M/S. SHANTI VYAPAR PVT. LTD.,KOLKATA V. ITO, WARD 9(1), KOLKATA

ITA 299/KOL/2025

AI Insights

The case involves M/s. Shanti Vyapar Pvt. Ltd., which appealed against the order of the Income Tax Officer (ITO), Ward 9(1), Kolkata, for the Assessment Year 2014-15. The primary legal issue was the improper conduct of the AO, who treated a limited scrutiny case as a complete scrutiny without following the required procedures to officially convert it. The assessee argued that this led to an invalid assessment, which was supported by references to similar cases and judicial precedents. The Tribunal agreed with the assessee's position, leading to the quashing of the assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126902 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Other Referred Cases: Shri Vijay Kumar vs. ITO, Dev Milk Foods Pvt. Ltd. vs. Addl. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAILEN SAMADDER
• Assessee Lawyers: SAUMITRA CHOUDHURY
• Keywords: Satisfaction; Chandigarh; Dismissed; AMP
• Section: 143(3); 142(1); 143(2); 56(2)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, KOLKATA BEFORE SHRI GEORGE MATHAN, JM AND SHRI RAJESH KUMAR, AM ITA No. 299/KOL/2025 (Assessment Year:2014-15) M/s. Shanti Vyapar Pvt. Ltd., P-30/3, C.I.T. Road, Scheme VI M, Phoolbagan,, Kolkata, West Bengal, 700054 Vs. ITO, Ward 9(1), P-7, Chowringhee Square, Kolkata, West Bengal, 700069 (Appellant) (Respondent) PAN No. AAHCS1070Q Assessee by : Shri Saumitra Choudhury, AR Revenue by : Shri Sailen Samadder, DR Date of hearing: 22.04.2025 Date of pronouncement : 24.04.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the Income Tax Officer, Ward 9(1), (hereinafter referred to as the “Ld. CIT(A)”] dated 04.02.2025 for the AY 2014-15. 02. At the time of hearing, the ld. counsel of the assessee raised a legal issue challenging the assessment framed by the ld. AO on the ground that the case of the assessee was selected for limited scrutiny however, the scrutiny proceedings were conducted as if this was a complete unlimited scrutiny and therefore, the assessment was framed is invalid and may be quashed. 03. The facts in brief are that the assessee filed the return of income on 30.12.2014 declaring total income at ₹44,840/-. The case of the assessee was selected for limited scrutiny under Computer Assisted Page | 2 ITA No.299/KOL/2025 M/s Shanti Vyapar Pvt. ltd; A.Y. 2014-15 Scrutiny Selection (CASS) and accordingly, the statutory notices were duly issued along with questionnaire and served upon the assessee. The assessee is engaged in the business of trading of various cloth items. During the course of assessment proceedings, the ld. AO noted that the assessee company has purchased a plot admeasuring 3 kattah, 11 Chhataka 15 sq. ft. i.e. 2670 sq.ft on P-65, CIT Scheme, PS. Phoolbagan, Scheme No. VI-M, Kolkata-700054. The said property was purchased at 38 lacs, whereas the stamp authority valuation was ₹1,19,39,631/-. Accordingly, the assessee was called upon to explain the same . The assessee submitted that the Provisions of Section 56(2) are not applicable to the private limited companies and since, the assessee is a private limited company the said section is applicable with effect from 1st October, 2009 for individually and HUF only. The ld. AO by rejecting the contention of the assessee treated the difference between the purchase price and stamp authority valuation of ₹81,31,691/- as undisclosed income and added the same to the income of the assessee by framing the assessment u/s 143(3) vide order dated 30.12.2016. 04. In the appellate proceedings, the ld. CIT (A) upheld the order of ld. AO when the assessee failed to respond to the various notices issued during appeallte proceedings. 05. The ld. Counsel for the assessee vehemently submitted before us that the assessment framed by the ld. AO is invalid and non-est in the eyes of law as the notice u/s 143(2) of the Act dated on 04.09.2015 was issued by the ITO Ward 9(4), Kolkata for limited scrutiny without mentioning the point of examination in the limited scrutiny and thereafter, the notice u/s 142(1) of the Act was issued dated 06.06.2016, along with questionnaire raising therein 16 Page | 3 ITA No.299/KOL/2025 M/s Shanti Vyapar Pvt. ltd; A.Y. 2014-15 points/quesries. Therefore, the ld. Counsel submitted that the very purpose of limited scrutiny is misplaced as the ld. AO has given a very comprehensive questionnaire calling upon the assessee to respond and reply the same as if it were a complete scrutiny. The ld. AR submitted that if at all the ld. AO on the basis of examination of evidences and details before him was of the opinion that the case of the assessee required thorough scrutiny and examination then he was required record satisfaction/opinion for the same and follow the procedure laid down under the Act to convert limited scrutiny into complete scrutiny and only then the assessment order could be framed accordingly failing which the assessment framed by the AO is bad in law and may kindly be quashed. In defense of his arguments the Ld. A.R. relied on the decision of the Co-ordinate Bench of Chandigarh in the case of Shri Vijay Kumar vs. ITO in ITA No. 434/Chad/2019 for AY 2014-15 dated 12.09.2019 and the decision of Co-ordinate Bench of Delhi in the case of Dev Milk Foods Pvt. Ltd. vs. Addl. CIT in ITA No. 6767/Del/2019 for AY 2015-16 dated 12.06.2020. The Ld. A.R submitted that in view of the decisions as referred to above the assessment framed by the AO is bad in law and may kindly be quashed. 