2023 (1) TMI 361 - AT - Income Tax

Tribunal Condones Delay, Quashes Unauthorized Revision of Limited Scrutiny Assessment by Tax Authority.

The Tribunal allowed the assessee's appeal, condoning a 29-day delay due to COVID-19 extensions. It quashed the PCIT's revision order under Section 263 of ... Revision u/s 263 enlarging scope of limited scrutiny - revision order to revise the assessment for making disallowance of pre-operative expenses i.e. depreciation expenses debited only relating to employee benefits, administrative expenses, etc. - According to the PCIT, the AO has accepted the claim of the assessee without making any due verification and without conducting the necessary enquiries - original scrutiny assessment was taken up for limited scrutiny under the two heads of Import turnover mismatch and Custom Duty Payment Mismatch HELD THAT:- The CBDT Instruction No.20/2015 dated 29.12.2015 sub-clause (b) to Clause (3) categorically limits the power in limited scrutiny case and which confines only to the specific reasons/issues for which case has been picked up for scrutiny and further, the scope of enquiry shall be restricted to limited scrutiny issues only. This is the clear intention of the CBDT. Going through the above said instructions, we noted that the limited scrutiny can be enlarged to complete scrutiny, but subject to certain conditions that during the course of assessment proceedings, if it comes to the notice of the AO that there is a potential escapement of income exceeding Rs.5 lakhs in normal CIT charge and in metro CIT charge Rs.10 lakhs requiring special verification on any other issue, then he can take up for complete scrutiny with the approval of the PCIT concerned. In this case, the AO was not of such view that any other issue requires verification. The above CBDT Instructions later clearly establishes that it is not open for the AO to travel beyond the reasons for selection of the scrutiny for limited scrutiny and on that aspect the assessment order completed in this case in accordance with the CBDT Instruction No.20/2015 dated 29.12.2015. Considering the instruction issued by the CBDT No.20/2015 dated 29.12.2015 and in particular sub-clause (d) of Clause-3, we are of the view that once the AO cannot examine any other issue except the issue as selected for limited scrutiny assessment, the PCIT can examine the only issue which was before the AO during the course of scrutiny assessment and not any other issue, which has not been subject matter of the AO for the assessment in a limited scrutiny assessment. Hence, we quash the revision order and allow the appeal filed by the assessee. Issues Involved:1. Delay in filing the appeal.2. Validity of the Principal Commissioner of Income Tax's (PCIT) revision order under Section 263 of the Income Tax Act, 1961.3. Scope of limited scrutiny versus complete scrutiny.Detailed Analysis:1. Delay in Filing the Appeal:The appeal filed by the assessee was barred by a delay of 29 days. The delay was condoned based on the directions of the Hon'ble Supreme Court in Miscellaneous Application No.665 of 2021 and Miscellaneous Application No.21 of 2022, which extended the period for filing appeals due to the COVID-19 pandemic. The Tribunal admitted the appeal after condoning the delay.2. Validity of the PCIT's Revision Order under Section 263:The core issue was whether the PCIT could revise the assessment framed by the Assessing Officer (AO) under Section 143(3) of the Act when the assessment was a limited scrutiny assessment. The limited scrutiny was initially focused on two issues: Import turnover mismatch and Custom Duty Payment Mismatch. The PCIT, however, raised a new issue regarding the disallowance of pre-operative expenses, depreciation, and other expenses amounting to Rs.1,40,01,528/-, which were not part of the original limited scrutiny.The PCIT argued that the AO had accepted the assessee's claims without due verification or necessary inquiries, thus rendering the assessment order erroneous and prejudicial to the interest of the Revenue. The PCIT set aside the assessment order and directed the AO to re-frame the assessment after proper verification.3. Scope of Limited Scrutiny versus Complete Scrutiny:The Tribunal examined whether the PCIT could expand the scope of limited scrutiny to include issues not originally selected for scrutiny. The Tribunal referred to CBDT Instruction No.20/2015 dated 29.12.2015, which outlines the procedures for handling limited scrutiny cases. According to the instruction, the scope of enquiry in limited scrutiny cases should remain confined to the specific reasons/issues for which the case was picked up. Expansion to complete scrutiny is permissible only if the AO notices potential escapement of income exceeding Rs.5 lakhs (for non-metro) or Rs.10 lakhs (for metro) and obtains written approval from the PCIT/CIT concerned.The Tribunal noted that the AO had not sought such approval for expanding the scope of scrutiny. Therefore, the PCIT's revision order, which addressed issues outside the limited scrutiny scope, was not justified.Conclusion:The Tribunal concluded that the PCIT could not revise the assessment order on issues not connected with the limited scrutiny. The revision order was quashed, and the appeal filed by the assessee was allowed. The Tribunal emphasized that the AO in a limited scrutiny case must confine their assessment to the issues originally selected unless proper procedures for expanding the scope are followed.Order Pronounced:The appeal was allowed, and the revision order under Section 263 was quashed. The decision was pronounced on the 21st day of December, 2022, in Chennai.