2025 (6) TMI 1631 - AT - Income Tax

Jurisdiction of DCIT Circle 3(1)(2) over the case of the assessee - HELD THAT - The income declared by the assessee in the current year was above Rs. 30 lacs and thus the jurisdiction over the case was with the ACIT/DCIT in accordance with the CBDT Instruction. Merely because the assessment of past year was made by the ITO it cannot be presumed that the jurisdiction for the current year will remain with the ITO. The jurisdiction was dynamic considering the CBDT Instruction and the income declared by the assessee in different years. Even if the initial notice u/s 143(2) was issued by the ITO the jurisdiction was required to be transferred to the ACIT/DCIT considering the fact that the returned income of the assessee in the current year was in excess of Rs. 30, 00, 000/-. Therefore the contention of the assessee that the AO had no jurisdiction over the case can t be accepted. The jurisdiction over the case for the current year was with the ACIT/DCIT and not with the ITO. The jurisdiction was also rightly assumed by the ACIT/DCIT by issue of notice u/s 143(2) of the Act dated 26.07.2016. Therefore the assessment order as passed by the DCIT Circle 3(1)(2) Ahmedabad in this case cannot be held as without jurisdiction. Accordingly the ground raised by the assessee in respect of jurisdiction over the case is dismissed. Conversion of limited scrutiny into complete scrutiny by the AO and making ad hoc addition without identifying the nature of addition - Addition was finally restricted only to the issues of limited scrutiny. In fact the assessee itself was to be blamed for this addition as no compliance at all was made before the AO. The assessee has acknowledged receipt of the notices issued by the AO. When the compliance was made before the ITO the assessee could have simply filed a copy of those submissions before the AO as well. In the absence of any explanation in respect of the discrepancies on the two of the issues of limited scrutiny the AO had no option but to make the addition. The objection taken by the assessee on the addition beyond the limited scrutiny issues is no longer res integra as the same stands rectified by the AO. The entire addition can t be held as beyond jurisdiction and the assessment order can t be quashed for this reason. Moreover the assessment has already been set aside by the CIT(A) for denovo assessment on the issues after giving another opportunity to the assessee to present his case and after verification of the facts of the case. Hence the assessee under the circumstances at this stage is not left with any grievance relating to the impugned additions made by the AO. Therefore the ground by the assessee in this regard are dismissed. Assessee is against setting aside the matter to the file of the AO for making fresh assessment - As explained by the assessee itself in the rejoinder to the remand report these differences could have been reconciled only after obtaining specific information/bill-wise details in respect of the data as uploaded on ITD. In the absence of such details it was not feasible for the CIT(A) to decide the issue on merit. Therefore he had rightly set aside the matter to the file of the AO with a direction to allow another opportunity of being heard to the assessee and decide the matter afresh after verification of the facts of the case. Since the CIT(A) could not have decided the matter on merits in the absence of necessary details there was nothing wrong in his setting aside the matter to the file of the AO for deciding the matter afresh after conducing further enquiries and verifications as deemed necessary. Therefore the ground as taken by the assessee is dismissed. Appeal of the assessee is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal include:

(a) Whether the Assessing Officer (AO), specifically the Deputy Commissioner of Income Tax (DCIT), Circle 3(1)(2), Ahmedabad, had jurisdiction to pass the assessment order for the Assessment Year 2015-16, despite simultaneous notices issued by the Income Tax Officer (ITO), Ward 3(1)(3), Ahmedabad.

(b) Whether the AO exceeded his jurisdiction by converting a limited scrutiny assessment into a complete scrutiny assessment and making an ad hoc addition of Rs. 2,50,00,000/- without identifying the nature and basis of the addition.

(c) Whether the addition of Rs. 2,50,00,000/- is justified in light of the discrepancies found in import turnover, customs duty payments, payments to related persons, and duty drawback receipts/receivables.