06. The ld. DR on the other hand relied on the orders of authorities below by submitting that though the case of the assessee was selected for limited scrutiny vide notice dated 04.09.2015 mentioning that type of scrutiny as limited scrutiny with no details as to the examination given therein. However, during the assessment proceedings ,the point to be examined by the ld. AO in limited scrutiny was examined and added to the income of the assessee though it was not specifically mentioned either in the notice u/s 143(2) of the Act or in the assessment order itself. The ld. DR therefore, prayed that the argument of the counsel of Page | 4 ITA No.299/KOL/2025 M/s Shanti Vyapar Pvt. ltd; A.Y. 2014-15 the assessee that the AO has to covert the limited scrutiny into complete scrutiny is devoid of any merit and may kindly be dismissed. 07. After hearing the rival contentions and perusing the materials available on record, we find that in this case the assessee is selected for limited scrutiny as is apparent from the notice issued u/s 143(2) of the Act dated 04.09.2015, which is extracted below:- “ ” 08. Thereafter, we note that the notice u/s 142(1) of the Act dated 06.06.2016, issued along with questionnaire was issued to the assessee and served upon it, wherein the ld. AO called upon the assessee to Page | 5 ITA No.299/KOL/2025 M/s Shanti Vyapar Pvt. ltd; A.Y. 2014-15 respond to the said questionnaire containing 16 paras/ queries. For the sake of ready reference the notice u/s 142(1) of the Act and questionnaire is extracted below:- Page | 6 ITA No.299/KOL/2025 M/s Shanti Vyapar Pvt. ltd; A.Y. 2014-15 Page | 7 ITA No.299/KOL/2025 M/s Shanti Vyapar Pvt. ltd; A.Y. 2014-15 09. On perusal of the above notice and questionnaire we observe that though the case of the assessee was selected for limited scrutiny, however, the questionnaire has been issued by the AO as if it were a complete scrutiny. In our opinion, the said action on the part of the ld. Page | 8 ITA No.299/KOL/2025 M/s Shanti Vyapar Pvt. ltd; A.Y. 2014-15 AO is not permissible under the Act as the ld. AO is not authorized to issue such questionnaire in case of limited scrutiny and has to confine his questionnaire to the point(s) mentioned in the notice issued u/s 143(2) of the Act. In our opinion, the process followed by the ld. AO is flawed for two reasons namely (i) non-mentioning of the point for which the case of the assessee was selected for limited scrutiny and (ii) issuing a questionnaire along with notice u/s 142(1) of the Act as if it were complete scrutiny. The action of the ld. AO is not inconformity with the CBDT Instruction F No. 225/157/2017/ITA-II Dated 23.06.2017, which prescribes the procedure to be followed by the ld. AO in case of limited scrutiny and in case he wishes to examine the point beyond the scope of limited scrutiny. In our view this is incomplete disregard of the Instruction No. 5/2016 issued by CBDT on 14.07.2016 which provides that while proposing to take up complete scrutiny which was fixed for limited scrutiny, the AO shall form a reasonable view that there is a possibility of under-assessment of income if the case is not examined under complete scrutiny and that plea has to be on the existence of the credible material not merely on suspicion and conjecture or unreliable sources. We note that the instruction provide that there has to be a direct nexus between the available material and formation of such view. The relevant part of the instruction are reproduced as under: 2. In order to ensure that maximum objectivity is maintained in converting a case falling under Limited Scrutiny' into a 'Complete Scrutiny' case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up 'Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer ('AO') shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under 'Complete Scrutiny'. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view; b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and Page | 9 ITA No.299/KOL/2025 M/s Shanti Vyapar Pvt. ltd; A.Y. 2014-15 c. there must be a direct nexus between the available material and formation of such view. 4. It is further clarified that in cases under 'Limited Scrutiny', the scrutiny assessment proceedings would initially be confined only to issues under 'Limited Scrutiny' and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to 'Complete * Scrutiny' after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in 'Limited Scrutiny'. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting 'Complete Scrutiny' in such cases. 010. In our opinion, the order framed by the ld. AO is not-sustainable in the eyes of law for the aforesaid reasons. We accordingly, following the judicial pronouncements as relied by the ld. AR quash the assessment framed by the Assessing Officer. 011. In the result, the appeal of the assessee is allowed on legal issue. Order pronounced in the open court on 24.04.2025. Sd/- Sd/- (GEORGE MATHAN) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 24.04.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata "