Suresh Jugraj Mutha, Dhule V. Additional Commissioner of Income-tax,

ITA 5/PUN/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7627 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-03-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 04-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Assessee Lawyers: DR V L JAIN
• Keywords: Business income; Bad and doubtful debts; Validity of assessment; Procedural lapse
• Section: 133A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VI KAS AWASTHY, JM . / ITA NO.05/PUN/2016 / ASSESSMENT YEAR : 2011-12 SURESH JUGRAJ MUTHA, H.NO.1400/1, LANE NO.5, DHULE 424 001 DIST. DHULE PAN : ABEPM0929M . /APPELLANT VS. ADDL.CIT, RANGE-3 DHULE . / RESPONDENT ASSESSEE BY : DR. V.L. JAIN REVENUE BY : DR. VIVEK AGGARWAL / DATE OF HEARING : 24.04.2018 / DATE OF PRONOUNCEMENT: 04.05.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF C IT(A)-1, NASHIK, DATED 08-10-2015 FOR THE ASSESSMENT YEAR 2011-12. 2. ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE HUGE ADDITIONS (MORE THAN RS.10 LACS) OTHER THAN CASS SUBJECT MATTER (I.E. VERIFICATION OF CASH DEPOSIT I N SAVING BANK ACCOUNT AND SCOPE OF SCRUTINY IS LIMITED) MADE BY THE ASSESSING OFFICER CANNOT BE SUSTAINED IN ABSENCE OF PREVIOUS APPROVAL OF THE ADMINISTRATIVE COMMISSIONER AS DIRECTED BY THE BOARDS INSTRUCTION IN RESPECT O F CASS ASSESSMENT. THEREFORE, ASSESSMENT ORDER PASSED IN VIOLATION O F BOARDS INSTRUCTIONS, WHICH ARE BINDING UPON THE A. O. IS CERTAINLY BAD IN LAW AND VOID AB-INITIO, MAY PLEASE BE SQUASHED AND ADDITION MAY PLEASE BE DELETED. 2. ON THE FACTS AND IN THE PREVAILING CIRCUMSTANCES OF THE CASE AND THE LD. AO AND CIT(A) HAS ERRED IN DISALLOWING INTE REST PAID TO THE BANK OF RS.1,89,991/-. THEREFORE, ADDITION MAY PLEASE B E DELETED. 3. IN THE FACTS AND IN PREVAILING CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO AND CIT(A) HAS GROSSLY ERRED IN REJECTIN G CLAIM OF APPELLANT OF LONG TERM CAPITAL GAIN ON THE SURPLUS ON SALE OF SAID PLOTS AND AGRICULTURAL LAND WHICH WAS HOLDING AS INVESTMENT, AND TREATING IT WAS 2 TRADING ASSET. THE FINDING OF THE LOWER AUTHORIT IES ARBITRARILY AND HENCE, IT MAY PLEASE BE VACATED AND HELD THAT APPEL LANT HAS CORRECTLY SHOWN THE LONG TERM CAPITAL GAIN. 4. IN THE FACTS AND IN PREVAILING CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO, CIT(A) HAS GROSSLY ERRED IN COMPUTING T HE SURPLUS ON SALE OF SAID PLOTS AND AGRICULTURAL LAND AS BUSINESS INCOM E U/S.28 OF THE ACT REJECTING THE INDEX COST AND CLAIM AS LONG TERM CAP ITAL GAIN. THEREFORE, ADDITION MADE BY THE AO OF RS.9,89,538/- (85,49,048 75,59,490) AND CONFIRMED BY CIT(A), MAY BE DELETED AND INDEX COST BE ALLOWED AND PROFIT MAY BE TAXED AS LONG TERM CAPITAL GAIN AS SHOWN B Y THE APPELLANT. 5. THE APPELLANT CRAVES THE PERMISSION TO ADD, AMEN D, MODIFY, ALTER, REVISE, SUBSTITUTE, DELETE ANY OR ALL GROUNDS OF TH E APPEAL, IF DEEMED NECESSARY AT THE TIME OF HEARING OF THE APPEAL. 