R P Projects Private Limited , Hyderabad V. Income Tax Officer, Ward-3(2), Hyderabad

CO 28/Hyd/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 5247 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2015-2016
• Appeal Filed On: 12-11-2019

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A” : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S.S.GODARA, JUDICIAL MEMBER I.T.A. No. 26/HYD/2019 & C.O. No.28/HYD/2019 (in ITA No.26/Hyd/2019) Assessment Year: 2015-16 Income Tax Officer, Ward-3(2), HYDERABAD Vs M/s.R P Projects Private Limited, HYDERABAD [PAN: AAGCR0773A] (Appellant) (Respondent/Cross-Objector) For Assessee : Shri Biswal Narahari, AR For Revenue : Shri Rajendra Kumar, CIT-DR Date of Hearing : 03-01-2022 Date of Pronouncement : 08-02-2022 O R D E R PER S.S.GODARA, J.M. : This Revenue’s appeal ITA No.26/Hyd/2019 with assessee’s cross objections C.O.No.28/Hyd/2019 for AY.2015- 16 arise from the CIT(A)-3, Hyderabad’s order dated 18-10- 2018 passed in appeal No.0086/ITO-3(2)/Hyd/CIT(A)-3/2017- 18, involving proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both the parties. Case files perused. ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 2 -: 2. It transpires at the outset that this assessee’s C.O. suffers from 30 days delay stated to be attributable to the reason(s) beyond its control as per condonation petition/affidavit. No rebuttal has come from the departmental side. The impugned delay is condoned therefore. 3. We notice at the outset that the Revenue’s sole substantive grievance raised in the instant appeal challenges correctness of the CIT(A)’s action holding the impugned assessment as void ab initio as follows: “VIII) During the course of appellate proceedings, the AR submitted following submissions:- "SUBMISSIONS: On the above grounds of appeal the following submissions are made: 7. Ground No -1 "On facts and circumstance of the case the order passed by assessing officer u/s 143(3) dated 3012.2017 is bad in law." Ground no-5 "The Learned AO erred in converting limited scrutiny to Complete Scrutiny without approval of the Principal Commissioner of Income Tax. On this ground the Assessment order of the Learned AO is bad in law as the same is passed without following the mandatory instruction of CBDT." 7.1 As stated in earlier paragraph the case was selected for "limited scrutiny" by issue of notice u/s. 143(2) dated 25.07.2016 (Page -21) for examining the following issues: i. Payment to related persons mismatch. ii. Other expenses claimed in profit and loss account. 7.2 However as it appears from the assessment order, the AO has travelled beyond the issue for which the case was selected for limited scrutiny and examined the following which were not part of the issues in the notice for limited scrutiny. i. In the P&L Account the total amount of 'other expense' is Rs.4,19,67,889 as per note 4.1 to accounts (Page 70 & 72) whereas ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 3 -: the AO has examined the issue relating to expense of Rs.11.70 Crores which includes the following expenditure which were booked under head other than 'other expense'. a. HSD Rs. 5,31,05,218/- Note 3.7 to accounts (Page - 71) b. Labour Charges Rs. 4,57,150/- Note 3.8. to accounts (Page - 71) c. Labour Crusher Charges Rs.40,84,692/- Note 3.8. to accounts (Page - 71) d. Quarry blasting material Rs.1,91,93,515/- Note 3.7. to accounts (Page - 71) ii. The AO has examined the issue of low profit percentage of 0.43 % on total turnover. (Page _ 22) iii. He has examined the issue of total receipt asper 26AS and receipt shown in the accounts. (As per assessment order) (Page - 37) iv. He has examined the issue of total turnover vis-a-vis total contract receipt shown by the assessee. v. He has examined the whole account and came to a conclusion that the sales turnover to the extent of Rs,24,44,25,076/- is 'income from other sources' and added the same on which he has not allowed any expense for earning such income. vi. While the subject matter of limited scrutiny involves total amount of Rs.4,41,87,889/(related party transaction' of Rs.22,20,000/- +'other expense claimed in P&L Account' 'of Rs.4,19,67,889/)- the total addition is Rs.24,28,34,402/-. vii. In the assessment order while the AO has estimated contract income of at Rs.2,75,430/ @6% of contract receipts- of Rs 45,90,494/- in the computation he has taken the returned figure of Rs.20,50,000/--. 6.3 From the above it is clear that the AO has travelled beyond his jurisdiction while making assessment in a/Limited Scrutiny' case like a "complete scrutiny' case by initiating inquiries on new issues without complying with the mandatory requirement of the relevant CBDT Instruction no 7/2014 dt 26-09-2014, (Page-23-24) Instruction no 20/2015 dt 29-12-2015 (Page 25 to 26) and Instruction No 5/2016 dt 14-07-2016.