Board Instructions - AIR

[Asked by Guest]

If a case is taken into scrutiny on the basis of AIR, can asseessee has any right to restrict the AO to the inquiry covered under AIR or AO has similar powers in other cases picked up in scrutiny. I think some board instructions had been issued in past and later modified or so. Please help me out.

[Surender Gupta]

There is no provision in Income Tax to restrict the power of AO to make assessment as a whole under section 143(2), (3). Once assessment proceedings are started, AO is duty bound to complete the assessment for the whole assessment year by computing the whole income.

[DEV KUMAR KOTHARI]

Prima facie I agree with Mr. Surendra Gupta that the A.O. can proceed to examine all aspects for assessment even if notice u/s 143(2) is issued on the basis of AIR. However, reading between lines of s. 143 (2) (ii) it can be said that the expressions used therein like "...if he (AO) consider it necessary or expedient to ensure that the assessee had not understated..." mean that the A.O. should have so considered by application of his mind, and therefore, there should also be recording for the same because otherwise it cannot be said that he has actually applied his mind and so considered about need of enquiry beynd what is suggested by AIR. If the notice is issued in mechanical manner based on AIR alone, and without any other reason recorded by the A.O. , the assessee can request the A.O. to restrict scope of enquiry to the aspects covered by AIR. For this purpsoe the assessee must have copy of order sheet and other relevant records, to establish that notice has been issued only on the basis of AIR and not in terms of necessity or expediency found by the A.O. after application of his mind. The matter will involve litigation and further professional assignemnts.

AI Summary

Scope of assessment: AO may examine entire assessment year even when inquiry originates from AIR.
The assessing officer may examine all aspects of income once assessment proceedings commence, not being confined to matters identified in an Audit Information Report. If a notice appears to have been issued mechanically on the basis of AIR without any independent application of mind or recorded reasons, the assessee can request restriction of the inquiry to AIR-covered issues and seek relevant order sheets and records to support that request, though resolution may require litigation.