2022 (2) TMI 1298 - AT - Income Tax

Appellate Tribunal rules in favor of assessee against Principal CIT under Income Tax Act

The Appellate Tribunal ruled in favor of the assessee, holding that the Principal Commissioner of Income Tax (Pr. CIT) erred in assuming jurisdiction ... Revision u/s 263 by CIT - assessment order passed under section 143(3) was erroneous and/or prejudicial to the interests of the revenue - as per CIT AO has not verified the issue of tax deducted at source on the payments made to contractors in light of the provisions of section 194C of the Act - whether the ld. AO was required to examine the issue for payment to contractors and tax deducted thereon”? - HELD THAT:- The issue of payment to contractors and tax deducted thereon was never a part of reasons for the limited scrutiny. Therefore, there was no occasion for the Ld. AO to examine this issue for payment to contractors. It is well settled that in case of limited scrutiny matter Ld. AO has to work within the parameters observed by the Central Board of Direct Taxes; instruction dated 29.12.2015 and various other circular issued in this behalf. Since the assessee’s case was selected for limited scrutiny on certain issues and Ld. AO has examined these issues and framed the assessments and the issue of examination of payment to contractors was not a part of the limited scrutiny reasons, in our considered view, CIT erred in assuming jurisdiction u/s 263 of the Act and also erred in holding that assessment order is erroneous and prejudicial to the interest of revenue. CIT has held that the AO has failed to verify the cash payment made for purchase of goods which are not in conformity with the provisions of section 40A (3) - According to para number 2 (iii) the scope of enquiry should be limited only on that aspect only. In such cases, the assessing officer are also directed to confine themselves by questionnaire only to the specific issues pertaining to AIR data and further the wider scrutiny in those cases can only be conducted as per the guidelines and procedures stated in instruction number 7/2014. According to us when the learned assessing officer was not required to enquire on those issues such as purchases in cash more than specified sum CIT was not correct in holding that the learned assessing officer has not made due inquiries on that ground as the verification of the purchases exceeding specified limit in cash was not an issue before the assessing officer. Naturally, he should not have made any enquiry on that aspect. Even though the learned assessing officer has raised the specific questions on that aspect and verified the requisite detail. Therefore, it cannot be said that the order of the learned assessing officer is erroneous and prejudicial to the interest of the revenue on this ground also. According to us the order of the learned CIT in assuming jurisdiction under section 263 of the income tax act holding that the order of the learned assessing officer passed under section 143 (3) of the act is erroneous and prejudicial to the interest of the revenue is not correct. Accordingly, the order passed by the learned CIT is unsustainable. As per the finding of case of Rakesh Kumar [2018 (12) TMI 1718 - ITAT DELHI] hold that Ld. Pr. CIT erred in assuming revisionary powers u/s 263 of the Act. The impugned order of Ld. Pr. CIT is quashed. Thus in our considered view assessment order u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue and the same is restored. All the grounds raised by the assessee are allowed. Issues Involved:1. Jurisdiction of Revisionary Powers u/s 263 of the Income Tax Act.2. Limited scrutiny assessment and scope of examination by Assessing Officer.3. Whether the assessment order passed under section 143(3) was erroneous and prejudicial to the interests of the revenue.Analysis:Issue 1: Jurisdiction of Revisionary Powers u/s 263The Appellate Tribunal considered the jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under section 263 of the Act. In this case, the Pr. CIT assumed jurisdiction under section 263 based on the observation that the Assessing Officer (AO) did not verify the issue of tax deducted at source on payments made to contractors as per section 194C of the Act. The Tribunal held that since the case was selected for limited scrutiny for specific issues, the AO was not required to examine the issue of payment to contractors. The Tribunal cited precedents and instructions from the Central Board of Direct Taxes to support its decision, ultimately quashing the Pr. CIT's order and restoring the assessment order.Issue 2: Limited Scrutiny Assessment and Scope of ExaminationThe Tribunal examined whether the AO was required to verify the issue of payment to contractors and tax deductions in a case selected for limited scrutiny. It was established that the case was chosen for limited scrutiny to investigate specific issues such as contract receipts/fees mismatch and sales turnover mismatch. The Tribunal emphasized that the AO's examination should align with the parameters set by the tax authorities for limited scrutiny cases. As the issue of payment to contractors was not part of the reasons for limited scrutiny, the Tribunal concluded that the Pr. CIT erred in assuming jurisdiction under section 263 and in deeming the assessment order as erroneous and prejudicial to revenue.Issue 3: Assessment Order under Section 143(3)The Tribunal analyzed whether the assessment order passed under section 143(3) was erroneous and prejudicial to the interests of revenue. It was noted that the AO had examined the issues specified for limited scrutiny and had not been required to investigate the payment to contractors. Citing a previous decision, the Tribunal held that the Pr. CIT's assumption of revisionary powers was incorrect, and the assessment order was neither erroneous nor prejudicial to revenue. Consequently, the Tribunal allowed all grounds raised by the assessee and upheld the assessment order dated 11.09.2017 under section 143(3) of the Act.This comprehensive analysis of the judgment highlights the key legal issues addressed by the Appellate Tribunal and the reasoning behind its decision, providing a detailed understanding of the case and its implications.