ITAT Delhi: AO Overstepped Jurisdiction in CASS Limited Scrutiny Case — Assessment Order Quashed

Overview of the Dispute

In a significant ruling reinforcing the boundaries of limited scrutiny assessments, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, quashed an assessment order in the case of Priyanka Ashok Vs ACIT, holding that the Assessing Officer (AO) had acted beyond his jurisdiction by disallowing loan interest in a case that was selected under CASS for a narrow and specific scrutiny purpose.

The core question before the Tribunal was straightforward yet fundamentally important: Can an AO, in a limited scrutiny case selected through CASS for examining "Increase in Capital," travel beyond that specific issue to disallow interest on an unsecured loan linked to a property purchase that occurred in a different assessment year?

The Tribunal answered with an unequivocal no, quashing the impugned order entirely.

Background and Facts of the Case

The assessee's return for Assessment Year 2015-16 was picked up under the Computer Aided Scrutiny Selection (CASS) mechanism for limited scrutiny. The sole reason for selection was: "Increase in Capital."

During the course of assessment proceedings, after the assessee had duly explained the increase in capital, the AO shifted focus to an entirely different transaction — the purchase of an immovable property located at C-4, Jantar Mantar Road, New Delhi.

Key facts surrounding this transaction were:

  • The property was acquired by the assessee on 18.02.2014 as a business asset
  • The total consideration for the acquisition was ₹11.99 crore
  • A portion of the purchase price was funded through an unsecured loan of ₹1.40 crore borrowed from M/s Pushpanjali Realms and Infratech Pvt. Ltd.
  • The assessee had entered into a formal loan agreement to evidence the borrowing
  • Since the property was purchased on 18.02.2014, the transaction fell squarely within Financial Year 2013-14, relevant to Assessment Year 2014-15

Despite the loan transaction and property purchase both belonging to Assessment Year 2014-15, the AO proceeded to examine the loan in the context of Assessment Year 2015-16 and ultimately disallowed interest of ₹11,20,000 paid by the assessee during that year in accordance with the terms of the loan agreement.

Submissions by the Assessee

The Authorised Representative (AR) of the assessee, Shri Neeraj Jain, advanced the following key arguments: