Siddhartha Nautiyal ORDER
Siddhartha Nautiyal, Member (J)
1. This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals), Ahmedabad-5 in Appeal no. CIT(A)-5/ITO. Wd. 5(2)(1)/10708/2017-18, in proceeding u/s. 143(3) vide order dated 10/08/2018 passed for the assessment year 2015-16.
2. The assessee has taken the following grounds of appeal:-
"1. The order passed by the Ld. CIT(A) is against the law, equity and justice.
2. The Ld.CIT(A) has erred in law & facts in upholding disallowance of commission of Rs. 6,36,492/- made by Ld. A.O.
3. The Ld.CIT(A) has erred in law & facts in upholding disallowance of purchases of Rs. 1,40,767/- made by Ld. A.O. invoking Sec. 40A (2)(b) of the Act.
4. The appellant craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal."
3. The assessee has also taken the following additional Grounds of Appeal:
"(1) The order passed by Ld AO is bad, illegal and without jurisdiction as the Ld AO has made additions which were not covered under scope of Limited Scrutiny assessment."
4. At the outset, we observe that the appeal is time-barred by 101 days. The counsel for the assessee submitted that the reason for delay in filing appeal was due to a communication gap between the CA of the assessee representing the matter before Ld. CIT(Appeals) and M/s. Chajjed and Co. who were to argue the case before ITAT. The assessee also filed an affidavit in support of the above contention that the delay in filing of appeal was caused due to mistake on the part of the CA of the assessee. The Vishakhapatnam ITAT in the case of Smt. Samanthapudi Lavanya v. ACIT MANU/IV/0027/2021 : [2021] 127 taxmann.com 188 (Visakhapatnam - Trib.) held that where assessee was under bona fide impression that its appeal had been filed by accountant, but came to know fact of not having filed appeal when there was pressure from department for payment of demand, delay of 492 days in filing appeal was to be condoned, in the interests of justice. Accordingly, looking into the facts of the instant case, and the period of delay under consideration, in the interests of justice, we are hereby condoning the delay in filing the appeal. The Ld. Departmental Representative has also not objected to condonation of delay in filing of appeal by the assessee.
4.1. The counsel for the assessee submitted that the before going into the merits of the case, he would like to press for the additional ground of appeal which goes into the root to the matter. The counsel for the assessee submitted that a perusal of the notice issued by the AO u/s. 143(2) of the Act dated 28-07-2016 shows that the case was opened for "limited scrutiny" for examination of the following issues:
i) interest expenses
ii) payment to related persons mismatch
4.2. However, the assessment order was passed on a totally different basis as compared to the reasons enumerated in the notice issued under section 143(2) of the Act, without converting the case into "full scrutiny". The counsel for the assessee drew our attention to the assessment order and submitted that the first addition was made on account of disallowance of interest under section 14A of the Act, whereas in the notice referred to above, there was no mention of the same. Further, so far as addition under section 40A(2)(b) is concerned, the AO did not make any addition on account of mismatch under section 40A(2)(b) of the Act, but the addition was made on the ground that the commission payment incurred by the assessee is "bogus" and therefore, addition/disallowance was made under section 37 of the Act, amounting to ` 6,36,492/-. Accordingly, the counsel for the assessee submitted that the AO, during the course of assessment proceedings clearly travelled beyond the scope of "limited scrutiny assessment", which is not permissible in law. The counsel for the assessee placed reliance on judicial precedents in support of the contention that if the order passed under "limited scrutiny assessment" is on the grounds which were not on the reasons for which the "limited scrutiny" assessment was initiated, the assessment order was without jurisdiction and hence liable to be set aside.
5. In response, DR submitted that a liberal interpretation may be taken in the instant set of facts on the scope of "limited scrutiny assessment", wherein the term "interest expenses" as mentioned in the notice issued under section 143(2) of the Act can very well be construed to include disallowance of interest under section 14A of the Act. Further, he submitted that though the expenses on account of bogus commission were disallowed, however, it is an admitted fact that the payments were made to related parties. Hence, in the instant facts, the assessment order does not go beyond the scope of issues mentioned in the notice under section 143(2) of the Act. The DR also argued that this issue was never raised before the Ld. CIT(Appeals) in appellate proceedings and neither any objection was raised before the AO and hence the assessee is precluded from taking up this issue for the first time in appellate proceedings.
6. We have heard the rival contentions and perused the material on record. In our considered view, the additional ground of appeal which is being pressed for the first time before us, is a purely legal issue and the assessee can be permitted to press any legal issue which goes to the root of the matter or challenge legality of the jurisdiction of the assessment itself, at the appellate stage before us as well. Now on the issue whether, in the instant set of facts, it can be stated that the assessment order has travelled beyond the scope of notice issued under section 143(2) of the Act, we are in agreement with the contention that the assessment order was initiated as "limited scrutiny assessment" and it is settled law that unless the limited scrutiny assessment is converted into full scrutiny assessment, after taking due approval as mandated under the Act, such assessment order has to be restricted in scope to the issues on which the notice was issued/assessment was initiated. In our considered view, the term "interest expenses" cannot be so general so as to encompass within its scope disallowance under section 14A as well. Further, we observe that the commission payment in the instant facts were disallowed on the ground that the same were "bogus" in nature and not on account of "related party mismatch" as mentioned in the notice under section 143(2) of the Act. Accordingly, the assessment order has been passed in respect of issues which were not the subject matter of "limited scrutiny assessment" notice section 143(2) of the Act. In the case of Shri Narendrakumar Rameshbhai Patel vs. DCIT in ITA No. 981/Ahd/2019, the co-ordinate bench held that the jurisdiction of the Assessing Officer in such cases where the notices are issued for limited scrutiny is confined to the claims he has set out in the notice for verification. Further ITAT Ahmedabad held that the entire issue should have been limited to the extent of the dispute raised in the notice under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction. In the case of Chaitanya Bansibhai Nagori Vs. Principal Commissioner of Income Tax (ITAT Ahmedabad) in ITA number 377/Ahd/2020, the Ahmedabad ITAT held that in limited scrutiny, AO cannot go beyond dispute raised in section 143(2) notice. In the case of Dharmin N. Thakkar v. ITO in ITA Number 1378/Ahmedabad/2019, Ahmedabad ITAT quashed the assessment order on the ground that the order was passed beyond the scope of limited scrutiny as there was no question the said notice for the limited scrutiny under section 143(2) of the Act, for the cash balance. In the case of Rajesh Jain v. ITO 162 Taxman 212 (Chd.) (Mag.), the ITAT held that the jurisdiction of the Assessing Officer in such cases where the notices are issued for limited scrutiny is confined to the claims he has set out in the notice for verification. This position of law was further elaborated by the CBDT in its Circular No. 8/2002 : MANU/DTCR/0013/2002, dated 27-8-2002.
6.1. In view of the above, since the assessment order has travelled beyond the scope of notice issued under section 143(2) of the Act, the additional Grounds of Appeal of the assessee is allowed and the assessment is set aside.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 23-12-2022.
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