AO's Action Beyond Scope of Limited Scrutiny Invalid: ITAT Quashes Addition [Read Order]
The Tribunal held that the Assessing Officer's (AO's) action of making an addition outside the limited scope of scrutiny was beyond jurisdiction and therefore it was invalid.
Scrutiny Invalid - ITAT - Quashes Addition - taxscan
Scrutiny Invalid - ITAT - Quashes Addition - taxscan
The Raipur Bench of the Income Tax Appellate Tribunal (ITAT) quashed ₹12.34 Lakh addition made by the Assessing Officer (AO) and held that action beyond scope of limited scrutiny was invalid.
Mohammad Parvez Alam (assessee) for the Assessment Year (AY) 2017-18, the case was selected for limited scrutiny specifically to verify "cash deposit during the year". The AO, during assessment proceedings, observed that the assessee had taken a loan of Rs. 12,34,078 from his wife, Smt. Raziya Khan.
The AO initiated an enquiry into the creditworthiness of this loan. As the assessee failed to furnish the requested documents, the AO made an addition of Rs. 12,34,078 under Section 68 of the Income Tax Act, 1961.
The assessee appealed to the Commissioner ofIncome Tax (Appeals) [CIT(A)] who upheld the addition made by the AO. Aggrieved by CIT(A)’s order, the assessee filed an appeal before the ITAT.
The counsel for the assessee submitted that the AO was satisfied regarding the issue of cash deposits and made no addition in that respect. The counsel argued that the AO had exceeded his jurisdiction by going beyond the scope of limited scrutiny without an order from the competent authority.
The Single Member Bench comprising Partha Sarathi Chaudhury (Judicial Member) observed that the scrutiny was limited which was only about cash deposit during the year. The tribunal observed that the AO's action in traveling to the issue of the genuineness of the loan was beyond the scope of the limited scrutiny.
The Tribunal observed that traveling beyond the scope of limited scrutiny without any order of the competent authority is an action done by the AO without jurisdiction. The Tribunal relied on the Hon'ble Supreme Court's order in the case of Union of India Vs. Rajeev Bansal observed that an order passed without jurisdiction is a nullity.
The Tribunal noted that Article 265 of the Constitution of India mandates that any tax liability must be imposed by the authority of law with valid inherent jurisdiction.
The tribunal held that the AO's action was without valid jurisdiction. It also held that in the absence of any valid inherent jurisdiction, the addition made by the AO is perverse, arbitrary, and bad in law. The tribunal set aside the CIT(A)'s order and directed the AO to delete the addition. The appeal of the assessee was allowed.
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