The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed an assessment order after holding that the Assessing Officer (AO) exceeded the scope of a limited scrutiny and failed to consider a validly filed revised return of income.
The Bench of Anubhav Sharma (Judicial Member) and Amitabh Shukla (Accountant Member) has allowed the appeal filed by the assessee for the Assessment Year (AY) 2015-16 and deleted the additions made by the tax department.
The appellant/assessee challenged the order passed by the National Faceless Appeal Centre (NFAC), which had upheld the assessment framed under Section 143(3) of the Income Tax Act, 1961. During the appellate proceedings before the ITAT, the assessee raised additional legal grounds challenging both the validity of the assessment and the denial of exemption under Section 54F.
The assessee contended that the case had been selected only for limited scrutiny relating to cash deposits; the AO travelled beyond the limited scrutiny by examining the transfer of immovable properties, denying exemption under Section 54F, and treating capital gains as business income; the AO completely ignored the revised return filed under Section 139(5); and no valid notice under Section 143(2) was issued with respect to the revised return.
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The Tribunal examined the notice issued under Section 143(2) and found that the notice dated 25 July 2016 specifically mentioned only cash deposits as the issue selected for examination under limited scrutiny.
The Bench observed that although the assessment order later stated that the transfer of properties was also part of the scrutiny, such an assertion could not override the contents of the original notice. The Tribunal held that the assessment had travelled beyond the limited scrutiny mandate by examining issues relating to capital gains and denying the exemption under Section 54F.
Accordingly, the ITAT held that the AO had exceeded the jurisdiction available under the limited scrutiny proceedings.
The Tribunal also accepted the assessee’s contention regarding the revised return.
The assessee had originally filed the return under Section 139(1) declaring a total income of ₹57.71 lakh, which was subsequently revised under Section 139(5) reducing the income to approximately ₹50.01 lakh. However, while framing the assessment, the AO proceeded on the basis of the original return and completely ignored the revised return.
The Revenue argued that since the revised return had been filed after the issuance of notice under Section 143(2), it need not be considered.
Rejecting this contention, the Tribunal relied upon the judgment of the Tripura High Court in Tripura State Electricity Corporation Ltd. v. Pr. CIT, which held that once a revised return is validly filed, the original return stands obliterated and cannot be treated as the basis for assessment.
The Bench observed that the assessment order clearly adopted the income declared in the original return, demonstrating that the revised return had been entirely ignored.
After considering both additional legal grounds, the Tribunal held that the Assessing Officer had travelled beyond the scope of the limited scrutiny proceedings; and the validly filed revised return had been ignored despite the settled legal position that it replaces the original return.
Consequently, the Tribunal allowed the assessee’s appeal and deleted the impugned additions, granting complete relief.
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