2006 (4) TMI 589 - AT - Income Tax

Depreciation Reassessment Ordered; Tribunal Clarifies Limitations in Limited Scrutiny Cases; Income Classification Upheld.

RAJESH JAIN Versus INCOME-TAX OFFICER, WARD-1, JIND

The Tribunal remitted the depreciation issue back to the Assessing Officer (AO) for reconsideration, emphasizing the AO's limited jurisdiction in scrutiny ... Deduction of depreciation allowed on plinth platforms - Storage facility to store food grains - issuing notice for limited scrutiny - disallowance of expenses - HELD THAT:- The CBDT Circular No. 8/2002, clarifies the stand of the Revenue to the effect that the Assessing Officer does not have the powers to make the entire assessment of income in limited scrutiny cases. There is no doubt that the power of the CIT(A) are co-terminus with the power of the Assessing Officer. So however, in this case when the Assessing Officer does not have the power to make full-fledged assessment in limited scrutiny cases, in my considered view, the CIT(A)'s power cannot be enlarged beyond the power of the Assessing Officer in limited scrutiny cases. Since the notice u/s 143(2)(i) was issued for limited scrutiny, the Assessing Officer is precluded from considering any other issue while making the assessment u/s 13(3) under limited scrutiny. The decision of the CIT(A) in considering the other claim of the assessee not covered in the notice issued u/s 143(2)(i) for limited scrutiny is contrary to the provisions of the Act and accordingly is set aside. The Assessing Officer shall consider the allowability of the claim of depreciation in respect of the plinth aggregating amount in accordance with law after giving reasonable opportunity or being heard to the assessee. In the result, the appeal of the assessee as well as that of the revenue are allowed for statistical purposes. Issues:1. Disallowance of depreciation by Assessing Officer.2. Classification of income from letting out storage space.3. Disallowance of certain expenses.4. Power of Assessing Officer in limited scrutiny cases.5. Power of Commissioner of Income-tax (Appeals) in limited scrutiny cases.Analysis:1. The Assessing Officer disallowed the claim of depreciation made by the assessee in respect of the plinth used for storage of food grains. The total income was computed at a higher amount due to this disallowance. The Commissioner of Income-tax (Appeals) allowed the claim of depreciation, citing a relevant court decision. The Tribunal remitted the issue of depreciation back to the Assessing Officer for a fresh decision in accordance with the law, emphasizing that the Assessing Officer's jurisdiction in limited scrutiny cases is confined to the claims specified in the notice.2. The Commissioner of Income-tax (Appeals) held that the income from letting out the storage space should be assessed under the head 'income from other sources' and not under 'income from business' as claimed by the assessee. This decision was based on the categorization of the storage space as a plant, making the assessee eligible for depreciation under section 57(ii) of the Income-tax Act. The Tribunal upheld this classification and directed the Assessing Officer to reconsider the allowance of depreciation in accordance with the law.3. The Commissioner of Income-tax (Appeals) disallowed certain expenses claimed by the assessee, such as salary, general expenses, car expenses, telephone expenses, and interest on car loan. These disallowances were made despite the Assessing Officer initially allowing these expenses. The Tribunal did not delve into the specifics of these expenses but set aside the Commissioner's decision on these disallowances.4. The Tribunal emphasized the limited scope of the Assessing Officer's powers in cases of limited scrutiny. It referred to a CBDT circular clarifying that in limited scrutiny cases, the Assessing Officer is restricted to verifying the claims specified in the notice. The Tribunal held that the Assessing Officer cannot make a full-fledged assessment beyond the specified claims in the notice.5. Regarding the powers of the Commissioner of Income-tax (Appeals) in limited scrutiny cases, the Tribunal stated that these powers cannot exceed those of the Assessing Officer. The Tribunal highlighted that the Commissioner's powers are co-terminus with the Assessing Officer's powers. Therefore, the Commissioner cannot enlarge their powers beyond those of the Assessing Officer in limited scrutiny cases. The Tribunal directed the Assessing Officer to reconsider the claim of depreciation in accordance with the law and set aside the Commissioner's decision on issues not covered in the limited scrutiny notice.