2021 (6) TMI 887 - AT - Income Tax

Tribunal quashes CIT's order under section 263, rules in favor of appellant. Importance of procedural compliance highlighted.

The Tribunal quashed the order passed by the Principal CIT under section 263, ruling in favor of the appellant. The Tribunal found that the AO had ... Revision u/s 263 - limited scrutiny assessment -Scope of Limited scrutiny - unexplained of sundry creditors and unexplained investment - HELD THAT:- The perusal of the order shows that the assessing officer has not only the posed questions with respect to share application as well as sundry creditors by the detailed questionnaire to the assessee but had also made additions on of sundry creditors. The assessing officer had mentioned that the shares were allotted in the financial year 2014 - 2015 on the basis of the share money received by the assessee. No discrepancy was found no additions were made on this head. However in respect of sundry creditor, the assessing officer had made the additions. In our considered opinion once the assessing officer has examined both the issues as referred to him under the limited scrutiny, then it is not incumbent upon him to expand the scope of the assessment without seeking the approval from the principal Commissioner of income tax in accordance with the board instruction 19 and 20/2015 2015 dated 29th December 2015 and Instruction number 5/2016 dated 14/07/2016. Assessing officer, can only deviate from the limited scrutiny and converted into the only after following the procedure provided under the circular (5/16 supra). In the present case it is not the case of the principal Commissioner that case was required to be converted into the complete scrutiny and the proposal should have been made by the assessing officer. In our view the assessing officer had acted within the limits circumscribed by the limited scrutiny in accordance with the material available in is file after the last date of deciding the assessment. If the assessing officer during the course of assessment comes to the conclusion that some investment were made in the books of account, then the addition can be made under section 69 of the act but for that procedure as provided by the circulars, were required to be followed by the assessing officer. In our considered opinion once the order was passed based on the material available on record and investment in shares and subsequent allotment have been accepted by the assessing officer and additions were made on account of sundry creditors, then no fault can be found in the order passed by the assessing officer. The sole basis for initiating the proceedings under section 263 was the enquiry report by the ITO whereby he had estimated the investment to the tune of ₹ 2,85,60,000/- and subsequent reference by the assessing officer to the valuation cell under section 142A of the income tax act. The revisional Commissioner in his order though has mentioned that the valuation was referred to the valuation cell under section 142(2A) of the Income Tax Act. In our considered opinion the wrong provisions has been mentioned by the revisional Commissioner as the valuation of the assets by the valuation officer is mention under section 142A and not under section 142(2A) Once the valuation report has not been sent by the valuation officer to the assessing officer/assessee, within the period stipulated by the act that alleged report cannot found basis of 'RECORD' to invoke the judicial under section 263 by the revisional Commissioner. The twin requirement of the order being erroneous and prejudicial to the interests of revenue should be satisfied and that the CIT should invoke the powers u/s. 263 only after an enquiry by him to establish the twin conditions. Merely the assessing officer has formed an opinion which is not in line of thinking of the revisional Commissioner and there are two possible views, then also the revisional Commissioner cannot exercise the power for provision under section 263 - we found that the order passed by PCIT, was not in accordance with law and therefore we quash the same. - Decided in favour of assessee. Issues Involved:1. Legality and arbitrariness of the order passed under section 263 by the Principal CIT.2. Validity of the order passed under section 263 on issues not subjected to limited scrutiny assessment.3. Absence of any finding by the Principal CIT that the order passed by the AO was erroneous or prejudicial to the interest of revenue.4. Jurisdictional validity of the cancellation of the assessment order passed by the AO under limited scrutiny assessment scheme.5. Lack of material evidence supporting the Principal CIT's claim that the order passed was erroneous or prejudicial on issues covered by limited scrutiny assessment.Detailed Analysis:1. Legality and Arbitrariness of the Order Passed Under Section 263 by the Principal CIT:The appellant contended that the order passed under section 263 by the Principal CIT was illegal and arbitrary. The Tribunal noted that the assessment was selected for 'limited scrutiny' focusing on two specific issues: large share application money received against unallotted shares and a significant increase in sundry creditors. The AO conducted a thorough inquiry into both issues, making necessary additions where discrepancies were found. The Tribunal found that the Principal CIT's order lacked a valid basis as the AO had already addressed the issues adequately within the limited scrutiny framework.2. Validity of the Order Passed Under Section 263 on Issues Not Subjected to Limited Scrutiny Assessment:The Tribunal emphasized that the AO is bound by the scope of limited scrutiny as per CBDT instructions. The AO cannot expand the scope of assessment without prior approval from the Principal CIT. The Tribunal observed that the Principal CIT's attempt to include issues beyond the limited scrutiny without following the proper procedure was beyond jurisdiction and against the principles of natural justice. The Tribunal cited relevant CBDT instructions, reinforcing that the AO acted within the prescribed limits.3. Absence of Any Finding by the Principal CIT That the Order Passed by the AO Was Erroneous or Prejudicial to the Interest of Revenue:The Tribunal highlighted that the Principal CIT failed to demonstrate that the AO's order was erroneous or prejudicial to the interest of revenue. The Tribunal noted that the AO had conducted a detailed inquiry and made additions where necessary. The Principal CIT's order did not provide any substantial evidence to prove that the AO's findings were incorrect or inadequate. The Tribunal referenced multiple judicial precedents, asserting that mere disagreement with the AO's findings does not justify invoking section 263.4. Jurisdictional Validity of the Cancellation of the Assessment Order Passed by the AO Under Limited Scrutiny Assessment Scheme:The Tribunal scrutinized the jurisdictional validity of the Principal CIT's order, emphasizing that the AO had adhered to the limited scrutiny parameters. The Tribunal found that the Principal CIT's order to cancel the assessment was beyond jurisdiction as it attempted to address issues not covered under the limited scrutiny without proper procedural compliance. The Tribunal reiterated that the AO's actions were within the legal framework, and any deviation required formal approval, which was not obtained.5. Lack of Material Evidence Supporting the Principal CIT's Claim That the Order Passed Was Erroneous or Prejudicial on Issues Covered by Limited Scrutiny Assessment:The Tribunal concluded that the Principal CIT did not provide any material evidence to support the claim that the AO's order was erroneous or prejudicial to the interest of revenue. The Tribunal noted that the valuation report, which was a basis for the Principal CIT's order, was not available at the time of assessment and thus could not be considered as a valid ground for invoking section 263. The Tribunal emphasized that the AO had acted based on the available records and conducted a thorough inquiry within the limited scrutiny scope.Conclusion:The Tribunal quashed the order passed by the Principal CIT under section 263, ruling in favor of the appellant. The Tribunal found that the AO had conducted a proper inquiry within the limited scrutiny framework, and the Principal CIT's order was beyond jurisdiction and lacked substantial evidence. The appeal of the assessee was allowed, and the Tribunal emphasized the importance of adhering to procedural guidelines and the scope of limited scrutiny assessments.