TaxTMI 
TaxTMI 
2025 (3) TMI 1989
X X X X Extracts X X X X
X X X X Extracts X X X X
....n law and on facts in confirming the finding of the ld. AO that the assessee failed to deduct tax at source on payment made to M/s. Ganpati Communication. 4. The appellant craves leave to modify, alter or add any of the ground or all the grounds of appeal. The assessee has also raised one additional ground (ground no. 5) and prayed for admission of the same. The additional ground reads as under :- 5. The ld. AO erred in law and on facts in making addition which were not covered under scope of Limited Scrutiny assessment. 3. We have heard the ld. AR as well as the ld. DR on the admission of additional ground. The additional ground raised by the assessee is nothing but new legal plea arose out of reassessment proceedings initiated by AO which was under challenge before this Tribunal. The new legal plea does not require investigation into factual aspects before either accepting or rejecting the contentions. The appellant submits that the additional ground is purely legal in character and goes to the root of the matter; and therefore, the same may be admitted for adjudication on merits. Consequently, as per the ratio laid down by the Hon'ble Apex Court in the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erred. Vodafone has instructed us to make the payment to Dealer and on behalf of Vodafone we paid money to Ganpati Communication for which we have mark up certain amount. During the year whatever we have earned we have treated it as our income and this practice we followed from past year also.' The amount we have transferred to M/s. Ganpati Communication has been reimbursed by the Vodafone Company to us. Copy of bills enclosed for reference." The AO considered the reply and observed that the entity has not provided any proof of any instruction received by it from Vodafone for any further payment as claimed nor has furnished any agreement or contract entered by it with either Vodafone or Ganpati Communication in lieu of which it has claimed such payment to Ganpati Communication. The AO noticed that the assessee, thereafter claimed to have paid an amount of Rs. 1,04,35,000/- to another entity Ganpati Communication. The assessee was asked to provide the reason, rationale, business purpose and proof of such payment. The AO noted that the entity has deducted no TDS on the said payment. The assessee submitted the following reply in response to query raised by the AO : ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the ld AO has not found any discrepancy in the receipts side. Then the ld AO issued further show cause notices on 08/10/2018 and 23/10/2018 (PB 15-16) making enquiries about issues other than selected in limited scrutiny- Notice dated 08/10/2018 a. It is noted that you have claimed to have paid an amount of Rs. 10435000/- directly to dealers. In this regard kindly furnish the ledger account corroborating the same, along with relevant portion of your bank account statement. Notice dated 23/10/2018 b. Kindly produce the ledger a/c of Vodafone M-pesa Limited from 1.4.2014 to 31.3.2016 in your books. Kindly also produce all bills & vouchers related to Mpaisa Promotional Services a/c during the period. c. You have claimed to have made payment of Rs. 10435000/- to dealers. Kindly provide name, PAN, Postal addresses of all the dealers along with their ledgers. Kindly explain why you have made payment to the dealers when no service has been provided by them to you. d. Kindly state with proof whether TDS has been deducted by you on payment made to dealers amounting of Rs. 10435000/-. Kindly explain why the same should not be c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-tax Officer* [2024] 165 taxmann.com 154 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'B' (CLPB 5-5) iii) VUDATHA VANI RAO v. Income-tax Officer* [2024] 159 taxmann.com 1394 (Visakhapatnam - Trib.) IN THE ITAT VISAKHAPATNAM BENCH 'SMC' (CLPB 6-8) iv) Urban Improvement Co Pvt Ltd vs. ITO ward 27(2)Delhi- ITAT Delhi ITA no. 7496/Del/2019 AY 2015-16 (CLPB 9-17) v) Weilburger Coatings (India) (P.) Ltd. v. Deputy Commissioner of Income-tax* [2024] 165 taxmann.com 232 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'C' (CLPB 18-19) vi) Rajesh Jain v ITO Ward-1 Jind (2007) 162 Taxman 212 (Chandigarh) (CLPB 20-22) vii) GurbachanKaur v Dy CIT (2019) TaxPub(DT) 8127 (Jp-Trib.) (CLPB 23-31) viii) Rajnikant S Bhalavat v ACIT Circle 5(1) Ahmedabad ITA no, 495/Ahd/2019 of AY 2015-16 dated 23/12/2022 (CLPB 32-38) ix) SmtManjuKaushik v DCIT (2020) 113 taxmann.com 643 (Jaipur-Trib) 09/12/2019 (CLPB 39-48) We pray the Hon'ble bench to direct the ld. AO to delete addition of Rs. 1,04,35,000/- under the facts and circumstances of the case and in view of judicial precedents." The ld. A/R of the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....crutiny arbitrarily without any authorization. CBDT took serious views on Assessing Officers who are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. (Please refer Letter F.No. DGIT (Vig.)