3. BRIEFLY STATED RELEVANT FACTS ARE THAT ASSESSEE IS AN INDIVIDUAL AND FILED THE RETURN OF INCOME ON 20-06-2011 DECLARING TOTAL INC OME OF RS.83,08,290/-. THE CASE WAS TAKEN UP FOR LIMITED SCRUTINY FOR THE PURPOSE OF SCRUTINISING THE CASH DEPOSITS IN SAVINGS BANK ACCOUNT AS PER AIR INFORMATION . AFTER DUE SCRUTINY, THE AO DID NOT MAKE ANY ADDITION ON THIS ACCOUNT. HOWEVER, IN THE ASSESSMENT PR OCEEDINGS, AO NOTICED THAT THE ASSESSEE CLAIMED THE INTEREST OF RS.1,89 ,991/- ON LOAN AVAILED FROM JALGAON JANTA SAHAKARI BANK, DEOPUR, DHULE BRANC H, DHULE. FURTHER, HE ALSO NOTICED THAT THERE IS CLAIM OF DEDU CTION U/S.54 OF THE ACT IN RESPECT OF LONG TERM CAPITAL GAINS. AT THE EN D OF THE ASSESSMENT PROCEEDINGS, THE AO DISALLOWED THE SAID INTERE ST INCOME AND HELD THAT THE LOAN WAS NOT UTILISED AS PER THE LAW. F URTHER, THE CLAIM OF DEDUCTION U/S.54 WAS ALSO DENIED HOLDING THAT THE S ALE OF THE LANDS CONSTITUTES AN ADVENTURE IN THE NATURE OF TRADE. IN THE APPEAL BEFORE FIRST APPELLATE AUTHORITY, CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE AND CONFIRMED THE ADDITIONS MADE BY THE AO. 4. BEFORE US, AGGRIEVED WITH THE ORDER OF CIT(A), THE ASSES SEE RAISED THE GROUNDS ON MERIT AS WELL AS LEGAL GROUND. THE LEGAL GROUND RAISED VIDE GROUND NO.1 RELATES TO THE ISSUE OF MAKING ADDITIONS B Y THE AO OUTSIDE THE SAID LIMITED SCRUTINY UNDER COMPUTER AIDED SCR UTINY SELECTION (IN SHORT CASS) FOR THE A.Y. 2011-12 WITHOUT OB TAINING THE 3 WRITTEN APPROVAL OF THE CONCERNED COMMISSIONER OF INCOME-T AX. THE ISSUE FOR THE LIMITED SCRUTINY IS TO EXAMINE THE SOURCE OF C ASH DEPOSITS IN THE SAVINGS BANK ACCOUNT AS PER THE AIR INFORMATION. 5. BEFORE US, AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE SAID LEGAL ISSUE RAISED VIDE GROUND NO.1, SUBMITTED THAT MAKING ADDITION ON ACCOUNT OF INTEREST DISALLOWANCE AND DENIAL OF D EDUCTION U/S.54 OF THE ACT ARE NOT THE ISSUES FOR WHICH THE CASE WAS TAKEN UP FOR LIMITED SCRUTINY UNDER CASS. THEREFORE, THE ADDITIONS MADE BY THE AO ARE NOT SUSTAINABLE. IN SUPPORT OF THE ABOVE, ASSESSEE FILED A LETTER WRITTEN BY THE AO TO THE ASSESSEE DATED 17-11-2015 A ND LETTER DATED 14-08-2012 AND BRING OUT GIVING REASONS FOR SCRUTINY SE LECTION ETC. ASSESSEE ALSO FILED THE BOARDS INSTRUCTION NO.07/2014, DA TED 26-09- 2014 AND BOARDS LR.NO.F.NO.225/26/2006-ITA.II (PL), DATED 08-09- 2010 WHICH REFERS TO THE ANOTHER BOARDS LETTER DATED 23-05-2007 RELATING TO THE AOS JURISDICTION IN MATTERS RELATING TO TH E SELECTION OF CASES FOR SCRUTINY ON THE BASIS OF AIR RETURNS AND DEM ONSTRATED THAT THE AOS ARE REQUIRED TO SCRUTINY THE CASES TO THE LIMITE D ISSUES FOR WHICH CASES ARE PICKED FOR LIMITED SCRUTINY. LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT EXCEPTIONS ARE PROVIDED TO THE ABOVE RULE BUT THE SAME IS REQUIRED TO BE DONE ONLY WITH THE APPROVA L OF THE ADMINISTRATIVE COMMISSIONER OF INCOME-TAX WHICH WAS NOT DO NE IN THE PRESENT CASE. ACCORDING TO THE SAID CIRCULARS OF THE BO ARD, THERE IS REQUIREMENT OF MENTIONING THE SAME IN THE NOTICE U/S.143(2) OF THE ACT CLEARLY, STAMPED ON THE SAID NOTICE CLEARLY MENTIONING AI R CASE ETC. LD. COUNSEL ALSO SUBMITTED THAT FOR EXTENDING THE SCRUTIN Y TO THE INTEREST DISALLOWANCE AND DENIAL OF DEDUCTION U/S.54 OF THE ACT IN THE PRESENT CASE, AO DID NOT OBTAIN ANY ADMINISTRATIVE APPRO VAL FROM THE CONCERNED CIT. THE NOTICES DO NOT INDICATE THE SAME. T HIS FACT IS MADE OUT IN THE AOS LETTER DATED 11-04-2018 ADDRESSED TO THE ADMINISTRATIVE 4 CIT. THEREFORE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE ASSESSMENT ORDER PASSED BY THE AO DATED 12-03-2014 IS UNSUSTAINABLE AND VOID AB-INITIO. FOR THIS