The Income Tax Appellate Tribunal ( ITAT ), New Delhi Bench quashed disallowance on lottery expenses as the Assessing Officer (AO) travelled beyond jurisdiction.
The appeal is filed by the assessee, Sahkumbari Associates, against the order of learned Commissioner of Income Tax (Appeals), Dehradun for the AY 2014-15. In the grounds of appeal the assessee challenged the order of the CIT(Appeals) in sustaining the disallowance of Rs.71 lakhs under Section 37(1) of the Income Tax Act out of lottery expenses debited to Profit and Loss Account.
The return of income of assessee for AY 2014-2015 was filed with NIL income. The case was selected for “limited scrutiny” under CASS system and the notice under Section 143(2) of Income Tax Act, 1961 was issued.
The reason for limited scrutiny was: “Substantial increase in capital in a year”; “high interest expenditure against new capital added in Work in progress or addition made to fixed assets”; This reason of limited scrutiny is duly noted in both the impugned assessment order and impugned first appeal order.
However, the AO while completing the assessment disallowance of business expenditure was made in respect of lottery/tender expenses under Section 37 of the Income Tax Act. The assessee took specific ground at first appeal stage that the stated disallowance is outside the scope of “limited scrutiny” which has not been expressly decided in impugned first appeal order but the disallowance has been ultimately sustained by Id CIT(A).
On perusal of the assessment order of the Assessing Officer it is very much clear that the case of the assessee was selected for limited scrutiny to verify substantial increase in capital, interest expenditure against new capital added in work-in-progress or additions made to fixed assets. There is no finding by the Assessing Officer whether the limited scrutiny was converted into full scrutiny and for this purpose necessary approvals have been obtained.
The Tribunal of Anil Chaturvedi, Accountant Member and Challa Nagendra Prasad, Judicial Member observed that “We hold that the Assessing Officer travelled beyond his jurisdiction and made disallowances under Section 37(1)/40A(3) of the Income Tax Act which were not the items for consideration in the limited scrutiny and, therefore, the assessment order passed under Section 143(3) of the Act is liable to be quashed.”
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