete scrutiny in line with the applicable instructions; that addition was deleted.

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Issues: (i) Whether the addition made on account of cash in hand shown in the books could be sustained when the assessee failed to substantiate the nature and source of the cash with proper evidence. (ii) Whether the Assessing Officer could make the addition relating to difference between income reflected in Form 26AS and the return in a limited scrutiny assessment without converting the case into complete scrutiny.

Issue (i): Whether the addition made on account of cash in hand shown in the books could be sustained when the assessee failed to substantiate the nature and source of the cash with proper evidence.

Analysis: The case had been selected for limited scrutiny to verify the high cash-in-hand shown in the return. The assessee did not produce complete books or convincing contemporaneous evidence before the Assessing Officer and sought to rely only on an extract of the cash book. The Tribunal also declined to admit the later-produced cash book and cash flow statement as additional evidence, as they had not been filed in accordance with the prescribed procedure. In these circumstances, the assessee failed to discharge the burden of proving the nature and source of the cash balance.

Conclusion: The addition of the cash-in-hand amount was upheld and was against the assessee.

Issue (ii): Whether the Assessing Officer could make the addition relating to difference between income reflected in Form 26AS and the return in a limited scrutiny assessment without converting the case into complete scrutiny.

Analysis: The scrutiny was confined to a specific reason, namely verification of cash-in-hand. The addition based on the Form 26AS discrepancy arose from an issue outside the scope of the limited scrutiny. In the absence of conversion of the case into complete scrutiny in accordance with the CBDT instructions governing limited scrutiny assessments, the Assessing Officer lacked jurisdiction to travel beyond the selected issue.

Conclusion: The addition relating to Form 26AS mismatch was deleted and was in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of deletion of the addition made on the Form 26AS discrepancy, while the addition relating to cash in hand was sustained.

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