PROPOSITION, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING TWO DECISIONS OF THE PUNE BENCH OF T HE TRIBUNAL AND SUBMITTED THAT THE CASE OF THE ASSESSEE STANDS SQ UARELY COVERED AND IN FAVOUR OF THE ASSESSEE : 1. M/S. NITIN KILLAWALA & ASSOCIATES VS. ITO ITA NO.1611/M/2013 2. M/S. S.H. CHOUGULE VS. JCIT ITA NO.458/PN/2012 AND ITA NO.605/PN/2012, DATED 21-12-2016 6. ON THE OTHER LAND, LD. DR FOR THE REVENUE SUBMITTED THAT CIRCULAR NO.225/26/2006-ITA.II(PL), DATED 08-09-2010 ISSUED BY TH E CBDT DOES NOT OVERRIDE THE PROVISIONS OF THE STATUTE. ELABORA TING THE SAME, LD. DR SUBMITTED THAT IF THE AO IS AUTHORISED TO SCRUTINISE THE ACCOUNTS OF THE ASSESSEE AND CLAIMS IN THE RETURNS AS PER THE PR OVISIONS OF SECTION 143(2) OF THE ACT AND THE CBDT CIRCULAR SHOULD NOT CREATE ANY HURDLES ON THE AO IN MATTERS OF SCRUTINY ASSESSMENT ONC E NOTICE U/S.143(2) OF THE ACT IS ISSUED. THEREFORE, IT IS THE CASE OF THE LD. DR THAT AO HAS ALL POWERS TO EXAMINE ANY ISSUE WHICH HE DE EMS FIT DESPITE THE RESTRICTIONS IMPOSED BY THE BOARD ON THE AOS. FOR THIS PROPOSITION, HE RELIED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BANQUE NATIONALE DE PARIS VS. CIT 237 ITR 518. 7. DURING THE REBUTTAL TIME, ON THE ISSUE OF OVERRIDING POW ERS OF THE AO VIDE THE DIRECTIONS ISSUED BY THE CBDT THROUGH THE C IRCULAR, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS SETTLED LEGA L PROPOSITION THAT THE AOS ARE UNDER OBLIGATION TO ABIDE WITH THE LETTE RS/CIRCULARS ISSUED BY THE CBDT IN THIS REGARD AND THE SAME ARE ISSUED FOR A CLASS O F ASSESSEES. IT IS BINDING ON THE PART OF THE AO TO FOLLOW T HE INSTRUCTIONS. THE INSTRUCTIONS OF THE CBDT ARE ISSUED ONLY TO REDUCE THE BURDEN ON 5 THE TAXPAYERS AND IT HAS THE POWER TO RELAX THE RIGOU RS OF THE LAW IN FAVOUR OF THE TAXPAYERS. FOR THIS PROPOSITION, LD. COUNSEL RELIED ON THE FOLLOWING CASE LAWS : 1. CIT VS. NAGESH KNITWEARS PVT. LTD. 345 ITR 135 2. CIT VS. MRS. AVTAR MOHAN SINGH 136 ITR 645 3. CATHOLIC SYRIAN BANK LTD. VS. CIT 343 ITR 0270 4 . DATTATRAYA GOPAL BHOTTS VS. CIT 150 ITR 460 8. LD. COUNSEL ALSO ARGUED STATING THAT THE BOARD GRANT ED A PROVISION TO CONVERT A LIMITED SCRUTINY CASE TO THE UNLIMITE D ONE SUBJECT TO THE APPROVAL OF THE ADMINISTRATIVE CIT. DESPITE THE SA ME, THE AO FAILED TO COMPLY WITH THE SAME AND AO ASSUMED ALL POWERS IN MAKING ADDITION OUTSIDE THE LIMITED SCRUTINY NORMS. THEREFORE, LD. C OUNSEL ARGUED THAT THE ADDITIONS ARE UNSUSTAINABLE IN LAW AS IT IS A SERIOUS PROCEDURAL IRREGULARITY. LD. COUNSEL FOR THE ASSESSEE RELI ED ON THE FOLLOWING JUDGMENTS IN FAVOUR OF THE ASSESSEE ON THIS LEGAL ISSUE : 9. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS O F THE REVENUE ON THE LEGAL ISSUE RAISED BY THE ASSESSEE. WE HAVE ALSO CONSIDERED THE DECISIONS RELIED ON BY BOTH THE PARTIES. IT IS AN UNDISPU TED FACT THAT THE REASON FOR WHICH THE CASE WAS PICKED UP FOR LIMITED SCRUTIN Y RELATES TO THE AIR INFORMATION ON THE CASH DEPOSITS IN THE SAVINGS B ANK ACCOUNT. IT IS ALSO AN UNDISPUTED FACT THAT THE AO DID NOT OBTAIN THE WRITTEN APPROVAL OF THE CONCERNED COMMISSIONER BEFORE EXTENDING T HE SCOPE OF SCRUTINY TO THE INTEREST DISALLOWED AND DENIAL OF CLAIM OF DE DUCTION U/S.54 OF THE ACT. FURTHER, IT IS ON RECORD THAT THE BOA RD DID NOT PERMIT THE ASSESSING OFFICERS TO EXTEND THE SCOPE OF