(28 & 29). This amounts to converting limited scrutiny to 'complete scrutiny' in violation of the above mentioned mandatory Instructions of the CBDT. 7.4 In the assessment order there is no mention of conversion of limited scrutiny case to complete scrutiny case, neither there is any information on the written approval taken from Principal CIT for such conversion to complete scrutiny cases. The appellant has also not been intimated about the fact of complete scrutiny. These are two basic requirement for conversion of "limited scrutiny" cases to ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 4 -: complete scrutiny case as per CBDT Instruction no 20/2015 dt2912- 2015 and no-5/2016 dt 14-07-2016. 8.1. The procedure to be followed for handling scrutiny cases have been laid down in the following Instructions of CBDT. a. Instruction no. 7/2014 dt 26-9-2014. (Page-23 & 24) b. Instruction no. 20/2015 dt 29-12-2015 (Page 25 & 26) c. Instruction no 19/2015 dt 29-12-2015 (Page-27) d. Instruction no 5/2016 dt 14-7-2016 (Page 28 & 29) e. Instruction F.No. 225/162/2016 dt 11-07-2017 (Page 31 to 34) f. Instruction DGIT(Vig)/HqIS1/2017-18 dt 30-11-2017 (Page - 30) 8.2. The above Instructions have been issued for strict compliance as it was observed that during assessment proceeding some AOs are routinely calling for information which are not relevant for enquiry into the issues to be considered. This has been causing undue harassment to tax payers. To remove such harassment and to enforce checks and balances upon power of Assessing Officer to make fishing and moving enquiry certain standard operating procedures to be followed by the AOs and their Supervising Officers, have been prescribed in these Instructions. According to the above Instructions there are two hjpes of scrutiny; Limited Scrutiny and Complete Scrutiny. 8.3. LIMITED SCRUTINY In case of Limited Scrutiny the AOs have been instructed to limit or restrict their enquiry, investigation only to specific issues for which the case is selected for limited scrutiny. They are not to travel beyond these issues. The revised format of notice u/e 143(2) for limited scrutiny case has also been prescribed vide CBDT Instruction dt 11- 07-2016. (Page 31 to 34) 8.4. COMPLETE SCRUTINY In course of limited scrutiny proceeding if the AO is of a reasonable view that there is possibility of under assessment of income if the case is not examined under complete scrutiny he can convert the case to complete scrutiny. For taking up the case under complete scrutiny or for converting the case from limited scrutiny to complete scrutiny the AO has to take written approval of the Pr CIT. Further the AO has to expeditiously intimate the Assessee concerned regarding conducting Complete Scrutiny in such cases. These are two basic conditions for converting limited scrutiny cases to complete scrutiny case or to make enquiry in respect of issues which are beyond scope of limited scrutiny. The Board has also prescribed revised format for notice u/s 143(2) in respect of complete scrutiny. (Page-33). It has also been emphasized that these instruction should be strictly complied with. ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 5 -: 8.5. Strict compliance to instruction of CBDT in the matter of conversion of 'limited scrutiny' to 'complete scrutiny' has been reiterated in the Instruction dated 30.11.2017, where it is observed that non compliance to mandatory Instruction give rise to a very strong suspicion of mala fide intention. The officers particularly AO have been directed to abide by CBDT Instruction while completing limited scrutiny assessments. 9. Perusal of assessment order shows gross violation of the above mandatory CBDT Instructions. i. The AO has travelled beyond the mandate of limited scrutiny by examining the issues which were outside scope of notice u/s 143(2). ii. While converting the limited scrutiny to complete scrutiny the AO has not followed the instruction of taking written approval of Pro CIT. iii. Further he has not informed the Assessee about complete scrutiny. iv. He has also not issued the notice u/s 143(2) in new format meant for “complete scrutiny” as per CBDT order dt 11-07-2016. On all counts the AO has assumed jurisdiction without following the mandatory Instructions of CBDT. INSTRUCTION OF CBDT BINDING ON REVENUE AUIHORITIES 10. It has been held that Instructions issued by CBDT in exercise of powers u/s 119 of the Act are binding on assessing officers and other revenue authorities. 