The ITAT has deleted a ₹2.45 crore addition by the Assessing Officer, holding that the department failed to obtain prior approval under Section 144(1) for raising fresh issues beyond the limited scrutiny notice. The ruling reinforces statutory limits on scrutiny assessment powers.
ITAT Quashes ₹2.45 Crore R&D Disallowance
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) has deleted a ₹2.45 crore addition made by the Assessing Officer (AO) on account of disallowance of in-house research and development (R&D) expenditure, holding that the AO exceeded the scope of limited scrutiny without obtaining mandatory prior approval under Section 144(1) of the Income Tax Act, 1961.
The AO had initiated a limited scrutiny assessment under Section 143(3), but proceeded to disallow R&D deductions under Section 35(2AB), which were not part of the specific issues notified to the taxpayer at the outset. The tribunal held that any departure from the originally notified issues required approval from the sanctioning authority as mandated by Section 144(1), which was absent in this case.
"The AO cannot, during the course of assessment proceedings, introduce new issues which were not within the limited scrutiny notice without obtaining prior approval,"the ITAT observed.
The tribunal emphasized the procedural safeguard in Section 144(1), which prevents arbitrary expansion of scrutiny and protects assessees from ambush assessments. Since the department failed to demonstrate that such approval was obtained, the addition was unsustainable in law. The decision underscores the importance of adhering to the statutory framework governing limited scrutiny assessments and reinforces taxpayer rights against unilateral issue escalation.
Citations
- Section 143(3), Section 144(1), Section 35(2AB), Income Tax Act, 1961