SCRUTINY TO THE ISSUES OTHER THAN THE ONES WHICH ARE AUTHORISED THE BOARD IN THIS REGARD UNDER CASS. IT IS ALSO A FACT THAT JUDGMENT CITED BY TH E LD. DR FOR THE REVENUE IN THE CASE OF BANQUE NATIONALE DE PARIS VS. CIT 237 ITR 518 6 (BOM.) WAS NOT ISSUED IN CONNECTION WITH THE JURISDICTION OF THE AO IN MATTERS RELATING TO EXTENSION OF AREAS OF SCRUTINY TO THE ONES THAN THE AUTHORISED ONES BY THE BOARD. IN THIS CONNECTION, WE P ERUSED THE CBDT INSTRUCTION NO.7/2014, DATED 26-09-2014 AND FIND IT RELEVANT TO EXTRACT THE RELEVANT LINES. THE SAME READS AS UNDER : 4. IN CASE, DURING THE COURSE OF ASSESSMENT PROCEE DINGS, IT IS FOUND THAT THERE IS POTENTIAL ESCAPEMENT OF INCOME EXCEED ING RS.10 LAKHS (FOR NON-METRO CHARGES, THE MONETARY LIMIT SHALL BE RS.5 LAKHS) ON ANY OTHER ISSUE(S) APART FROM THE AIR/CIB/26AS INFORMATION BA SED ON WHICH THE CASE WAS SELECTED UNDER CASS REQUIRING SUBSTANTIAL VERIFICATION, THE CASE, MAY BE TAKEN UP FOR COMPREHENSIVE SCRUTINY WI TH THE APPROVAL OF THE PR.CIT/DIT CONCERNED. HOWEVER, SUC H AN APPROVAL SHALL BE ACCORDED BY THE PR.CIT/DIT IN WRITING AFTE R BEING SATISFIED ABOUT MERITS OF THE ISSUE(S) NECESSITATIN G WIDER AND DETAILED SCRUTINY IN THE CASE. CASES SO TAKEN UP FOR DETAILED SCRUTINY SHALL BE MONITORED BY THE JT. CIT/ADDL.CIT CONCERNE D. 10. WE ALSO PERUSED THE CBDT LETTER DATED 08-09-2010 W HICH DEALS WITH SELECTION OF CASES FOR SCRUTINY ON THE BASIS OF DATA IN AIR RETURNS AND SUBSEQUENT ASSESSMENT PROCEEDINGS. THE INSTRUCTION S GIVEN IN THE SAID LETTER READS AS UNDER : 2. THE ABOVE MENTIONED GUIDELINES HAVE BEEN RECONS IDERED BY THE BOARD AND IT HAS BEEN DECIDED THAT THE SCRUTINY OF SUCH CASES WOULD BE LIMITED ONLY TO THE ASPECTS OF INFORMATION RECEIVED THROUGH AIR. HOWEVER, A CASE MAY BE TAKEN UP FOR WIDER SCRUTINY WITH THE APPROVAL OF THE ADMINISTRATIVE COMMISSIONER, WHERE IT IS FELT THAT APART FROM THE AIR INFORMATION THERE IS A POTENTIAL ESCAPEMENT OF INCO ME MORE THAN RS.10 LACS. 3. IT HAS ALSO BEEN DECIDED THAT IN ALL THE CASES WHICH ARE PICKED FOR SCRUTINY ONLY ON THE BASIS OF AIR INFORMATION, THE NOTICE U/S.143(2) OF INCOME TAX ACT, 1961 SHOULD CLEARLY B E STAMPED WITH AIR CASE. 11. FURTHER, ON PERUSING THE ORDERS OF THE REVENUE, WE FIN D THE FACTS ARE SIMILAR TO THE ONES ALREADY DECIDED BY THE PUNE BENC H OF THE TRIBUNAL IN THE CASE OF M/S. S.F. CHOUGULE VS. JCIT (SUPRA) IS RELEVANT TO THE FACTS PRESENT CASE OF THE ASSESSEE. WE THEREFOR E PROCEED TO EXTRACT THE RELEVANT FINDINGS GIVEN BY THE TRIBUNAL HERE AS UNDER : 10. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN ROAD CONSTRUCT ION AND BUILDING OF PROJECTS. HE POINTED OUT THAT DURING THE COURSE OF SURVEY ON 30.01.2008, 7 THE ASSESSEE HAD MADE A DECLARATION OF RS.33,18,000 /- + RS.12 LAKHS + RS.13,467/- WHICH WAS INCLUDED IN THE RETURN OF INC OME FILED BY THE ASSESSEE. HE FURTHER STATED THAT THE CASE OF ASSES SEE WAS PICKED UP FOR SCRUTINY. THE LEARNED AUTHORIZED REPRESENTATIVE FO R THE ASSESSEE BROUGHT TO OUR ATTENTION, THE APPLICATION MADE UNDE R THE RIGHT TO INFORMATION ACT, AS TO THE BASIS FOR SELECTION OF C ASE OF THE ASSESSEE FOR THE RELEVANT YEAR UNDER SCRUTINY. IT WAS SPECIFICA LLY ASKED WHETHER THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. IN REPL Y, THE CENTRAL PUBLIC INFORMATION OFFICER STATED THAT THE