/HQ/SI/2017-18 dated 30.11.2017)Please see at page no. 19 and 20 of this submission. 3. History, Concept and Purpose of Limited Scrutiny:- Before proceeding further we would like to submit a detailed analysis on the history, concept and purpose of limited scrutiny. a) Law prior to 1st June 2003: It is submitted that Limited Scrutiny was initially started for verification of Claim of Loss/exemption/deduction/allowance or relief made in the return. Income-tax Officer, 1(2)(4), Mumbai VS Pericles Foods (P.)Ltd.[2007] 17 SOT 602 (MUM.) In this case the issue was in limited scrutiny can the head of income be changed? The ITAT held that the AO could either allow or disallow the deduction. He could not change the head of income. Bholanath R. Sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oned that "The scope of enquiry should be limited to verification of these particular aspects only". Procedure is clearly mentioned for widening the scope of Limited scrutiny in para 4. At this place it is important here to go by the meaning for the phrase "Particular Aspects". "A particular aspect is a specific feature or detail of something and it implies focusing on one element instead of considering the whole." (Source-Cambridge English Corpus) e) Instruction no. 20/2015 came on 29.12.2015: This instruction was issued to clarify instruction no. 7/2014 and also to issue further instructions for CASS-2015. In this instructions it is clarified that reasons/issues will be communicated to assessee concerned and questionnaire under section 142(1) shall remain confined only to the specific reasons/issues for which case was picked up for scrutiny. Even Scope of enquiry is also restricted to the specific issue based enquiry only (para 2(iii) of the Instruction no. 20/2015). Procedure for expanding the scope is elaborated in para (d)of the instruction and mentioned that after following the procedure for complete scrutiny Para (a) to (c) of poi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of notices i.e. 1) Limited Scrutiny, 2) Complete Scrutiny and 3) Manual scrutiny and provided the formats of the notices. It was also urged that henceforth notices will be provided in these revised formats. h) Now we would like to summarize the entire discussion:- (i) Scrutiny selection under CASS is based on parameters of AIR/CIB/26AS data. (ii) Limited scrutiny is based only on specific issue or say on a particular or on a specific aspect or on a fixed issue and according to instructions there is no room for diversion or say elasticity in application of that instruction. We strongly submit that limited scrutiny is issue based scrutiny and not ledger based or book based or statement based scrutiny. Any further issue emanates from the selected issue is not covered in the limited scrutiny. This rigidity in the CBDT instructions are essential to maintain the sanctity of the phrase "Limited Scrutiny". Otherwise there is no meaning of the word Limited Scrutiny. Here it is important to note that to maintain the sanctity of the phrase "limited scrutiny", CBDT directed the AOs that the questionnaire u/s 142(1) shall remain confined only to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed as to do favour to the State nor can it be so narrowed as to benefit the person sought to be taxed. If the language used in a fiscal statute is so wide as to include within it a large number of cases which perhaps were not intended to be covered, the Court has no option but so give effect to it. If the words in taxing enactment are capable of two reasonable interpretations without doing violence to the language used, the interpretation which favours the person sought to be taxed has to be accepted. A taxing enactment does not apply by implication, and a logical extensions are prohibited. Equitable considerations cannot be taken into account while construing a taxing statute. We place reliance on judgment of Hon'ble Rajasthan High Court in the case of Chaturbhuj Gattani & Anr v. ITO 2024 Tax Pub(DT) 134 (2024) 468 ITR 0295 where in para 24 it is confirmed by court that- "It is settled that the words used in the provisions of taxing statute are required to be given their plain meaning and nothing can be implied from or read into it." 4. In the case of the assessee issue of limited scrutiny was - "Whether contract receipts/Fees have been correctl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....khapatnam) [2024] 159 taxmann.com 1394:- Issue: The issue was "to examine the cash deposit during demonetization period." Order passed by AO: AO added cash deposited in the income during the period from 05.11.2016 to 17.12.2016 as unexplained cash. Contention of the Assessee: Rs. 100000/- was deposited on 04.11.2016 and 400000/-was deposited on 08.11.2016 was outside the purview of demonetization and by doing so AO exceeded the limit. Held: Allowed the relief to that extent. Conclusion:- ITAT did not permit AO to go beyond the direction despite the fact that the entries of cash deposits reflected in the same bank statement. b) Urban Improvement Co. Pvt. Ltd. v ITO WD 27(2) Delhi ITA no. 7496/Del/2019 Issue:- Real Estate business with high closing stock (verify whether assessee has adopted percentage completion method) Order Passed by AO:- AO found that assessee company sold some plots below circle rate and made addition accordingly u/s 43CA. Contention of the Assessee: Assessee took objection for not following the CBDT instruction for conversion of scrutiny from limited to complete scrutiny. