TaxTMI 
TaxTMI 
Revision by Commissioner beyond CASS scope during assessment by AO is not permissible.
Chain of judgments:
The Pr. Commissioner of Income Tax 1 Versus Rajesh Kumar Gupta - 2026 (7) TMI 1422 - SC Order
Sh. Rajesh Kumar Gupta Versus Pr. CI-1 Agra - 2025 (4) TMI 1844 - ITAT AGRA
List of Provisions considered by Tribunal
Income-tax (Appellate Tribunal) Rules, 1963
- Section 40 - Amounts not deductible
- Section 142 - Inquiry before assessment
- Section 143 - Assessment
- Section 263 - Revision of orders prejudicial to revenue
List of provisions considered by High Court:
- Section 260 - Decision of High Court or Supreme Court on the case stated.
- Section 263 - Revision of orders prejudicial to revenue
Computer added scrutiny selection (CASS)
Broadly speaking about CASS we can understand as follows:
CASS is an automated, non-discretionary, software based system used by the Income Tax Department to pick tax returns for scrutiny.
The system compares and matches data from Income Tax Return filed by assessee with third-party information, Annual Information Statements (AIS), Tax Information Statement, report in Form 26AS and financial transactions and analyse using risk factors indicating need of scrutiny of ROI to check compliance and tax avoidance.
Type of scrutiny under CASS
Limited Scrutiny (checking only specific flagged items)
Complete Scrutiny
Manual Scrutiny.
The manner of selection and scope of scrutiny should be conveyed by AO to assessee in notices issued by department. To be fair, the notice u.s. 143.2 must state manner and scope of selection for scrutiny. If it is not done, it will vitiate proceedings. In notice issued u.s. 142 details are to be given. When it is CASS case the Ld. AO must mention complete list as required under CASS only. Enquiry beyond scope of CASS can be regarded without jurisdication and can vitiate proceeding.
Increasing scope of Scrutiny:
AO have to keep scope of scrutiny as per CASS. In case he find that scope of enquiry need increase to cover other matters also, then he must seek approval of concerned higher authority (PCIT/ CIT of his jurisdiction).
Scope under CASS original or enhanced is binding in higher forum also:
Scope of scrutiny originally fixed or revised with approval of PCIT/ CIT is binding on Ld. AO and Ld. CIT while considering revision of order as erroneous and prejudicial to revenue. This is because the Ld. AO had to enquire within scope of CASS (original or revised) his order is to be limited to those aspects. Hence Ld CIT also have power to pass revision order within those limits. Because by revision, jurisdiction / scope of scrutiny cannot be increased. If scope was to be revised it should have been done before completion of assessment.
This view also find support in chain of judgments mentioned above.
On the same corollary, it can also be said that in first appeal against assessment order passed as per CASS, Ld. CIT (A) will also have no power of enhancement beyond scope of CASS (original or revised).
Analysis from order of honourable Supreme Court (supra):
Division bench of two judges namely
1.HON'BLE MR. JUSTICE UJJAL BHUYAN AND
2. HON'BLE MR. JUSTICE ATUL S. CHANDURKAR
Five Sr.Advocates appeared for petitioner PCIT namely:
1.Mr. S. Dwarakanath, A.S.G.,
2.Mr. Sudarshan Lamba, AOR,
3. Mrs. Pankhuri Srivastava, Adv.,
4.Ms. Disha Thakkar, Adv.,
5.Mr. Dhruv Sharma, Adv.
For the Respondent(s): None.
ORDER
1. We have heard Mr. S. Dwarakanath, learned Addl. Solicitor General.
2. Delay condoned.
3. After going through the impugned order passed by the High Court as well as the order passed by the Income Tax Appellate Tribunal, we are not inclined to entertain the Special Leave Petition.
4. Accordingly, the Special Leave Petition is dismissed.
5. Pending application(s), if any, shall stand disposed of.'
Un quote:
In this case there was strong representation as we find five Sr. Advocates appeared, though only Addl. Solicitor General was heard.
The honourable Supreme Court has mentioned about careful consideration of orders of High Court and Tribunal. And thereafter held that 'we are not inclined to entertain the Special Leave Petition'
and accordingly, SLP was dismissed.
Question of law has not been kept open.
Therefore, the judgment approves judgment / order of High Court and Tribunal.
Delay- SLP was filed belatedly with COD petition, and that was allowed.
The order of Tribunal was very important as it touched on serious legal issue as well as procedural issues of income-tax department.
A delayed SLP can also be construed as change of mind or after thought. On deeper scrutiny it may reveal that the team engaged in process of filing of SLP was not in favour of filing SLP and in any case was not serious.