CASE OF ASSESSE E WAS NOT SELECTED FOR SCRUTINY UNDER CASS. FURTHER, THE ASSESSEE HAS ASK ED AS TO WHY ITS CASE WAS SELECTED FOR SCRUTINY SINCE IT WAS COVERED BY RELAXED SCRUTINY NORMS. IN ANSWER, IT WAS POINTED OUT THAT THE CASE WAS SELECTED FOR SCRUTINY, IN VIEW OF GUIDELINES FOR SELECTION OF SC RUTINY ISSUE DURING FINANCIAL YEAR 2010-11; COPIES OF RTI APPLICATION A ND THE REPLY ARE PLACED AT PAGES 20 TO 22 OF THE PAPER BOOK. THE LEARNED A UTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER REFERRED TO THE CRITERIA OF GUIDELINES FOR INCOME-TAX SCRUTINY, COPY OF WHICH I S PLACED AT PAGE 23 AND 24 OF THE PAPER BOOK AND REITERATED THAT IN THE CASE OF ASSESSEE, SURVEY WAS CARRIED OUT AND CRITERIA WAS FIXED FOR N OT PICKING UP THE CASE UNDER SCRUTINY AND THE ASSESSEE CLEARLY FULFILS THE SAME. HE FURTHER POINTED OUT THAT IN CASE THE CRITERIA IS NOT MET WI TH, THEN AS PER CLAUSE (G), THE ASSESSING OFFICER CAN SELECT ANY RETURN FOR SCR UTINY AFTER RECORDING REASONS AND AFTER OBTAINING THE APPROVAL OF CCIT/DG IT. IN THIS REGARD, HE POINTED OUT THAT NO SUCH APPROVAL WAS RECEIVED F ROM THE CCIT. OUR ATTENTION WAS DRAWN TO THE LETTER DATED 13.05.2013 ISSUED FROM THE OFFICE OF ACIT, CIRCLE (1), SANGLI, WHEREIN THE ASSESSING OFFICER INFORMED THE ASSESSEE THAT THERE WAS NO RECORD TO SHOW THAT PREV IOUS APPROVAL OF CCIT WAS OBTAINED TO SELECT THE CASES MANUALLY FOR SCRUTINY FOR ASSESSMENT YEAR 2008-09. THE LEARNED AUTHORIZED RE PRESENTATIVE FOR THE ASSESSEE STRESSED THAT WHERE THE SELECTION WAS NOT THROUGH CASS BUT WAS MANUALLY MADE, THEN THE PREVIOUS APPROVAL OF TH E CCIT WAS COMPULSORY. REFERRING TO THE ORDER OF CIT(A), THE ASSESSEE POINTED OUT THAT THE CIT(A) STATES THAT THE CASE OF ASSESSEE WA S SELECTED THROUGH CASS AND ALSO MENTIONS THAT THE CONTENTION OF ASSES SEE WOULD HAVE BEEN ACCEPTABLE HAD THE CASE BEEN MANUALLY SELECTED FOR SCRUTINY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HYDERABAD BE NCH OF TRIBUNAL IN SMT. NAYANA P. DEDHIA VS. ACIT (2003) 86 ITD 398 (HY D) FOR THE PROPOSITION OF BINDING NATURE OF CBDT CIRCULARS UPO N THE IT AUTHORITIES. HE FURTHER POINTED OUT THAT THE SAID DECISION HAS B EEN APPROVED BY THE HONBLE HIGH COURT OF ANDHRA PRADESH IN CIT VS. SMT . NAYANA P. DEDHIA (2004) 270 ITR 572 (AP). FURTHER, HE REFERRED TO T HE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN CIT VS. BEST PLA STICS (P) LTD. (2007) 295 ITR 256 (DEL) FOR THE PROPOSITION THAT WHERE THE GU IDELINES ARE LAID DOWN FOR SELECTION OF CASES FOR SCRUTINY AND IF THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY IN VIOLATION OF CBDT INSTRUCT IONS, THEN THE ASSESSMENT ORDER HAS TO BE SET ASIDE. HE FURTHER R EFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN BOMBAY CLOTH SYNDIC ATE VS. CIT (1995) 214 ITR 210 (BOM) FOR THE PROPOSITION THAT THE CBDT INSTRUCTIONS WERE BINDING. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT AS PER THE GUIDELINES OF CBDT, THE CASES COULD BE SELECTED, MAY BE NOT THROUGH CASS. OUR AT TENTION WAS DRAWN TO THE ORDER OF ASSESSING OFFICER, WHEREIN HE HAS ELAB ORATELY DEALT WITH THE ISSUE THAT INCOME INCREASED DURING THE YEAR ONLY BE CAUSE OF NOTIONAL DISALLOWANCE OF EXPENSES UNDER SECTION 40(A)(IA) OF THE ACT AND NOT BECAUSE OF DECLARATION OF ADDITIONAL INCOME BY THE ASSESSEE. HE STRESSES THAT THE CASE WAS SELECTED UNDER NORMAL SCRUTINY PR OCEEDINGS AND EXCESS EXPENDITURE OF BAD DEBTS CLAIMED BY THE ASSESSEE WE RE DISALLOWED BY THE ASSESSING OFFICER. HE THEN WENT INTO MERITS OF THE CASE. IT WAS ALSO STRESSED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE DECLARED INCOME IN THE HANDS OF ASSESSEE M EANS THE BOOK PROFIT. 