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the P&L account Order passed by A.O:- AO added unsecured loans of Rs. 8000000.00 as unexplained cash credit under section 68 of the Act. AO converted limited scrutiny to complete scrutiny on 14.12.2017 and framed order on 28.12.2017. Contention of the Assessee: Assessee submitted that AO enquired on unsecured loans prior to 14.12.2017, whereas he got approval on 14.12.2017 and it is against the provision of the ACT. Held: That the assessing officer has exceeded his jurisdiction in enquiring into those issues beyond the scope of limited scrutiny even prior to the date of conversion which is in clear violation of mandate given by the CBDT vide circular no. 5/2016. Conclusion:- CBDT circulars/Instructions are to be followed strictly by AO's. Circulars are not meant for the purpose of permitting unscrupulous assessees from evading tax. Even assuming, that to be so, it cannot be said that the department, which is state, can be permitted to selectively apply the standards set by themselves for their own conduct. If this type of deviation is permitted, the consequence will be that floodgate of corruption will be opened which is not desirable to encour....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Held: In the opinion of the bench the In our opinion AO has no power to touch upon any issue which is not the subject matter of limited scrutiny ( page-2 para 3-4th line) Conclusion:- Limited scrutiny is issue based and AO can only touch the subjected issue. g) Mahendra Singh Dhankhar HUF Vs. The ACIT, Circle, Jhunjhnu ITA No. 265/JP/2020 Issue: Revision order of Limited Scrutiny Case by PCIT by saying that certain matters were not examined by the AO. Issues before the AO were (i) Sale Consideration in property is less than sale consideration reported in CIB (ii) Mismatch in sale turnover reported in Audit report and ITR, and (iii) Value of property transferred as reported in AIR is higher than the value of property transferred as reported in return of income. PCIT in revision raised the issues (i) Taking the cost of complete project while calculating profit for the year under consideration instead of cost debited till the date of Balance sheet. (ii) Taking the agriculture income in the capital account and not in the computation of income. Order passed by A.O:- In the instant case AO passed an order and made addition on account of LTCG o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erified by the AO and not claimed as business expense and had produced the detail and had claimed u/s 57 of the IT Act. Held: The AO, after taking into consideration of all the issues, passed the order of limited scrutiny. However, observations of PCIT are beyond the points mentioned for limited scrutiny; hence order of PCIT is quashed. Conclusion:- Issue of interest does not permit to investigate the loan creditors. Any further issue emanates from the selected issue is not covered in the limited scrutiny i) Shri Arun Kumar Palawat Vs. PCIT, Jaipur-1, ITA No. 144/JP/2022 Issue: The issue was "Deduction against Income from other sources." AO enquired the issue and passed the order. PCIT did not agree to this and passed revision notice in respect of following issues:- (a) Utilization of loan raised (b) Rate of interest on loan received and advanced (c) Nexus between loan taken and loan advanced and (d) Reason of excess interest paid to the extent of Rs. 2270883/- over interest earned. Order passed by AO & PCIT:- AO passed order at the returned income. PCIT disagreed to order passed by AO and passed the order against the assessee. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a limited scrutiny case or a detailed scrutiny case with the approval of competent authority. To our understanding, it was a limited scrutiny case being selected under CASS for examination of cash deposit during the period of demonetization only. By expanding the scope of scrutiny beyond the issue of cash deposits during demonetization period, amounts to exceeding the jurisdiction by the ld. PCIT without following the prescribed procedures and the administrative guidelines under the law." Bench after discussion on this issue allowed the appeal of the assessee. Conclusion: In view of Hon'ble ITAT the issue of agriculture income and unsecured loans were not parameters of selection of the case for scrutiny under CASS (Page-8 Para 6.2 Bottom six lines). k) Manju Kaushik vs. DCIT- Range-7, Jaipur, ITA No. 1419/JP/2019 Issue: The issue was "Increase in Capital". AO converted the case of complete scrutiny and accordingly AO issued notice on 25.11.2016. A/R stated that department issued notice prior to conversion of case from Limited to Complete and according to him permission was granted on 28.11.2016 and conveyed to AO on 29.11.2016 and produced the letter. D/R....