10.1.In the case of CIT vs UCO Bank reported in 237 ITR 889 Hon'ble Supreme Court have held as under: (Page-79) “7. What is the status of these circulars? section 119(1) -of the Income Tax Act, 1961 provides that, "The CBDT may, from time to time, issue such orders, instructions and directions to other Income Tax authorities as it may deem fit for the proper administration of this Act and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board. Provided that no such orders, instructions or directions shall be issued (a) so as to require any Income Tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions". Under sub- section (2) of section 119, without prejudice to the generality of the Board's power set out in sub-section (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 6 -: time general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to Assessees, as the guidelines, principles or procedures to be followed in the work relating to assessment. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under seetion119 of the Income Tax Act which are binding on the authorities in the administration of the Act. Under Section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the Assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forego the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law" in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a benefjcial power given 10 the Board joe proper administration of fiscal law so that undue hardship may not be caused 10 the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorized as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities." 10.2. Catholic Syrian Bank Ltd us CIT (2012(3) SCC 784) In this case Hon'ble Supreme Court have held as under: (Page-92) "18. Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, "the Board ') in exercise of the power vested in it under Section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income tax authorities, though they cannot be enforced adversely against the Assessee." 10.3 Hon'ble J&K High Court in the case of CIT us Abdul Ahad Najar (248 ITR 744) held (Page -129) "11 is well-settled that circulars issued by the Board are binding on the officers and persons employed in the execution of the Act, more so, circulars beneficial to the assessee which tone down the rigour of the law. The benefit of such circulars is available to the assessee, even tough the circulars might have mitigated from the strict tenor of the statutory provision and mitigate the rigour of the law. In view of the binding nature of the circulars, it is not open to the revenue to ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 7 -: raise a contention which is contrary to the circulars and instructions issued by the Board. 11. ORDER PASSED IN VIOLATION OF CBDT INSTRUCTION IS NOT SUSTANAIBLE IN LAW Since the Instruction Issued by CBDT is binding on all revenue authorities who are "responsible for implementation of the Act, any proceeding initiated or any order passed making any addition or disallowance or levying penalty in contravention of these instructions, are against the provisions of the Act and, therefore not sustainable in law. 11.1 In the case of CIT vs Madhukar B. Pawar reported in 319 ITR 255, (Page 13-104) and Bombay Cloth Syndicate vs CIT reported in 214 ITR 210 Hon'ble Bombay High Court have held that Order passed not following Instruction of CBDT is void and bad in law. 11.2 Hon'ble Bombay High Court in the case of Dattatraya Gopal Shette v. CIT 11984] 150 ITR 460 has held that (headnote) : "It is now well-settled that even if the Contents of a circular may amount to a deviation of a point of low, a circular of the Central Board of Revenue which confers some benefit on the assessee is binding on all officers concerned with the execution of the Income-tax Act; and they must carry out their duties in the light of the circular." 11.3 Hon'ble Kerala High Court in the case of CIT v. Punalur Paper Mills Ltd. [1988]170 ITR 37 held that (at page 40) : "The Board of Revenue is competent to issue circulars under section 119 of the Income-tax Act. The circulars so issued have got the force of law, All officers of the Department are bound by the said circulars. The benevolent circulars issued by the Board are in the nature of administrative relief. They really supplant the law. The circular can afford administrative relief even beyond the relevant terms of the statute. It can deviate from the provisions of the Act. The courts have held that such circulars are binding on the officers of the Department. It is not open to the Department to contend, even in cases where the circular goes beyond the terms of the section, that the circular has no legal effect