8 12. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE IN REJOINDER POINTED OUT THAT IN THE CASE OF ASSESSEE, HE DECLARED ADDITIONAL INCOME DURING THE COURSE OF SURVEY. HE FURTHER POI NTED OUT THAT THE DETAILS OF EXPENSES WERE COMPARED BY THE ASSESSING OFFICER. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE PRELIMINARY ISSUE RAISED IN THE PRESENT APPEAL BY WA Y OF GROUND OF APPEAL NO.5 IS AGAINST THE VALIDITY OF ASSESSMENT M ADE IN THE HANDS OF ASSESSEE. THE ASSESSEE CLAIMS THAT THE CASE OF ASS ESSEE WAS NOT SELECTED FOR SCRUTINY UNDER CASS BUT WAS SELECTED M ANUALLY. FOR SELECTION OF ANY RETURN FOR SCRUTINY MANUALLY BY TH E ASSESSING OFFICER, THE REQUIREMENT OF GUIDELINES ISSUED FOR THIS PURPOSE F OR RELEVANT ASSESSMENT YEAR WAS THAT THE SAME SHOULD BE AFTER OBTAINING AP PROVAL OF THE CCIT / DGIT. SINCE NO SUCH APPROVAL WAS RECEIVED FROM THE CCIT / DGIT, THE ASSESSING OFFICER HAD NO JURISDICTION TO PROCEED WI TH THE SCRUTINY ASSESSMENT IN THE CASE OF ASSESSEE. THE ASSESSEE H AD RAISED THE ISSUE BEFORE THE ASSESSING OFFICER AND CIT(A) BUT THE FAC ET OF ARGUMENT BEFORE THE AUTHORITIES BELOW WAS THAT THE CASE OF ASSESSEE COULD NOT BE SELECTED FOR SCRUTINY UNDER CASS SINCE IN THE CASE OF SURVEY , CERTAIN CONDITIONS WERE LAID DOWN AND THE ASSESSEE HAVING FULFILLED TH E SAID CONDITIONS, THEN NO SCRUTINY COULD TAKES PLACE IN THE HANDS OF ASSESSEE. 14. IN THE FACTS OF THE CASE, SURVEY UNDER SECTION 133A OF THE ACT WAS CARRIED OUT AT THE PREMISES OF ASSESSEE ON 30.01.20 08. DURING THE COURSE OF SURVEY, THE ASSESSEE MADE DECLARATION OF ADDITIO NAL INCOME OF RS.45,93,467/- WHICH WAS OFFERED AS ADDITIONAL INCO ME OVER AND ABOVE THE INCOME TO BE RETURNED FOR THE YEAR UNDER CONSID ERATION. THE ASSESSEE CLAIMS THAT IT HAD DISCLOSED THE SAID ADDITIONAL IN COME IN ITS RETURN OF INCOME WHEREIN THE RETURN WAS FILED DECLARING INCOM E OF RS.81,64,598/-. HOWEVER, THE PERUSAL OF COMPUTATION OF INCOME REFLE CTED THAT NET PROFIT SHOWN IN PROFIT & LOSS ACCOUNT WAS RS.11,62,084/- A ND CERTAIN DISALLOWANCES WERE MADE ON ACCOUNT OF PERSONAL EXPE NSES, CAPITAL EXPENSES AND DISALLOWANCES UNDER SECTION 40(A)(IA) OF THE ACT AT RS.68,31,574/- AND OTHER DISALLOWANCES AND THE INCO ME WAS AGGREGATELY SHOWN AT RS.85,69,672/- THE ASSESSING OFFICER AND CIT(A) THUS, WERE OF THE VIEW THAT THE ASSESSEE HAD NOT INCLUDED THE ADD ITIONAL INCOME OF RS.45,93,467/-, WHERE IT HAD DECLARED THE BUSINESS INCOME AT ONLY RS.11,62,084/-, THOUGH IT HAD FILED THE RETURN OF I NCOME DECLARING INCOME OF RS.81,64,590/-. THE CASE OF AUTHORITIES BELOW I S THAT THE ASSESSEE HAD NOT FULFILLED THE CONDITIONS LAID DOWN IN THE G UIDELINES FOR TAKING UP THE CASE FOR SCRUTINY ASSESSMENT YEAR UNDER CONSIDE RATION AND HENCE, THERE WAS NO MERIT IN THE CLAIM OF ASSESSEE THAT IT HAD FULFILLED THE CONDITIONS LAID DOWN IN GUIDELINES. THE WHOLE GAMU T OF ARGUMENTS AND DISCUSSION IN THE ORDERS OF ASSESSING OFFICER AND C IT(A) IS ON THIS ACCOUNT THAT THE ASSESSEE