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2020 (12) TMI 1105 - ITAT DELHIScope of limited scrutiny - case of the assessee was selected for Limited Scrutiny and later on converted to Full Scrutiny without according an opportunity to the assessee and therefore in violation of principle of natural justice - additions of unsecured loan from the Directors and their relatives - HELD THAT:- In the present case, the day on which case was converted into full scrutiny i.e. on 21.12.2016 the ld. AO on the very next day passed the order of assessment by making the addition which were beyond the scope of limited scrutiny. Further looking at the notices dated 3.05.2016 under Section 142(1) of the Act; notice dated 26.06.2016 u/s 142(1); notice dated 21.07.2016 u/s 142(1) and further notice dated 15.09.2016 u/s 142(1), it is apparent that AO started making roving enquiries on the issue which was not the subject matter of limited scrutiny. He even framed draft assessment order and then sought approval of Pr CIT for conversion in to Full scrutiny from Limited scrutiny. Non-adherence to CBDT instruction which are binding on the AO makes the order of the ld. AO illegal and without jurisdiction . Assessing Officer is duty bound to follow the instructions issued by the CBDT. Therefore, the CBDT circulars not followed by the ld. AO are not acceptable for making the addition which are in violation of that circular. In the present case only the additions of unsecured loan from the Directors and their relatives were not covered in the limited scrutiny aspect. Addition accordingly as well as loan are deserved to be deleted on this ground itself. Addition u/s 68 - Loan was taken from the Director of the company and same were supported by the confirmation, Income Tax Return and details of the source of funds available with the Director evidenced from the pass book. Assessing Officer without making any enquiry disbelieved the submission made by the assessee. In view of this, it is apparent that even on the merits assessee has clearly established the identity, creditworthiness and genuineness of the loans. Assessee in this case has discharged the basic onus cast up on it by producing the confirmation, Income Tax Returns, bank statements, details of source of funds in case of each of the depositors. The ld AO should have thrown back onus on assessee by making inquiries and proving otherwise. This has not been done. Thus the addition made as such on merits is also not sustainable. Addition made by the ld. AO and confirmed by the ld. CIT (Appeals) under Section 68 of the Act deserves to be deleted for the reason that ( 1) it was not part of reasons for limited scrutiny, ( 2) no enquiries made by the Assessing Officer on the basic onus discharged by assessee of loans. and (3) on the very next day of conversion of case from limited scrutiny to complete scrutiny assessment order is passed, (4) Framing of the draft assessment order and sent to PR CIT along with seeking approval for conversion of limited scrutiny case to complete scrutiny. Addition u/s 56 - Fair market value of the share on the basis of discounted cash flow method - Limited scrutiny for verification of large share premium received during the year survives as it was part of the reasons for which the case of the assessee was selected for limited scrutiny - On careful examination of Ru le 11UA of the Income tax Rules, 1962, the assessee can value the shares for determining its fair market value of unquoted equity share either at the book value of the assets as per the prescribed formula or as per the discounted free cash flow method. The assessee has justified the valuation of shares by adopting discounted free cash flow method and such method is one of the acceptable methods as per Rule 11UA and the ld. CIT (Appeals) did not find any fault in the same. AO was also supplied with the above evidences and did not comment against the same. Unless the valuation made by the assessee applying Discounted cash flow method is not found fault with by pointing out deficiencies and inadequacies, same cannot be rejected at threshold. In view of this, we do not find any merit in the addition. In view of this the addition made under Section 56(2)(viib) is devoid of any merit.
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