or should not be given effect to. The circulars would go to the assistance of the assessees. It is settled law that the circulars cannot impose any burden on the taxpayer. But, by the issue of a circular, the rigour of the law can be relaxed by giving administrative relief. Apart from the fact that such circulars are binding on the officers of the Department, even if the circulars are relied on for the first time in the High Court during the course of hearing, the assessee will be entitled to the benefit afforded by the circular. " ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 8 -: 11.4 In appellant's case the AO has travelled beyond the scope of limited scrutiny in gross violation of Instructions issued by CBDT. Having issued Instruction u/s 119 of the Act, the Department cannot take a stand that the Instruction has no binding effect on the officers responsible for execution of the Act and that they are free to exercise their discretion in the matter contrary to the letter and spirit of relaxation announced. Therefore relying on the above case laws it is submitted that in appellant's case the assessment order passed by the AO violating the mandatory instructions of CBDT mentioned at para 8.1 is not sustainable in law. The same may be quashed. 12. ASSESSMENT ORDER VOID IF CASE SELETED FOR SCRUTINY IN VIOLATION OF CBDT INSTRUCTION. Further selection of cases for scrutiny is the first step in assessment where the AO gets jurisdiction to examine different issues related to return of income filed by assessee. The CBDT for proper administration of the Act has issued instruction to streamline the process of selection of cases for scrutiny (Instruction mentioned at para 8.1 above).Limited scrutiny is based on CASS for examining only specific issues .ln case of complete scrutiny the AO can enquire into any issue. In course of limited scrutiny if AO comes across any issue which has revenue potential he can examine such issue and also other issues by converting the case from limited scrutiny to complete scrutiny only after taking written approval of the PrCIT and intimating the assessee about the same. ln other wards the AO cannot get jurisdiction for complete scrutiny if both these conditions are not satisfied. Any order passed by the AO where the case is converted to complete scrutiny in violation of mandatory Instruction of CBDT .is not sustainable in law as held by Courts. 12.1 CIT vs Smt Nayana P. Dedhia 270 ITR 572 AP (Page 105 to 107) Following the decision of Hon'ble Supreme Court in case of UCO Bank, Hon'ble High Court of Andhra Pradesh, in the case of CIT vs Smt.Nayana P. Dedhia reported in 270 ITR 572, held that assessment order is bad in law in a case where the return of income has been selected for scrutiny in violation of CBDT Instruction which is binding on the AO. 12.2 In this case the department issued a circular by way of press release on 12.03.1996. These guidelines were regarding "scrutiny assessment guidelines for assessment year 1996-97". By these guidelines, it was notified that the Income Tax Department had decided not to select returns for the assessment year 1996-97 for detailed scrutiny, if the total income declared is at least 30 per cent more than the total income declared for the assessment year 1995- 96. The case of the respondent before the Tribunal was that the department had decided not to have detailed scrutiny for the ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 9 -: assessment year 1996-97 if the income declared was at least 30 per cent more than the income declared in 1995-96. Since the income of assessee was more than 30% of income for AY 1995-96 it's case could not have been taken for scrutiny. Therefore, the assessment order was bad in law as the return has been selected for scrutiny in violation of mandatory circular of CBDT. The Tribunal accepted this contention. Revenue went in appeal against the order of the Tribunal. 12.3 Relying on decision of Hon'ble Supreme Court in case of UCO Bank vs CIT (237 ITR 889), Hon'ble High Court upheld the decision of ITAT Hyderabad, which has quashed assessment order because the case was selected for scrutiny against binding Instruction of CBDT. Referring to UCO bank case of Hon'ble Supreme Court, Hon'ble AP high Court held that this judgment leaves no room to doubt that the Tribunal was right in holding that the Income tax Authorities could have not selected the case for detailed scrutiny in view of the circular issued by the Board. 