Vishnu Srinivasa Rao Kakarla Vs ITO (ITAT Visakhapatnam)[Appeal No I.T.A. No.93/Viz/2023]

The case of Vishnu Srinivasa Rao Kakarla Vs ITO revolves around the issue of limited scrutiny and the jurisdiction of the Assessing Officer (AO) to verify cash withdrawals. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) by the assessee.

This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [Ld. CIT(A)-NFAC] vide DIN & Order No. ITBA/NFAC/S/250/2022-23/1049624886(1), dated 10/02/2023 arising out of the order passed U/s. 143(3) r.w.s 144B of the Act, dated 26/04/2021 for the AY 2018-19.

The assessee, a Fish Commission Agent, filed his income return for the AY 2018-19 on 25/10/2018, claiming total income of Rs. 46,15,390/-. The case was selected for limited scrutiny to verify cash deposits. A notice U/s. 143(2) of the Act and a detailed questionnaire were issued to the assessee, and he filed the required details. The Ld.

AO noticed that the assessee made cash payments exceeding the limits prescribed by U/s. 40A(3) of the Act. The Ld. AO treated the cash withdrawals of Rs. 84,60,669/- as disallowance U/s. 40A(3) of the Act and added them to the assessee’s total income.

The assessee filed an appeal before the Ld. CIT(A)-NFAC, arguing that the Ld. AO travelled beyond the limited scrutiny proceedings without permission from the Ld. Pr. CIT. The Ld. CIT(A)-NFAC rejected the assessee’s explanation and confirmed the order.

The assessee is in appeal before the tribunal and raised several grounds of appeal, including the order being contrary to the facts and applicable law, the need to quashed the assessment order passed in the case of the appellant, the Ld. Commissioner of Income Tax (Appeals) should have deleted the addition of Rs. 84,80,669/- made by the Assessing Officer towards disallowance U/s. 40A(3) of the Act, and the Ld. CIT(A) is not justified in sustaining the addition. Any other grounds may be urged at the time of hearing.

The Ld. AR argued that the Ld. AO has travelled beyond his powers in verifying cash withdrawals without converting the case into complete scrutiny proceedings.

The Ld. AO has no jurisdiction to make disallowances without converting the assessment into complete scrutiny proceedings. The Ld. AR therefore pleaded that the addition made by the Ld. AO and confirmed by the Ld. CIT(A)-NFAC be deleted. Per contra, the Ld. DR fully supported the orders of the Ld. Revenue Authorities.

The tribunal found that the Ld. AO has not taken approval from the Ld. Pr. CIT for verification of the cash withdrawals, which is beyond the scope of the limited scrutiny for which the assessee’s case is opened for the purpose of verification of the huge cash deposits into the bank account of the assessee.

AO has travelled beyond his jurisdiction in disallowing cash withdrawals being payments made to various fishermen by invoking provisions of section 40A(3) of the Act. The order passed by the Ld. AO U/s. 143(3) r.w.s 144B of the Act is inclined to quash the order and allow the appeal of the assessee.

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