2021 (10) TMI 1385 - AT - Income Tax

Tribunal overturns revisional order, stresses limited scrutiny adherence & objective error demonstration

The Tribunal allowed the appeal, holding that the Principal Commissioner's revisional order under section 263 of the Income Tax Act was unsustainable. It ... Revision u/s 263 by CIT - investment towards purchase of property unexplained - HELD THAT:- We find that vide notice iisued specific queries were raised by the AO seeking details and source of investment in the property purchased during the year. In response, the assessee has filed replies explaining the relevant facts towards source of money utilized for purchase of her share in property. The source of investment was corroborated by evidence. It is trite that the PCIT cannot pass revisional order to direct the AO to make some fuller and extended enquiry desired in the opinion of the revisional authority. In such a situation, where there appears to be inadequacy to the PCIT in the manner of enquiry, he himself should embark upon some enquiries to discover the possibility of error. A roving enquiry cannot be directed summarily. The action of the PCIT is unsustainable in law without objectively showing how the order of the AO is erroneous. The revisional direction, in the instant case, is thus unsustainable in law. We also find merit in the plea of the assessee that having regard to CBDT instruction Nos. 7/2015, 20/2015 & 5/2016 and also CBDT letter dated 30.11.2017, the AO was not entitled to go beyond the reasons for selection of matter for limited scrutiny. As a corollary, it is not open to the PCIT to pass revisionary order and remit the matter to the AO on other aspects by rendering assessment order as erroneous and prejudicial to the interest of the Revenue. This is the view consistently taken by the co-ordinate benches in several decisions, some of which are noted earlier. The action of the PCIT u/s 263 of the Act thus cannot be approved on this parameter also. Appeal of the assessee is allowed. Issues:Challenge to revisional action under section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax, Bilaspur. Jurisdictional aspects of limited scrutiny assessment and supervisory directions.Analysis:Issue 1: Challenge to Revisional Action under Section 263The appeal was filed against the order of the Principal Commissioner of Income Tax, Bilaspur, passed under section 263 of the Income Tax Act, 1961, seeking to set aside the assessment order passed by the Assessing Officer under section 143(3) concerning AY 2015-16. The assessee contested the assumption of jurisdiction by the Principal Commissioner under section 263, arguing that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue.Issue 2: Jurisdictional Aspects of Limited Scrutiny AssessmentThe assessee contended that the case was selected for limited scrutiny, focusing on the purchase of property as identified in the scrutiny notice issued under section 143(2) of the Act. The Assessing Officer raised specific queries regarding the source of investment in the property, which the assessee adequately explained, supported by evidence. The AO accepted the investment after necessary enquiry. The Principal Commissioner, however, alleged lapses in the assessment and attempted to expand the scope of enquiry under section 263 proceedings, which the assessee argued was beyond the limited scrutiny mandate.Issue 3: Supervisory DirectionsThe Tribunal examined the evidences and found that the AO had raised specific queries regarding the source of investment in the property, to which the assessee provided detailed explanations and evidence. The Tribunal held that the Principal Commissioner cannot direct the AO to conduct a fuller enquiry based on his opinion, especially when the source of investment was adequately explained and corroborated. The Tribunal emphasized that the Principal Commissioner's action was unsustainable in law as it failed to objectively demonstrate the error in the AO's order.ConclusionThe Tribunal allowed the appeal of the assessee, emphasizing that the Principal Commissioner's revisional order under section 263 was unsustainable in law. The Tribunal also highlighted the importance of adhering to the scope of limited scrutiny assessments and the need for revisional authorities to demonstrate errors objectively before directing further enquiries. The decision underscored the significance of following CBDT instructions and maintaining the boundaries of supervisory jurisdiction under section 263 of the Income Tax Act.