2021 (5) TMI 510 - AT - Income Tax

Tribunal Quashes PCIT's Order on Insurance Premium Deduction

Spotlight Vanijya Ltd. Versus PCIT-2, Kolkata

The Tribunal allowed the appeal, quashing the Ld. PCIT's order under section 263 of the Income Tax Act, 1961, regarding the deduction of insurance ... Revision u/s 263 - assessee’s case selected for limited scrutiny under CASS - AO not conducting any enquiry on the issue of Insurance Premium (Keyman Policy) - HELD THAT:- PCIT could not have exercised his revisional jurisdiction on the issue on which he found fault with the action/omission on the part of AO because in the first place the AO could not have been faulted for not conducting any enquiry on the issue of Insurance Premium (Keyman Policy) since the assessee’s case was selected for scrutiny only for limited purpose under CASS and the issue of Insurance Premium (Keyman Policy) was not the reason for selection of the case for limited scrutiny. As per the CBDT circular AO could not have initiated enquiry on the issue of Insurance Premium (Keyman Policy) of ₹ 10,00,000/- and it is settled law that CBDT circulars are binding on income tax authorities. Therefore in such a scenario, the Ld. PCIT could not have invoked jurisdiction u/s 263 of the Act because he could not have held the AO’s order to be erroneous because the AO was justified in not enquiring in to the issue of Insurance Premium (Keyman Policy) since the AO has gone as per the dictum of CBDT circular on the subject. Therefore, the AO’s action/ omission of not looking into the issue of Insurance Premium (Keyman Policy) cannot be termed as erroneous. - Decided in favour of assessee. Issues:1. Jurisdiction of Ld. PCIT under section 263 of the Income Tax Act, 1961 regarding the deduction of insurance premium.2. Scope of scrutiny under CASS and the authority to enlarge the scope of inquiry.3. Compliance with CBDT circulars in conducting assessments.Analysis:Issue 1: Jurisdiction of Ld. PCIT under section 263The appeal challenged the Ld. PCIT's order under section 263 of the Income Tax Act, 1961, regarding the deduction of insurance premium. The Ld. A.R contended that the Ld. PCIT erred in invoking revisional jurisdiction without satisfying the conditions precedent. The AO had not inquired into the insurance premium issue as it was not part of the limited scrutiny under CASS. The Tribunal held that the Ld. PCIT could not fault the AO for not investigating the issue, as per CBDT circulars, and therefore, the revisional jurisdiction was improperly invoked. The Tribunal emphasized that the Ld. PCIT's actions were akin to attempting to indirectly address an issue that the AO was not required to investigate.Issue 2: Scope of scrutiny under CASS and authority to enlarge inquiryThe Tribunal examined the scope of scrutiny under CASS and the authority to expand the inquiry beyond the limited issues identified. It was highlighted that the AO, in this case, was justified in not delving into the insurance premium issue as it was not part of the limited scrutiny. The Ld. PCIT's attempt to enlarge the scope of scrutiny was deemed improper, as per CBDT circulars, and the AO's actions were found to be in compliance with the prescribed guidelines.Issue 3: Compliance with CBDT circularsThe Tribunal emphasized the importance of adhering to CBDT circulars in conducting assessments. It was noted that the AO's omission to investigate the insurance premium issue was in line with the circular's directives, and therefore, the Ld. PCIT's attempt to invoke revisional jurisdiction was deemed unjustified. The Tribunal cited previous decisions to support the conclusion that the Ld. PCIT had erred in expanding the jurisdiction beyond the limited scrutiny parameters set by the CASS module.In conclusion, the Tribunal allowed the appeal, quashing the Ld. PCIT's order and ruling that all further actions, including the impugned order, were null in the eyes of the law. The decision was based on the lack of jurisdiction of the Ld. PCIT to invoke section 263 regarding the insurance premium deduction, as it was not within the scope of the limited scrutiny under CASS.