Conversion of limited scrutiny to complete scrutiny without credible material or information is invalid

Fact and Issue of the case

In this appeal the assessee has taken following grounds of appeal:

1. That on the facts, circumstances and legal position of the case, the Worthy CIT(A) in Appeal No. 10519/17-18 has erred in passing that order in contravention of the provisions of S. 250(6) of the Income Tax Act, 1961.

2. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO in converting the impugned assessment from limited scrutiny to complete scrutiny even when there did not exist circumstances justifying the said conversion and also there was no incriminating or credible material in the hands of the Ld. AO which justified the above referred conversion and therefore the impugned assessment deserve to be quashed.

3. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO in disallowing expenses of Rs. 4,63,553/- out of the total addition of Rs. 15,45,176/- u/s 40(a)(ia) on account of alleged non deduction of TDS on the expenses claimed even when the payments made to various parties were below the threshold limit for deducting TDS and the appellant was not compulsorily required to deduct TDS on the same.

4. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO in disallowing expenses of Rs. 11,11,174/- out of the total addition of Rs. 3,70,579/- u/s 40(a)(ia) on account of alleged non deduction of TDS on the advertisement expenditure claimed by the appellant.

5. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO in making disallowance of Rs. 1,80,190/- on account of claim of expenses towards donation in the group “Development Expenses Govind Valley”

6. That on law, facts and circumstances of the case, the worthy CIT(A) has erred in confirming the action of Ld. AO in making addition of Rs. 5,00,000/- on adhoc basis by disallowing certain development expenses claimed by the appellant on account of non furnishing of cash bill vouchers as per ledgers even when the copies of ledger account of various development expenses along with the cash vouchers were duly produced and verified by the Ld. AO.

7. That the appellant craves leave for any addition, deletion or amendment in the ground of appeal on or before the disposal of the same.”

Observation of the Tribunal

In the present case the CBDT shows that to convert the limited scrutiny into complete scrutiny, the Assessing Officer shall be required to form a reasonable view that there is a possibility of under statement of income and that view should be based on credible material or information available on record and such a view should not be based on mere suspicion, conjecture or unreliable resources and there should be a direct nexus between available material and formation of view. However, the above conditions are not fulfilled in this case. The AO has not referred to any credible or reliable material or information to form the view that there was a possibility of under assessment of income in this case. The AO has merely made certain disallowance on adhoc basis without pointing out any information or material available to him which has a direct nexus to show that there was possibility of under assessment of income. In view of this, conversion of limited scrutiny into complete scrutiny is against the spirit of CBDT mandate which is binding on the AO. Therefore, the conversion of limited scrutiny into complete scrutiny being not valid, the consequential additions made by the AO on adhoc basis and further confirmed by the CIT(A) are not sustainable in the eyes of law. Same are ordered to be deleted.