2019 (12) TMI 26 - AT - Income Tax

Tribunal sets aside Commissioner's order, restoring Assessing Officer's decision under Sec. 263

M/s Su-Raj Diamond Dealers Pvt. Ltd Versus Principal Commissioner of Income-tax -11, Mumbai

The Tribunal set aside the Principal Commissioner of Income Tax's order under Sec. 263, restoring the Assessing Officer's original assessment order. The ... Revision u/s 263 - Failure to carry out proper investigation as regards the issue of valuation of the ‘closing stock’ as reflected in the audited accounts of the assessee - HELD THAT:- Case of the assessee was selected for limited scrutiny for the reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to the assessment framed by the A.O on the ground that he had failed to deal with other issues which though did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment. Pr. CIT in the garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment. In sum and substance, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the A.O while framing the assessment. As a matter of fact, what cannot be done directly cannot be done indirectly. A.O had aptly confined himself to the issues for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for the reason, that he had failed to dwell upon certain other issues which did not form part of the reasons for which the case was selected for limited scrutiny under CASS. We thus not being able to concur with the view taken by the Pr. CIT that the order passed by the A.O under Sec. 143(3), dated 08.12.2016 is erroneous, therefore, ‘set aside’ his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT u/s 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the ld. A.R on the merits of the case, which thus are left open. Issues Involved:1. Validity of the Principal Commissioner of Income Tax's (Pr. CIT) order under Sec. 263 of the Income Tax Act, 1961.2. Jurisdiction of the Assessing Officer (A.O) in limited scrutiny cases.3. Examination of the 'closing stock' issue in limited scrutiny cases.Detailed Analysis:1. Validity of the Pr. CIT's Order under Sec. 263:The assessee challenged the order passed by the Pr. CIT under Sec. 263, which set aside the A.O's assessment order, claiming it was erroneous and prejudicial to the interests of the revenue. The Pr. CIT's order was based on the observation that the A.O failed to investigate the valuation of the 'closing stock' properly. The Tribunal concluded that the Pr. CIT exceeded his jurisdiction by attempting to review the A.O's order under the guise of revisional powers. The Tribunal emphasized that revisional jurisdiction cannot be used to expand the scope of the A.O's assessment beyond the issues for which the case was selected for limited scrutiny.2. Jurisdiction of the A.O in Limited Scrutiny Cases:The assessee's case was selected for limited scrutiny under CASS for two specific reasons: (i) Large other expenses claimed in the P&L A/c., and (ii) Low income in comparison to High Loans/advance/Investment in shares. The Tribunal highlighted that, as per CBDT Instruction No. 20/2015, scrutiny in cases selected through CASS should be confined to the specific reasons/issues for which the case was picked up. The A.O was prohibited from addressing issues beyond these specific reasons unless there was potential escapement of income exceeding specified limits, which required approval from the administrative Principal Commissioner of Income Tax/Commissioner of Income Tax.3. Examination of the 'Closing Stock' Issue in Limited Scrutiny Cases:The Tribunal noted that the Pr. CIT's order directed the A.O to examine the 'closing stock' issue, which was not within the scope of the limited scrutiny reasons. The Tribunal found that the A.O had confined his assessment to the specific issues for which the case was selected, and thus, there was no error in the A.O's order. The Tribunal concluded that the Pr. CIT could not use Sec. 263 to broaden the scope of the A.O's jurisdiction to include issues not covered by the limited scrutiny parameters.Conclusion:The Tribunal set aside the Pr. CIT's order under Sec. 263 and restored the A.O's original assessment order, ruling that the Pr. CIT had invalidly assumed jurisdiction. The appeal of the assessee was allowed, and the Tribunal refrained from addressing the merits of the case, leaving those contentions open.Order Pronounced:The order was pronounced in the open court on 27.11.2019.