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Details pertaining to the issues were called for from the assessee and examined as per record. Based on the submission, verification and factual position as per record, the following issues have been identified. 3. Issue of Non business expenses/payment" It alone shows that no procedure has been followed by Ld. AO to convert the scrutiny from limited to complete. We have already submitted that:- a) In the instant case learned AO herself accepted that she had identified a different issue[issue which is altogether different from which was informed to assessee vide notice u/s 143(2)] without forming a reasonable view and recording the satisfaction and obtaining prior approval which is absolutely against the CBDT instructions issued from time to time. Ld. AO herself mentioned in the assessment order that "following issues have been identified." b) CBDT instructions are to be read as verbatim and not by own interpretation. c) Ld. AO must restrict herself to examine the matters for which matter was selected for limited scrutiny. d) Limited scrutiny is always issue based and AOs can only touch the subjected issue. e) The l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 16.10.2024 addressed to Addl. CIT (Sr. DR)-II, ITAT Jaipur, for consideration, which are reproduced hereunder :- " In this connection, it is submitted that ground number 1 to 3 are similar to the grounds taken by the assessee before ld. CIT(A) which is regarding the disallowance of Rs. 1,04,35,000/- claimed by the assessee as business expense. The ld.AO in its assessment order disallowed the expenses and established that these are not business expenses and is basically application of income. This addition was upheld by ld. CIT(A) in its order. Assessee gave similar submission before AO & ld. CIT(A) which have been countered in the assessment order and appellate order by ld. CIT(A). The assessee has submitted similar submission before Hon'ble ITAT which has already been duly countered through proper arguments by AO & ld. CIT(A) in view of law of facts. Thus, counter submission regarding the above three grounds and submission by the assessee before Hon'ble ITAT can be noted from there to strengthen the case for effective representation. Further, the assessee has taken one additional grounds of appeal before Hon'ble ITAT which is as under :- "The ld. AO err....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry cum show cause notices dated 08.10.2018 and 23.10.2018 and made detailed enquiry on the basis of documents submitted by the assessee, about claim of expenditure of Rs. 1,04,35,000/- and ultimately disallowed Rs. 1,04,35,000/- u/s 37 holding the same to be without any business purpose. 7.1 The assessee has challenged the jurisdiction of the A.O. of examining the expenditure part under limited scrutiny. The basic argument of the assessee is that the case was selected to examine the pre-identified issue of 'Whether Contract receipts have been correctly offered to for tax' and the A.O. does not have jurisdiction to identify and enquire into other issues. The assessee has placed before us Board circulars/instruction nos. 7/2014 dated 26.09.2014, 20/2015 dated 29.12.2015 and 5/2016 dated 14.07.2016 and various judgments to support his contention where the Board and Judicial Authorities have clearly restricted the jurisdiction of the AO to the issues pre-identified for examination. On the contrary the ld. D.R. relied on the report of the A.O. dated 16/10/2024 and order of ld. CIT(Appeals). He further argued that since payment of Rs. 1,04,35,000/- was made out of contract receipts, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under 'Limited Scrutiny', the scrutiny assessment proceedings would initially be confined only to issues under 'Limited Scrutiny' and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to 'Complete Scrutiny' after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in 'Limited Scrutiny'. The AO shall also expeditiously concerned regarding conducting 'Complete Scrutiny' in such cases." 7.3. Thus the AO is duty bound to follow the instructions in case limited scrutiny assessment proceeding are proposed to be converted into complete scrutiny and without following said procedure and necessary approval of the competent authority conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO. A contention which has been raised by the ld.DR. that since payment of Rs. 1,04,35,000/- was made out of contract receipts, the examination of the same is within the jurisdiction of the A.O. under limited scrutiny being integral part of the contractual business. In the instant case, we find that the assessee, being in business of....