12.4 This judgment of Hon'ble AP High Court has been applied in the following cases where assessment orders have been held to be void as the cases have been selected for scrutiny in violation of mandatory CBDT Instruction. i. CIT vs. Best Plastics (P) Ltd 295 ITR 256 Delhi HC (Page 108) ii. Crystal Phosphate Ltd vs ACIT (ITA-3630/Del/2009) (Page 109 to 121) iii. Aggarwal Farm Equipment vs ITO (85 TTJ 723) iv. SunitaFinlease Ltd vs DCIT (118 TTJ 263) (Page 122-124) v. PayalKumariJagdhari vs ITO (ITA 23/CHD/2011) vi. S F Chogulevs JCIT (ITA no-458/PN/2012) 12.5 Relying on the above decisions it is submitted that in case of appellant the assessment order passed is bad in law because the AO has no jurisdiction under law 10 make 'complete Scrutiny' as he has not followed the mandatory instruction of CBDT. The order passed by the AO may be quashed as the same is not sustainable in law. 13.1 GROUND NO 2 The Learned AO erred in making addition of Rs. 24,28,34,402/- to the Total Income without proper appreciation of facts and application of law. The addition of Rs.24,28,34,402/- amounts to 97.45% of the total turnover of Rs. 24,91,99,466/- which is against the provisions of law. 13.2 GROUND NO-3 The Learned AO erred in treating the Business income of Rs. 24,44,25,076/- as income from other Sources without any basis and without allowing any deduction for expenditure. ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 10 -: 13.3 GROUND NO- 4 The Learned AO erred in not appreciating the fact that for earning any income there has to be expenditure as no income can be earned without expenditure. The entire turnover cannot be income under any accounting standard or under Income tax law even if bills and vouchers were not produced. 13.4 As stated in page 3 of the assessment order the AO was of the view that 'other expense' debited to P&L account appears to be doubtful as these are related 10 earth excavation work and are not supported by bills and vouchers and other details. From this, he concluded that the amount of contract receipt to the extent of Rs.24,44,25,076/ as shown in the accounts are "income from other sources" which he added to the total income without allowing any expenditure. 13.5 As stated in earlier paragraph the case was selected for 'limited scrutiny to examine two issues as per notice u/s 143(2) dt.25.07.2016. The AR of the appellant appeared from time to time before the AO. In course of hearing the AR was asked to file explanation regarding low profit though this was not one of the issues for which the case was selected for 'limited scrutiny'. The appellant filed ,explanation vide letter dt.26.12.2017.No other details have been asked for by the AO. However the appellant was asked to produce bills and vouchers. All the bills and vouchers could not be produced for examination of the Learned AO because on 24.10.2015 while transferring the records which contained bills & vouchers for this year, from office in Konta, Chattisgarh state, the vehicles, other construction machineries and office furnitures including computers were burnt completely due to Maoists attack. Three FIR'S have been lodged in three different police stations of Tadaguda, Bhadrakali and Bhopalopatnam of Bijapur district. Copy of FIR and photo of burnt vehicle and other related documents are attached herewith (Page 39 to 64). This is the reason for non-production of books of accounts and all bills and vouchers. 13.6 Against this back ground of non-production of books of account the AO has discretion to disallow a part of expenditure or even estimate income. However while disallowing expenditure or estimating income the AO cannot act in an arbitrary or capricious manner. When books of accounts are not produced or are found to be defective or inadequate the AO can give due consideration to these facts while taking a view on issues at hand. The mere fact that the material placed by assessee before him is unreliable does not empower, AO to make an arbitrary order. The assessment should be based on material produced by assessee and materials gathered by the AO. ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 11 -: 14.1 In the present case the assessment is completed u/s 143(3) of the Act. Sec 143(3) provides as under “(3) [On the day specified in the notice issued under] sub-section (2), or as soon afterwards as may be after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in wiring, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment”. 