The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) held that the Assessing Officer ( AO ) cannot examine any other issue in Limited scrutiny except for which it was notified and any addition made outside the scope stating that it was arbitrary and invalid.
Nawal Kishore Rajgarhia, the assessee filed an Income Tax Return declaring a total income of Rs. 38,62,700, and the income tax return was selected for limited scrutiny by the assessing officer. Despite there being two specific issues involved, AO added an amount of Rs. 6,47,446 out of the two issues and denied the claim of long-term capital loss of Rs. 1,11,746.
The AO also added Rs. 15,10,175 as interest income without considering the fact that it has been already accounted for under the head ‘income from other sources’. The assessee preferred an appeal to Commissioner of Tax Appeals [CIT(A)] and it was dismissed.
Aggrieved by the CIT(A) order, the assessee filed an appeal before ITAT. The counsel of the assessee contended that the AO exceeded the scope of limited scrutiny by adding the amount of Rs. 6,47,446 and denying the claim of capital loss of Rs.1,11,746 and also contended that Rs. 15,10,175 which cannot be added as it was already accounted under the head of ‘income from other sources’.
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The counsel of the Revenue argued that AO acted within the scope of his authority and has also claimed that these issues would necessarily fall under the scope of limited scrutiny.
The two-member bench comprising Rajesh Kumar, ( Accountant Member ) and Sonjoy Sarma, ( Judicial Member ) observed that the addition by the AO of Rs.6,47,446 and disallowance of long-term capital loss claim of Rs. 1,11,746 exceeds the scope of limited scrutiny.
The tribunal held that the AO should only examine the issue for which it was ordered and cannot make additions beyond the scope. Also held that such an addition would be arbitrary and invalid. The tribunal directed the assessee to re-examine the claim of Rs. 15,10,175 as interest income and grant necessary relief to the assessee. The appeal of the assessee is partly allowed.
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