A Delhi resident, identified as Kumar, has secured a major victory against the Income Tax Department at the Income Tax Appellate Tribunal (ITAT). The tribunal invalidated a six-year-old tax demand, ruling that the tax officers had illegally exceeded their authority.
The Core Dispute
The legal fight began after Kumar deposited ₹8.68 lakh in his bank account.
- Tax Department’s Stance: The department promptly issued a scrutiny notice and, without further investigation, added the entire amount to his income, classifying it as undisclosed business profit under the presumptive taxation scheme (Section 44AD).
- Taxpayer’s Contention: Kumar challenged the decision, arguing the assessment was based purely on assumptions, with no evidence linking the cash deposit to business income.
The Reason for the Tribunal’s Ruling: Exceeding Jurisdiction
The ITAT found that the Assessing Officer (AO) had committed a critical procedural error, making the entire assessment invalid:
- The initial scrutiny notice (Section 143(2)) was for a limited inquiry—solely to check the source of the cash deposit.
- The AO went beyond this limited scope by treating the entire deposit as taxable business profit under $\text{Section 44AD}$.
- Crucially, the officer did this without obtaining the mandatory prior approval from the Commissioner of Income Tax (CIT).
Citing a High Court precedent, the ITAT ruled that this unauthorized expansion of the inquiry was not legally tenable.
The Final Outcome
The ITAT declared that both the Assessing Officer and the appellate commissioner had exceeded their jurisdiction. As a result, the tribunal set aside all related assessments and tax demands.
Mr. Kumar is now relieved of the liability to pay any tax or penalty in connection with the disputed ₹8.68 lakh. This ruling strongly reinforces the legal requirement for tax officers to strictly adhere to procedural rules during any scrutiny.