HAD NOT FULFILLED THE CONDITIONS RELATING TO SURVEY CASES FOR FINANCIAL YEAR AND THE CASE OF THE ASSESSEE COU LD BE PICKED UP FOR SCRUTINY. THE ASSESSMENT ORDER WAS PASSED ON 09.09 .2010 AND THE APPELLATE ORDER WAS PASSED ON 04.01.2012. THE ASSE SSEE THEREAFTER MOVED AN APPLICATION UNDER THE RIGHT TO INFORMATION ACT, WHEREIN A SPECIFIC QUESTION ASKED WAS WITH REGARD TO SELECTIO N OF SCRUTINY AND OTHER RELEVANT INFORMATION RELATING TO ASSESSMENT YEAR 20 08-09. THE SPECIFIC QUESTION ASKED BY THE ASSESSEE WAS WHETHER ITS CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND IN CASE IT WAS NOT SELECTED UNDER CASS AND WHY THE SAME WAS PICKED UP FOR SCRUTINY. THE ASSES SEE ALSO ASKED THAT UNDER WHICH NORMS THE CASE WAS SELECTED FOR SCRUTIN Y AND WHETHER RELAXATION IN SELECTION OF CASES IN WHICH SURVEY AC TION WAS CARRIED OUT ON FULFILLING THE CRITERIA WAS AVAILABLE IN THE SAID N ORMS OR NOT. IN REPLY, IT WAS STATED THAT THE GUIDELINES / INSTRUCTIONS WERE FOLLOWED AND SINCE THE GUIDELINES WERE CONFIDENTIAL IN NATURE, THE COPY OF SAME COULD NOT BE PROVIDED. IN REPLY TO THE NEXT QUESTION WHETHER TH E CASE WAS SELECTED UNDER CASS, THE CATEGORICAL ANSWER WAS NO. THE S AID RTI REPLY FURTHER STATED THAT THE CASE WAS SELECTED FOR SCRUTINY IN V IEW OF THE GUIDELINES CONTAINED IN F.NO.225/93/2009/ITA.II. 9 15. THE SAID GUIDELINES FOR SELECTION OF SCRUTINY W ERE PUBLISHED AND IT WAS POINTED OUT THAT THE SAID GUIDELINES WERE ONLY FOR THE USE OF OFFICERS OF INCOME TAX DEPARTMENT AND THE SAME COULD NOT BE DISCLOSED EVEN UNDER THE RTI ACT, 2005. THE SAID APPLICATION UNDE R THE RTI ACT AND THE ORDER UNDER THE RTI ACT ARE PLACED AT PAGES 20 TO 2 2 OF THE PAPER BOOK. THE ASSESSEE HAS ALSO PLACED THE COPY OF GUIDELINES ISSUED FOR SCRUTINY, COPY OF WHICH IS PLACED AT PAGE 23 OF PAPER BOOK. THE SAID GUIDELINES WERE FOR USE OF INCOME TAX DEPARTMENT, WHEREIN SELE CTION CRITERIA WAS PROVIDED WHICH WAS APPLICABLE TO ALL INCOME TAX RET URNS AT ALL STATIONS. THE GUIDELINES VIS--VIS SURVEY CASES ARE PROVIDED THEREIN AND VIDE CLAUSE (G), IT IS PROVIDED THAT THE ASSESSING OFFIC ER MAY SELECT ANY RETURN FOR SCRUTINY AFTER RECORDING REASONS AND AFT ER OBTAINING THE APPROVAL OF CCIT / DGIT. THE CASES UNDER THIS CATEGORY SHOULD BE SELECTED, IF THERE ARE COMPELLING REASONS AND CASES NOT SELECTED UNDER CASS. THESE CASES ARE WATCHED BY THE CCIT / CIT FO R THE QUALITY OF ASSESSMENT. THE SAID GUIDELINES ARE AS PER F.NO.22 5/93/2009/ITA.II. THE REPLY UNDER RTI ALSO REFERS TO THE SAID GUIDELI NES AND ADMITTEDLY, THESE GUIDELINES WERE USED TO SELECT THE CASE OF AS SESSEE FOR SCRUTINY. FURTHER, THE ASSESSEE ALSO FILED ON RECORD LETTER D ATED 13.05.2013 ISSUED BY THE ACIT, CIRCLE (1), SANGLI, WHEREIN IN REPLY T O THE LETTER OF ASSESSEE, IT HAS BEEN INFORMED THAT THERE IS NO RECORD TO SHOW T HAT PREVIOUS APPROVAL OF CCIT / DGIT WAS OBTAINED TO SELECT THE CASE MANU ALLY FOR SCRUTINY FOR ASSESSMENT YEAR 2008-09. SO, TAKING INTO CONSIDERA TION THE SAID CORRESPONDENCE WHICH HAS COME INTO EXISTENCE AFTER THE DATE OF PASSING OF ASSESSMENT ORDER AND APPELLATE ORDER, THE FIRST THING TO BE TAKEN NOTE OF IS THAT THE CASE OF ASSESSEE WAS NOT SELECTED FO R SCRUTINY IN CASS WHICH IS THE REPLY GIVEN IN ANSWER TO RTI QUERY AS PER LETTER DATED 12.04.2012. THE SECOND ASPECT IS THAT THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY IN VIEW OF THE GUIDELINES CONTAINED IN F.NO.225/93/2009/ITA.II. THE ASSESSEE HAS PLACED T HE COPY OF SAID GUIDELINES ON RECORD AT PAGE 23 OF THE PAPER BOOK, WHEREIN IT IS PROVIDED THAT THE CASE OF ANY ASSESSEE MAY BE SELECTED FOR S CRUTINY AFTER RECORDING REASONS AND AFTER OBTAINING THE APPROVAL OF CCIT / DGIT. IN OTHER WORDS, THE CASE OF ASSESSEE COULD BE PICKED UP FOR SCRUTIN Y MANUALLY BUT THE SAME HAD TO BE AFTER RECORDING REASONS FOR SUCH AN ACTION AND AFTER OBTAINING THE APPROVAL OF CCIT / DGIT. HOWEVER, THE ASSESSING OFFICER VIDE LETTER DATED 13.05.2013 HAS CATEGORICALLY MENT IONED THAT NO PREVIOUS APPROVAL OF CCIT WAS OBTAINED TO SELECT TH E CASE MANUALLY FOR SCRUTINY FOR ASSESSMENT YEAR 2008-09. IN THE ABOVE CIRCUMSTANCES, WHERE THE ORDER HAS BEEN PASSED AGAI NST THE NORMS LAID DOWN BY THE CBDT VIDE ITS GUIDELINES WHI CH WERE BINDING UPON THE ASSESSING OFFICER, THEN THE ORDER PASSED BY THE ASSESSING OFFICER IS BAD IN LAW. THE INSTRUCTIONS ISSUED BY THE CBDT ARE TO BE STRICTLY FOLLOWED BY THE AUTHORITIES I.E. ASSESSING OFFICER AND IN THE ABSENCE OF THE SAME, THE ASSESSM ENT ORDER PASSED IN THE CASE IS ANNULLED. SUCH IS THE PROPOSITION LAID DOWN BY THE HONBLE HIGH COURT OF ANDHRA PRADESH IN CIT VS. SMT. NAYANA P. DEDHIA (SUPRA) AND THE HONBLE HIGH COURT OF DELHI IN CIT VS. BEST PLASTICS (P) LTD. (SUPRA). IN VIEW THEREOF, WE HOLD THAT WHERE THE ASSESSING OFFICER HAS FAILED TO FOLLOW THE GUIDELIN ES ISSUED FOR SELECTING THE CASES FOR SCRUTINY AND IN THE FACTS O F THE PRESENT CASE, WHERE THE CASE WAS SELECTED MANUALLY FOR SCRU TINY, BUT NO PREVIOUS APPROVAL OF CCIT WAS OBTAINED, THEN THE AS SESSING OFFICER LACKS JURISDICTION TO CARRY OUT THE SCRUTIN Y ASSESSMENT IN THE PRESENT CASE AND ACCORDINGLY, ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS BAD IN LAW. HENCE, WE HOLD SO. SINCE THE ASSESSMENT ORDER IS HELD TO BE BAD IN LAW, THE ISSU E ON MERITS BECOMES ACADEMIC AND THE GROUNDS OF APPEAL RAISED BY BOTH T HE ASSESSEE AND THE REVENUE IN THEIR RESPECTIVE APPEALS ARE INFRUCTUOUS . THE APPEAL OF ASSESSEE IS THUS, ALLOWED AND THE APPEAL OF REVENUE IS DISMISSED. 10 THEREFORE, THE BOARD CIRCULAR DO NOT PERMIT THE AO FROM CONVERTING THE LIMITED SCRUTINY CASE LIKE THE PRESENT ONE TO THE UNLIMITED ONE WITHOUT THE APPROVAL OF ADMINISTRATIVE COMMISSIO NER OF INCOME TAX. AO DID NOT MENTION THE REASONS FOR NOT TA KING SUCH AN ADMINISTRATIVE APPROVAL BEFORE MAKING THE SAID ADDITION. AS SUCH, THE PUNE BENCH OF THE TRIBUNAL HAS ALREADY TAKEN THE FAVOURA BLE VIEW IN THESE MATTERS IN FAVOUR OF THE ASSESSEE. WE DO NOT UND ERSTAND WHY AO FAILED TO TAKE APPROVAL FOR SUCH CONVERSION. CONSIDERING TH E SETTLED NATURE OF THE ISSUE, WE ALLOW THE LEGAL GROUND RAISED BY THE ASSESSEE VIDE GROUND NO.1 AND HOLD THAT THE ASSESSMENT ORDER PA SSED BY THE AO IS BAD IN LAW AND VOID-AB INITIO. CONSEQUENTLY, WE FIND ADJUD ICATION OF OTHER GROUNDS BY THE ASSESSEE ON MERITS BECOMES ACAD EMIC. THEREFORE, THE SAID GROUNDS ARE DISMISSED ARE ACADEMIC. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 04 TH DAY OF MAY, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 04 TH MAY, 2018 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-1, NASHIK 4. CIT-1, NASHIK 5. , , B BENCH PUNE; 6. / GUARD FILE.