(d) Whether the First Appellate Authority (CIT(A)) erred in setting aside the assessment to the file of the AO for fresh adjudication without deciding the grounds raised by the assessee on merits, especially when a remand report had already been obtained.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Jurisdiction of the Assessing Officer

Legal Framework and Precedents: The Income Tax Act, 1961, along with CBDT instructions, governs the territorial and monetary jurisdiction of Income Tax Officers and Deputy Commissioners. The CBDT Instruction No. 1/2011 dated 31-1-2011 prescribes pecuniary limits for assignment of cases between ITOs and ACs/DCs, with higher income cases assigned to ACs/DCs.

Court's Interpretation and Reasoning: The Tribunal observed that both the ITO and DCIT issued notices under Section 143(2) of the Act. However, the monetary limit for the case, based on the declared income exceeding Rs. 30 lakhs, placed jurisdiction with the ACIT/DCIT as per CBDT instructions. The Tribunal emphasized that territorial jurisdiction is common within the Range, and assignment depends on monetary limits, which are dynamic and can change year to year.

Key Evidence and Findings: The assessee filed copies of notices issued by both officers. The Tribunal noted that the initial notice by the ITO does not preclude jurisdiction of the DCIT when the pecuniary limit is exceeded.

Application of Law to Facts: Since the declared income was above Rs. 30 lakhs, jurisdiction was rightly assumed by the DCIT. The Tribunal rejected the contention that the DCIT lacked jurisdiction and held the assessment order as valid in this regard.

Treatment of Competing Arguments: The assessee argued that the DCIT had no jurisdiction and the order was void ab initio. The Tribunal rejected this, relying on CBDT instructions and the dynamic nature of jurisdiction.

Conclusion: The ground challenging jurisdiction was dismissed.

(b) Conversion of Limited Scrutiny into Complete Scrutiny and Ad Hoc Addition

Legal Framework and Precedents: The CBDT guidelines on limited scrutiny assessments restrict the AO to examine only specified issues for which the case is selected. Any additions beyond these issues are considered beyond jurisdiction.

Court's Interpretation and Reasoning: The Tribunal acknowledged that the case was selected for limited scrutiny on specific issues - import turnover mismatch, customs duty payment mismatch, payment to related persons, and duty drawback discrepancies. The AO made an ad hoc addition of Rs. 2.5 crores, which exceeded the specific issues.

Key Evidence and Findings: The AO identified discrepancies amounting to Rs. 2,11,04,500/- in import purchases and Rs. 51,538/- in duty drawback mismatch, totaling Rs. 2,11,56,038/-. The AO later rectified the order under Section 154, reducing the addition to this amount.

Application of Law to Facts: The Tribunal held that while the AO was not empowered to exceed the limited scrutiny scope, the addition corresponding to the identified discrepancies was valid. The excess addition was illegal but rectified by the AO's subsequent order.

Treatment of Competing Arguments: The assessee argued that the entire addition was unjustified and beyond jurisdiction. The Tribunal found that the addition to the extent of the discrepancies was justified due to the assessee's failure to comply with notices and explain mismatches.

Conclusion: Grounds related to conversion of scrutiny and ad hoc addition were dismissed, with the Tribunal upholding the rectified addition amount.

(c) Justification of the Addition of Rs. 2,50,00,000/-

Legal Framework and Precedents: Section 40A(2)(b) of the Income Tax Act allows disallowance of unreasonable payments to specified persons. Section 145(2) requires adherence to accounting standards. The AO can make additions if accounts are not verifiable or incomplete.

Court's Interpretation and Reasoning: The AO found that the assessee did not furnish explanations or comply with notices regarding mismatches in import turnover, customs duty payments, and duty drawback receipts. Consequently, the AO held the accounts unverifiable and non-compliant with accounting standards, justifying additions.

