AO exceeded jurisdiction making additions outside limited scrutiny scope without converting to complete scrutiny per CBDT Circular 3/2017

The ITAT Patna held that the AO exceeded jurisdiction by making additions outside the scope of limited scrutiny. The assessee's case was selected for scrutiny to examine large cash deposits, but the AO made additions totaling Rs. 1,36,60,875 for peak credit of unexplained deposits and under-reporting of income per Form 26AS, which were not related to the original scrutiny subject matter. The AO failed to convert limited scrutiny to complete scrutiny as required by CBDT Circular 3/2017. Following precedent in Vudatha Vani Rao, the ITAT deleted the additions as being without jurisdiction and allowed the assessee's appeal.

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Issues: Jurisdiction of Assessing Officer in Limited Scrutiny Assessment

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2017-18. During the hearing, the counsel for the assessee raised an additional ground challenging the jurisdiction of the Assessing Officer (AO) to make additions beyond the limited scrutiny scope. The AO had made additions not related to the limited scrutiny issue of large cash deposits in bank accounts. The counsel relied on the decision of the Hon'ble Apex Court in National Thermal Power Co. Ltd. Vs. CIT to support the admission of the additional ground for adjudication.

The Departmental Representative (D.R.) argued that the issue was not raised before the lower authorities and should be dismissed. However, the Tribunal admitted the additional ground for adjudication based on the facts and the legal position established in the National Thermal Power Co. Ltd. case. The facts revealed that the AO made additions unrelated to the limited scrutiny issue, despite not converting the limited scrutiny into complete scrutiny as per CBDT Circular/Instruction No.3/2017. The Tribunal observed that the additions made by the AO were beyond jurisdiction and not sustainable.

The assessee's return was selected for limited scrutiny to verify large cash deposits in bank accounts. The AO, however, made additions unrelated to cash deposits, leading to the challenge of jurisdiction. The Tribunal noted that the AO did not convert limited scrutiny into complete scrutiny as required by CBDT Circular, and the additions made were not in line with the limited scrutiny issue. Citing the PCIT vs. Weilburger Coatings (India) Pvt. Limited case, the Tribunal held that the AO's actions were without jurisdiction. Additionally, a similar decision in Vudatha Vani Rao vs. Income Tax Officer supported the deletion of such additions.

In light of the judicial precedents and the facts of the case, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the additions made beyond the limited scrutiny issue. The appeal was allowed based on the additional ground challenging the AO's jurisdiction. The Tribunal did not adjudicate on other grounds on merits, leaving them open for future consideration if necessary.

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