This can also be construed that though the judicial team was not in favour of filing SLP but it was filed belatedly just to show action taken and to avoid criticism.
From judgment of Tribunal (supra.) with highlights adeed:
5. At the outset, it could be observed that the assessee's case was selected for limited scrutiny to verify the sales turnover and large value of shares or units reported in securities transaction tax return. During the course of assessment proceedings, notices were issued to the assessee u/s 142(1) on these issues which were duly responded to by the assessee and complete information, in this regard, was furnished by the assessee.After due consideration thereof, Ld. AO accepted the returned income of the assessee. It could very well be said that the purpose of limited scrutiny was duly fulfilled by Ld. AO and having satisfied with assessee's explanation, Ld. AO chose not to make any additions to the returned income of the assessee. Under these circumstances, no infirmity could be attributed to the assessment framed by Ld. AO on the ground that he failed to deal with other issues which did not fail (sic. Fall) in the realm of the limited reason for which the case of the assessee was selected for scrutiny assessment. In other words, Ld. Pr. CIT, in the garb of revisionary jurisdiction u/s 263, could not be permitted to traverse beyond the jurisdiction that was vested with Ld. AO while framing the assessment. The revisionary jurisdiction could not be exercised for broadening the scope of jurisdiction that stood vested with Ld. AO while framing the assessment. As a matter of fact, which (sic. What) could not be done directly could not be done indirectly. Accordingly, the assessment could not be said to be erroneous and prejudicial to the interest of the revenue on the two issues as flagged in the revisionary order. It is another fact that both the issues were well addressed by the assessee during revisionary proceedings itself. Under these circumstances, the impugned revisionary order is liable to be quashed. We order so. The assessment as framed by Ld. AO stand restored back.
6. The appeal stand allowed in terms of our above order.
Un quote:
Tribunal has rightly recorded facts about limited scope and jurisdiction of scrutiny that was not broadened before assessment was completed. The issues which were not within jurisdiction of Ld. AO was not subject matter of assessment order hence Ld. Pr.CIT could not go beyond CASS scope, after the assessment order was passed.
Furthermore ld. Tribunal has also noted that issues raised by Pr. CIT were well addressed during revision proceeding. For this reason also Tribunal found that the order in revision directing Ld. AO to make fresh assessment was not justified.
From judgment of High Court (supra.)
In the order of High Court, substantial question of law(SQL) proposed in petition and finally admitted are not mentioned. It also appear that issue related to CASS selection and assessment is not found in order of High Court in any manner. This can be due to reason that department has not challenged on issue of CASS and scope of scrutiny. This is because circulars of CBDT are also specifically in line with reasons that scope of CASS must be specified, and assessment and other proceedings are to be within those limits. There are many judgments on this issues in favour of assessee and department might not have challenged them. Likewise, in case under study also it might not have challenged on this aspect.
The order of High Court is based only on well-established twin conditions for revision. This we find from the following paragraphs (with highlights added)
4. Having heard learned counsel for the revenue and having perused the record, we find that the finding recorded by the Tribunal remains that there was no error in the order of assessing authority. Apart from that, we find (from that order passed under Section 263 of the Act) that the Principal Commissioner of Income Tax has not recorded any independent finding as to the original assessment order dated 13.12.2017 found 'prejudicial to the interests of the revenue'. For valid action under Section 263 of the Act, twin conditions of assessment order being erroneous and being prejudicial to the interests of revenue, are required to be recorded independently.
5. In view of the above discussion, we find that the present appeal has no merit as in the first place, the Tribunal has clearly found that the assessment order was not erroneous and in any case, no independent prejudice to the interests of revenue has been established by the Principal Commissioner of Income Tax.
6. The appeal lacks merit and is, accordingly, dismissed.
Un quote:
As noted earlier, it appears that order of Tribunal was not challenged before High Court on aspect of CASS. This can be because this would have gone against revenue with serious remarks that if any more enquiry was desired the Pr. CIT could have passed order to increase scope of scrutiny, before completion of assessment. Having failed to do so Pr. CIT cannot increase scope of scrutiny after completion of assessment has been completed by way of revision order (As held by tribunal).
Conclusions:
In view of above chain of judgments, various circulars about scope of scrutiny in CASS cases, and as discussed it can be said that in case of selection of return for scrutiny the scope is limited to that extent and if Pr CIT/ CIT ( whether suo moto or on report of Ld AO ) consider to increase scope of scrutiny, it must be before completion of assessment. Any revision or enhancement and also reassessment may not be allowed in such cases beyond scope of scrutiny under CASS ( original or revised).
This write-up may also be useful under other laws where scheme like CASS are used.