Key Evidence and Findings: The assessee declared purchase of Rs. 4.87 crores, whereas import invoice value was Rs. 6.99 crores, a difference of Rs. 2.11 crores unexplained. Duty drawback difference was Rs. 51,538/-. Payments to related persons amounting to Rs. 11.5 lakhs were found unreasonable. The assessee also failed to explain the diversion of loans.

Application of Law to Facts: The Tribunal noted that the addition was warranted due to lack of explanation and compliance, consistent with the AO's authority under the Act. The assessee's failure to provide necessary details justified the additions.

Treatment of Competing Arguments: The assessee contended that the mismatches could be reconciled with proper information from Customs, which was not provided by the AO. However, the Tribunal found that the absence of compliance and explanation justified the AO's action.

Conclusion: The addition was justified to the extent of the discrepancies identified.

(d) Setting Aside the Assessment to the AO for Fresh Adjudication

Legal Framework and Precedents: The appellate authority has discretion to remand cases for fresh assessment where facts are not fully verified or evidence is incomplete. The appellate authority may decide on merits if facts are sufficiently on record.

Court's Interpretation and Reasoning: The CIT(A) set aside the assessment for fresh adjudication because the discrepancies could only be reconciled after obtaining detailed bill-wise information from Customs, which was not available. The remand report from the AO confirmed that reconciliation was not possible without further inquiry.

Key Evidence and Findings: The assessee submitted rejoinder stating that the AO did not carry out necessary enquiries and did not obtain complete information from Customs. The CIT(A) found merit in this and directed fresh assessment after verification.

Application of Law to Facts: The Tribunal held that the CIT(A) acted correctly in remanding the matter, as deciding on merits without complete information would be improper. The appellate authority's discretion to remand for further inquiry was justified.

Treatment of Competing Arguments: The assessee argued that the CIT(A) should have decided the grounds on merits since a remand report was available. The Tribunal disagreed, emphasizing the need for complete factual verification before adjudication.

Conclusion: The ground challenging the remand was dismissed.

3. SIGNIFICANT HOLDINGS

"Merely because the notices were issued both by the ITO as well as by the ACIT, it cannot be concluded that the ACIT was having no jurisdiction over the case. The territorial jurisdiction of the ITO and the ACIT/DCIT working in the same Range is common. Within the common jurisdiction, the cases are assigned to the ITO and to the ACIT/DCIT on the basis of the monetary limit."

"The income declared by the assessee in the current year was above Rs. 30 lakhs and thus the jurisdiction over the case was with the ACIT/DCIT in accordance with the CBDT Instruction."

"The AO was entitled to make addition to the extent of the total difference of Rs. 2,11,56,038/- as identified in the assessment order. Only the addition made in excess of the identified difference can be held as beyond jurisdiction. The Assessing Officer had rectified this mistake by passing an order under Section 154 of the Act whereby the addition was restricted to Rs. 2,11,56,038/- which pertained to the issues on which the case was selected for limited scrutiny."

"In the absence of such details, it was not feasible for the Ld. CIT(A) to decide the issue on merit. Therefore, he had rightly set aside the matter to the file of the AO with a direction to allow another opportunity of being heard to the assessee and decide the matter afresh after verification of the facts of the case."

Core principles established include the dynamic nature of jurisdiction based on monetary limits and CBDT instructions, the limitation of AO's powers in limited scrutiny assessments to the specific issues selected, and the appellate authority's discretion to remand for fresh inquiry when factual details are incomplete.

Final determinations:

(i) The AO had jurisdiction to pass the assessment order.

(ii) The AO exceeded jurisdiction by making ad hoc additions beyond limited scrutiny issues, but this was rectified, and additions to the extent of identified discrepancies were valid.

(iii) The addition of Rs. 2,11,56,038/- was justified due to unexplained mismatches and non-compliance.

(iv) The CIT(A) correctly remanded the matter for fresh assessment due to incomplete factual verification, and this was not erroneous.

The appeal was dismissed accordingly.