14.2 Other than return of Income and accompanying details the appellant has filed explanations on low profit. No other details have been asked for except asking for production of books. The AO has also not gathered any other relevant materials. Thus there is no material basis for making addition of Rs.24,28,34,402/ and no material basis for treating contract receipt as income from other sources as required u/s 143(3) of the Act. The assessment order is therefore, not as per provisions of sec 143(3) of the Act. 171e order is liable to be held as bad in law. 15.1 Further adding 97% of turnover of contract receipt as "income from other sources" without allowing any expenditure on such other source income which has the effect of computing total income which is 111 times of returned income is a clear case of arbitrary assessment order which is not sustainable in law. 15.2.1 In the case of CIT vs Mahesh Chand reported in 199 ITR 247, Hon'ble Allahabad High Court have held that although the ITO has very wide powers and is not fettered by technical rules of evidence and pleadings, there is one overriding restriction on his judgment and that is that he must act honestly on the material however inadequate before him and not vindictively, capriciously or arbitrarily. 15.2.2 When assessee contractor did not produce books of accounts and even claimed that books of accounts are destroyed, the estimation of income at certain percentage of Total Turnover was upheld by Hon'ble Kerala High Court in the case of 1D Abraham & Co vs DCIT and Others (325 ITR 201). 15.2.3 In a number of cases, particularly of infrastructure contractors, Courts have held that where books of accounts are not produced or books are found to be unreliable or defective, the income can be estimated at a percentage of turnover taking into account the place and nature of business, the percentage of profit in similar business. The AO in appellant's case has adopted an imaginary figure of income which is almost equal to 98% of the turnover. No business can produce 98% of profit. This is a clear case of arbitrary addition and non-application of mind. In the assessment order pointing to defects ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 12 -: in account the AO has estimated income @ 6% of business receipt which he has take at Rs. 45,90,494/-. However he has not applied this rate to entire business turnover. 16.1 There is not a shred of evidence to show that the appellant has earned income from others sources of Rs.24,44,25,076/that too without incurring any expenditure. 171e reason for such arbitrary conclusion as stated by the AO is that expenditure claimed by the appellant are doubtful. There is no provision in the Act which provides that in case of doubtful business expenditure the business receipt will be treated as income from other sources. Thus the addition of Rs.24,44,25,076/as income from other source being bad in law may be deleted. 17.1 Instruction N02015 dated 29.12.2015 of CBDT provides the following procedure for completion of cases under scrutiny as under: "The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submission made by the assessee in response to the show-cause. The contents of this instruction should be immediately brought to the notice of all concerned for strict compliance.” 17.2 In line with the above Instruction the Board has also modified the format of notice u/s 143(2) both in case of limited scrutiny and complete scrutiny (Page 32 & 33). Para 4 of the revised notice in both cases reads as under "4. Specific questionnaire/show cause notice shall be sent giving you another opportunity in case any adverse view is contemplated." 17.3 As stated earlier except asking for explanations for low profit in course of hearing in response to notice u/s.143(2) the assessee has not been issued any show cause indicating the reasons for the proposed addition/disallowance along with necessary evidence or reasons forming basis for treating business receipt of Rs. 24,44,25,076/- as income from other sources and adding the same to total income without allowing any related expenditure. Thus the assessment order, passed Violating mandatory instructions of the ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 13 -: CBDT and notice u/s 143(2) is also not sustainable in law. The addition may be deleted. 18 Ground no 6 The assessment made by the Learned AO on surmises and conjectures is bad in law and is liable to be set aside. The addition of Rs. 24,28,34,402/- may be deleted. The AO, in course of assessment proceeding, has not issued any show cause proposing disallowance of expenditure or addition of income, neither he has made any enquiry regarding the income and expenditure of the appellant company. However, in the assessment order he has made huge addition which is about 97% of the total turnover on the ground that according to him the claim of "other expenditure" is doubtful and due to this reason business receipts are treated as income from other source to the extent of Rs. 24,28,34,402/- and added to total income. Thus doubt or suspicion however strong cannot take place of proof and assessment made on basis of suspicion or doubt cannot be sustained in law. The Hon'ble Apex Court, in plethora of decisions has often frowned upon the tendency of Assessing Officers, to frame assessment orders or make additions purely on surmise. It is a fundamental rule of justice and legal position that there may be something more than suspicion, to support the finding, in the assessment order, as held by Hon'ble Supreme Court in the following cases a. Dhakeswari Cotton Mills Ltd vs CIT (26 ITR 775) b. DheerajLalGindhanLal v CIT (26 ITR 736) c. Omar Salay Md. Sheikh v CIT (37 1TR 151) d. Lal Chand BhagatAmbica v CIT (37 ITR 288) e. Umacharan Shaw and Brothers v CIT (37 ITR 271) Relying on the above decisions it is submitted that the addition of Rs. 24,28,34,402/-, based on doubt or suspicion on other expenditure is not valid in law and the same may be deleted. 19.1 Additional ground Without Prejudice to above grounds the appellant; has filed additional ground of appeal vide letter 01.08.2018 as under: "The AO erred in making a wrong computation of total income at Rs 24,48,84,402/- Even after treating Rs.24,28,34,402/- as income from other sources. The AO ought to have recomputed income from business excluding other source income from total business receipts which will result in computation of total income after set off of business loss with other source of income at Rs 20,50,010/- i.e. the income returned by the assessee". ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 14 -: 19.2 It is submitted that in the original memo of appeal omission to take this ground of appeal was not willful or unreasonable. This ground related to wrong computation of total income which is apparent from the assessment order. It is submitted that this ground of appeal may be admitted u/s 250(5) of the IT Act, 1961 in view of decision of Hon'ble Supreme court in case of Jute corporation of India Vs CIT 187 ITR 688 and cit vs Nirbheram Dalurarn (224 ITR 610) 19.3 As per assessment order the AO has computed total income by treating Rs.24,44,25,076/ as “income from other sources” out of total business receipt of Rs.24,90,15,570/ as per accounts. In other words the AO has taken total business receipts to be Rs.45,90,494/. The AO is, therefore, required to recompute ‘income from business’ taking Rs.45,90,494/ as business receipt which will result in computation of ‘income from business' at a loss figure. This “loss from business” has to be set off with" income under the head income from other source". The total income so computed will be as under: 19.4 R.P.Projects (P) Limited AY.2015-16 Expense 24,81,41,545.67 Revenue from Operation 24,90,15,570 Profit 10,57,920.33 Other Income 1,83,896 Total 24,91,99,466 Total 24,91,99,466 2. P&L A/c after A.O’s classification of income (In Rs.) Expense 24,81,41,545.67 Revenue from Operation 45,90,494 Profit 10,57,920.33 Income from other sources 24,46,08,972 Total 24,91,99,466 Total 24,91,99,466 As per Asst Order 24,44,25,076 As per Accounts 1,83,896 Total 24,46,08,972 3. Re-computation of Total Income (In Rs.) Income/Loss from Business excluding income from other sources (45,90,494-24,81,41,545.67) (-)24,35,51,051.67 Add depreciation as per Accounts (+) 31,71,547.00 Less depreciation as per IT Rules (-) 21,79,457.00 ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 15 -: (A) Loss from business (-)24,25,58,961.67 (B) Income from other sources (as per AO) (+)24,46,08,972.00 (C) Total income after set off (B-A) 20,50,010.33 Income as per Return Rs.20,50,000 Income as per Assessment Order Rs.24,48,84,402 19.5 From the above calculation/computation it is clear that the total income will be Rs.20,50,010/- even when Rs.24,44,25,076/- is treated as income from other sources. The AO, has therefore, made a wrong computation of Total Income as there will be no addition to the returned income as mentioned above.It is most respectfully submitted that the AO may be directed to re-compute total income as above. 20. To sum up, the AO has acted in gross violation of binding CBDT Instruction, both in passing the order and extending scope of enquiry or converting limited scrutiny to complete scrutiny, which makes the assessment order passed by him as bad in law. Further addition made by him is against provisions of law as such addition has been made arbitrarily and without following the instruction and complying with provisions of sec 143(2). The AO has also made wrong computation of income by not reworking business loss and not setting off business loss with income from other source. In view of these facts as stated above and case laws relied upon, it is respectfully submitted that the assessment order passed by the AO may be quashed and addition of Rs.24,28,34,402/- may be deleted. In the alternative, the total Income may be restricted to Rs.20,50,010/-. 