TMI Blog2023 (4) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure laid down as stated , the AO may examine the issues other than the issues involved in the limited scrutiny but in the present case the procedures were not followed and assessment was conducted in violation of this Instruction. In our opinion, the order passed by the AO is bad in law and cannot be sustained - Decided in favour of assessee. - I.T.A. No. 2611/Kol/2019 & 148/Kol/2020 - - - Dated:- 23-2-2023 - Shri Rajesh Kumar, Accountant Member And Shri Sonjoy Sarma, Judicial Member For the Appellant: Shri Manish Tiwari, FCA For the Respondent: Shri Sudipta Guha, CITDR ORDER Per Rajesh Kumar, AM: This is the appeal preferred by the assessee and the cross- appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-12, Kolkata (hereinafter referred to as the Ld. CIT(A) ] dated 07.11.2019 for the AY 2015-16. 2. First we shall adjudicate assessee s appeal in ITA No. 2611/Kol/2019 for AY 2015-16. The assessee has raised following grounds of appeal: 1. That on the facts and in the circumstances of the case and in law, the AO grossly erred in converting the limited scrutiny to complete scrutiny on 14.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee was selected for scrutiny under the CASS under the category of limited scrutiny. The statutory notices were duly issued and served upon the assessee. In the notice issued u/s 143(2) for limited scrutiny, there were four issues stated/covered namely i) Interest expenses, ii) Income from Real Estate Business, iii) Sales Turnover mismatch and iv) Other expenses claimed in the profit and loss a/c. However, the AO issued notice u/s 142(1) of the Act dated 20.02.2017 calling for information and details as required for secured unsecured loans/deposits beside calling for the details. The assessee duly complied with the notices issued by the AO by filing the details/ evidences , complete books of accounts, audited accounts etc as desired by the AO. The AO converted the limited scrutiny into complete scrutiny on 14.12.2017 whereas the notices were issued by the AO on the issues beyond the scope of limited scrutiny priority on 14.12.2017 and finally the assessment was framed vide order dated 28.12.2017 u/s 143(3) of the Act just two days before the assessment was getting time barred. 5. The assessee challenged this legal issue before the Ld. CIT(A) that the AO has exceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsecured loan deposits which were also furnished despite the fact that he AO had no valid jurisdiction or power to call for the information under the limited scrutiny. The Ld. A.R. submitted that the AO has converted the limited scrutiny into a broad scrutiny only on 14.12.2017 whereas the enquiry was made qua the loans much prior to that date thereby rendering the assessment as nullity which deserved to be quashed on this score alone. The Ld. A.R referred to the instruction NO. 5/2016 of CBDT dated 14.07.2016 taking the bench through the procedure to be followed for conversion into complete scrutiny in a case which was originally earmarked for limited scrutiny. The ld AR contended that the AO was required to make a reasonable view that there was a possibility of under-assessment of income if the case was not examined under complete scrutiny. The ld. A.R has referred to para 3 of the instruction which says that while forming the reasonable view the AO would ensure that there exists credible material or information available on record for forming such view and this reasonable view should not be based on mere suspicion, conjecture or unreliable source and there must be a direct ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14.07.2016 which provides that while proposing to take up complete scrutiny which was fixed for limited scrutiny, the AO shall form a reasonable view that there is a possibility of under-assessment of income if the case is not examined under complete scrutiny and that plea has to be on the existence of the credible material not merely on suspicion and conjecture or unreliable sources. We note that the instruction provide that there has to be a direct nexus between the available material and formation of such view. The relevant part of the instruction are reproduced as under: 2. In order to ensure that maximum objectivity is maintained in converting a case falling under Limited Scrutiny' into a 'Complete Scrutiny' case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up 'Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer ('AO') shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under 'Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited Scrutiny into a Complete Scrutiny case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up Complete Scrutiny in a case which was originally earmarked for Limited Scrutiny , the Assessing Officer ( AO ) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under Complete Scrutiny . In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view; b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view. 6. To ensure proper monitoring in cases which have been converted from Limited Scrutiny to C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining to AIR/CIB/26AS data. Wider scrutiny in these cases can only be conducted as per the guidelines and procedures stated in Instruction No. 7/2014. iv Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data , the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned. 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year - one is 'Limited Scrutiny' and other is Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under: a. In 'Limited Scrutiny 'cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142( 1) of the Act in 'Limited Scrutiny 'cases shall remain confined only to the specific reasons/issues for which case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of cryptic order sheet entries which according to the CBDT shows irresponsible, ad hoc and in disciplined working of an Officer of the Department. A perusal of the aforesaid instructions would show that the objective behind the issuance of these instructions is (i) to prevent possibility of fishing and roving enquiries; (ii) ensure maximum objectivity; and (iii) to enforce checks and balances upon the powers of an Assessing Officer. 6.3 We have also gone through the proposal drafted by the Assessing Officer on 05.10.2017 for converting the case from limited scrutiny to complete scrutiny. This reads as under: .4. In this regard it may be mentioned here that the assessee has shown a short term capital loss on sale of shares purchased on09.07.2014 and sold on 15.02.2015 . The purchase price of the shares has been stated at Rs 499,98,440 and sale price has been mentioned at Rs 79,03,676. The resultant loss of Rs 420,94,764 has been set off by the assessee against long term capital gains. This transaction appears to be suspicious in nature and probably this loss has been created to reduce the incidence of tax on long term capital gains discussed in para 3. This issue ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself, the department is bound by that standard and cannot act with discrimination. In case, it does that, the act of the department is bound to be struck down under Article 14 of the Constitution. In the facts of the case, it is not necessary for us to decide whether the intention of CBDT was to restrict the period of issuance of notice from the date of filing the return laid down under section 143(2) of the I.T. Act. 6.6 The Co-ordinate bench of ITAT at Chandigarh in the case of Paya Kumari in ITA No.23/Chd/2011, vide order dated 24.02.2011, has held that even Section 292 BB of the Act cannot save the infirmity arising from infraction of CBDT Instructions dealing with the subject of scrutiny assessments where assessment has been framed in direct conflict with the guidelines issued by the CBDT. 6.7 Therefore, on an overall view of the factual matrix as well as settled judicial position, we are of the considered opinion that the instant conversion of the case from limited scrutiny to complete scrutiny cannot be upheld as the same is found to be in total violation of CBDT Instructions No.5/2016. Accordingly, it is our considered opinion that the entire assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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