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2019 (12) TMI 822 - AT - Income TaxDisallowance of deduction u/s 54B - Validity of assessment framed by the AO for want of jurisdiction to take up the issue of disallowance of deduction u/s 54B without having necessary approval of conversion of limited scrutiny to comprehensive scrutiny - HELD THAT:- In the proceedings for limited scrutiny the AO was satisfied with the source of increase in the capital of the assessee and even did not proceed further after the reply and documents filed by the assessee in response to the notice u/s 142(1) dated 4-07-2016. Only after dropping the said notice, the AO issued fresh notice u/s 142(1) on 25-11-2016. The AO has finally made addition only on account of disallowance of deduction u/s 54B. Therefore, at the time of initiating the complete scrutiny, the issue under limited scrutiny was not pending with the AO as he was satisfied with the reply and documentary evidence on the said issue. In the case in hand, the AO has not intimated the assessee about the conversion of limited scrutiny to complete scrutiny which is a serious violation of the instructions issued by the CBDT. AO has taken up the issue and initiated proceedings for complete scrutiny without necessary approval with him. Therefore, the issue taken up by the AO regarding disallowance of deduction u/s 54B is prior to the necessary approval communicated to the AO and therefore, in the absence of communication in writing to the AO about the approval, the assumption of jurisdiction by the AO is invalid. Consequently, the addition made by the AO by denying the deduction u/s 54B is not sustainable and the same is deleted. - Decided in favour of assessee.
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