21. The appeal may be allowed." IX) Ground Nos.1 and 7 in appeal are general in nature and does not call for adjudication. X) Ground Nos.2, 3, 4 and 6 in appeal relates to addition of Rs.24,44,25,076/- towards income from other sources. Facts of the case, grounds of appeal, assessment order, Remand Report along with comments of the Addl.CIT, Range-3, Hyderabad on remand report and submissions of the appellant were perused. Before adjudicating on the additions under Ground Nos.2, 3, 4 & 6, Ground Nos.5 is adjudicated as Ground No.5 is with reference to the validity of the assessment itself and addresses matters which are at the core of the assessment”. ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 16 -: 4. Both the learned representatives reiterated their respective stands against and in support of the correctness of the CIT(A)’s foregoing findings holding the impugned assessment itself as void ab initio as the Assessing Officer had not obtained the PCIT’s approval before converting the “limited” scrutiny herein to a “complete” one (supra). Learned authorised representative has invited our attention to assessee’s supportive cross-objections as well as the twin detailed paper books running into 212 and 79 pages respectively containing written submissions, Section 143(2) notice dt.25-07-2016 and CBDT instructions issued from time to time as well as case law (supra) that the CIT(A) has rightly quashed the impugned assessment. 5. We have heard the assessee’s vehement contentions and find no merit therein in principle. We make it clear first of all that the “limited” scrutiny in issue herein pertained to the assessee’s twin issues of the “payment to related persons mis- match” and “other expenses” claimed in the Profit and Loss A/c. We further note that the Assessing Officer had indeed estimated the assessee’s turnover and assessed the contract receipts of Rs.45,90,494/- going by Form 26AS and income from “other” sources of Rs.24,44,25,076/-; which also included 6% estimation on the former receipts amounting to Rs.45,90,494/-; respectively. We thus find force in assessee’s arguments to this limited extent that such an instance of conversion of a “limited” scrutiny to “complete” one in absence of PCIT’s approval is not sustainable in principle. ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 17 -: 5.1. Learned authorised representative could not rebut the basic fact at the same time that the assessee had not been able to satisfy the alleged mis-match on account of alleged payments to related parties and other expenses running in crores of rupees. Its only submission was that all the corresponding records had been destroyed in a fire accident. We find no merit in assessee’s instant explanation as it was indeed its bounden duty to prove the expenditure heads claimed in the Profit and Loss A/c. Learned counsel raised a very strong argument that such an issue can no more be allowed to be re-opened afresh. We hold that the Assessing Officer’s or the Revenue’s right; as the case may be, to examine the issue forming subject matter of “limited” scrutiny would not stand diluted if the alleged complete scrutiny is reversed on legal principles. Faced with this situation, we exercise our jurisdiction vested u/s.254(1) of the Act in wider connotation in light of Ahmedabad Electricity Company Ltd. Vs. CIT (1993) 199 ITR 351 (Bom) and restore the twin issues of the “limited” scrutiny herein (supra) for the Assessing Officer’s afresh examination and factual verification as per law within three effective opportunities of hearing. It is made clear that the onus shall be on the assessee only to explain and prove the twin issues herein (supra) in consequential proceedings. Ordered accordingly. 6. This Revenue’s appeal ITA No.26/Hyd/2019 as well as assessee’s C.O.No.28/Hyd/2019 are treated as allowed for ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 18 -: statistical purposes in above terms. A copy of this common order be placed in the respective case files. Order pronounced in the open court on 8 th February, 2022 Sd/- Sd/- ( A. MOHAN ALANKAMONY ) ( S.S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 08-02-2022 TNMM ITA No.26/Hyd/2019 C.O.No.28/Hyd/2019 :- 19 -: Copy to : 1.M/s.RP Projects Private Limited, 8-1-21/28, Plot No.28, Street No.3, Suryanagar, Towlichowki, Hyderabad. 2.The Income Tax Officer, Ward-3(2), Hyderabad. 3.CIT(Appeals)-3, Hyderabad. 4.Pr.CIT-3, Hyderabad. 6 5.D.R. ITAT, Hyderabad. 6.Guard File.