AO can't make Addition beyond an issue which are not part of the reasons for Limited Scrutiny: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has held that AO can't make addition beyond an issue which are not part of the reasons for limited scrutiny.

Shri R.S. Ahuja, CA appeared for the assessee and Shri Vivek Vardhan appeared for the revenue.

Trehan Promoters and Builders Pvt. Ltd., the assessee had debited a license renewal fee of Rs. 13,34,000/- in its expenses which were disallowed by the A.O by working out the rightful license of the said area at Rs. 6.25 lakhs in respect of Iris Project.

 On the other hand, the CIT(A) has deleted the addition by observing that the A.O. had not taken into consideration that the 50% of the License fee received reimbursement from the other party to whom it had sold the 50% land with 50% FSI way back in 2005.

Further found that the assessee had merely claimed 6,67,000/- as its expense, while the other half expense had been received as reimbursement from M/s Weldon Technologies Park Development. The  CIT(A) has also concluded to delve into the addition by going through the breakup of direct expenses containing group Misc. work(OE)  with a copy of the ledger account license renewal fee along with the bank statement showing the credit reimbursement received.

The ITAT bench observed that the said finding was with cogent evidence and upheld the order of the CIT(A) in deleting the above disallowance of Rs. 7,09,000/- made u/s 37 of the Act by the A.O.

In the cross objection, the assessee has raised that the A.O and CIT(A) erred in making additions on grounds which were beyond the scope of reasons given under limited scrutiny selection of cases under CASS.  No permission was taken by the Pr. CIT/DIT is concerned to convert this case to complete scrutiny.

The assessment of the assessee company was selected for limited scrutiny for the reasons mentioned above, the Assessing Officer moved further to verify closing stocks of the assessee company along with other expense heads debited in the revenue account and ultimately made addition/disallowances which are not part of the reasons mentioned in the limited scrutiny.   

It was well-settled law that if a case is taken for limited scrutiny by the A.O., he cannot exceed the jurisdiction beyond the one which he has carved out himself in the notice issued for limited scrutiny. 

A Coram of Dr B R R Kumar, AM and Shri Yogesh Kumar U S, JM  observed that the Assessing Officer has travelled beyond his jurisdiction and made addition on the issues which are not part of the reasons for limited scrutiny. The Impugned addition was set aside by the Tribunal. The ITAT bench dismissed the appeal filed by the revenue and allowed the Additional Ground mentioned in the cross-objection by the assessee.

To Read the full text of the Order CLICK HERE

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