INCOME TAX ACT, 1961

Section 143(3)

Assessment - Case of assessee selected for limited scrutiny on issue of mismatch of sales shown in audit report vis-à-vis tax return - Addition for alleged speculation loss under section 43(5) -

Assessee's case was selected for limited scrutiny. Purpose of same was to examine the mismatch of sales between audited accounts and tax return. Assessee filed details of sales and reconciliation of sales. AO made addition on different ground by treating loss from transaction in shares as speculation loss under section 43(5). Held: CBDT Circular issued under section 119 of the IT Act is binding on the IT Authorities. AO's jurisdiction is limited to the issue identified by the CASS in case of 'Limited Scrutiny' cases. In assessee`s case, issue of mismatch of sales shown in the audit report vis-à-vis tax return was identified for 'Limited Scrutiny' but AO expanded the scope of limited scrutiny without taking permission from the concerned Pr.CIT/CIT. Since there is no whisper of any sanction or approval of the Pr.CIT/CIT, therefore action of AO to assess the loss was beyond his jurisdiction and in violation of the CBDT circular which he was bound to obey.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15

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