2021 (4) TMI 711 - AT - Income Tax

Appeal allowed as Commissioner exceeded scope; Assessing Officer's limited scrutiny upheld.

The Tribunal allowed the appeal of the assessee, holding that the Principal Commissioner of Income Tax's invocation of Section 263 was invalid as it ... Revision u/s 263 - merger of the order - case of assessee was selected for limited scrutiny through CASS as that “Cash deposits in savings bank account(s) is more than turnover - CIT proposing to revise the assessment order passed by the Assessing Officer u/s 143(3) - HELD THAT:- When the Assessing Officer completed assessment u/s 143(3) of the Act, after examining the issues for which the case has been selected for limited scrutiny, then it cannot be held that there is an error in the order of the Assessing Officer, for the reason that he has not sought permissions to examine other reasons. If the Assessing Officer has not examined any other aspect, than the reasons for which the assessment was selected for scrutiny, in our view, no fault can be found with the Assessing Officer. Thus, in our view, non-seeking of permission for conversion of limited scrutiny to complete scrutiny in terms of para 4 of the CBDT Instruction No. 7/2014, does not per se render the assessment order u/s 143(3) of the Act, erroneous. Even otherwise, the entire issue of limited scrutiny, reasons for selection, the Bank accounts in questions were before the ld. Pr. CIT. On this issue of turnover, the order of the Assessing Officer has merged with the order of the ld. CIT(A) dt. 28/04/2017. What the Assessing Officer missed, is also missed by the ld. CIT(A). The ld. Pr. CIT cannot order the Assessing Officer to follow the order/directions of the ld. CIT(A) on issues which were not part of the appellate order of the ld. CIT(A). Under these circumstances, the ld. Pr. CIT cannot exercise his powers u/s 263 of the Act, to revise the order that has merged with the order of the ld. CIT(A). For these reasons, we uphold the technical contention of the assessee and quash the order passed by the ld. Pr. CIT u/s 263 of the Act and allow the appeal of the assessee. Issues Involved:1. Validity of invoking Section 263 by the Principal Commissioner of Income Tax (Pr. CIT).2. Scope of limited scrutiny under CASS and whether the Assessing Officer (AO) can go beyond it.3. Merger of the AO's order with the order of the Commissioner of Income Tax (Appeals) [CIT(A)].Detailed Analysis:1. Validity of Invoking Section 263 by the Principal Commissioner of Income Tax (Pr. CIT):The Pr. CIT issued a show cause notice under Section 263 proposing to revise the assessment order passed by the AO under Section 143(3). The Pr. CIT directed the AO to verify and re-compute the total income of the assessee in accordance with the CIT(A)'s order. The assessee contended that the Pr. CIT cannot invoke Section 263 on issues beyond the scope of limited scrutiny. The Tribunal held that the Pr. CIT cannot exercise his powers under Section 263 for issues not covered by the reasons for limited scrutiny selection, as it falls outside the scope of the assessment. The Tribunal cited various case laws to support this view, emphasizing that non-seeking of permission for converting limited scrutiny to complete scrutiny does not render the assessment order erroneous.2. Scope of Limited Scrutiny under CASS:The case was selected for limited scrutiny to examine cash deposits in savings bank accounts exceeding the turnover. The AO adhered to this scope and completed the assessment. The Tribunal noted that the AO has no authority to travel beyond the reasons for limited scrutiny without obtaining approval from the Pr. CIT, as mandated by CBDT Instruction No. 7/2014. The Tribunal observed that if the AO did not seek such approval, it does not automatically make the assessment order erroneous or prejudicial to the interest of the revenue. The Tribunal referenced several judgments, including the ITAT Mumbai and Chandigarh benches, which held that the AO's adherence to the limited scrutiny scope cannot be faulted, and the Pr. CIT cannot invoke Section 263 on issues not part of the limited scrutiny.3. Merger of AO's Order with the Order of CIT(A):The Tribunal pointed out that the AO's order had merged with the CIT(A)'s order on the issue of turnover. The CIT(A) had already considered the matter and granted partial relief. Therefore, the Pr. CIT could not invoke Section 263 to revise the AO's order on issues that were not part of the CIT(A)'s appellate order. The Tribunal concluded that the Pr. CIT's directions to the AO to follow the CIT(A)'s order on issues outside the scope of the limited scrutiny were invalid. Consequently, the Tribunal quashed the order passed by the Pr. CIT under Section 263.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the Pr. CIT's invocation of Section 263 was invalid as it sought to address issues beyond the scope of limited scrutiny and the appellate order of the CIT(A). The Tribunal emphasized that adherence to the limited scrutiny scope by the AO does not constitute an error, and the Pr. CIT cannot revise the AO's order on matters not included in the limited scrutiny or the CIT(A)'s order.