2023 (2) TMI 308 - AT - Income Tax

Tribunal overturns Tax Commissioner's revision order, upholding original assessment. Limited scrutiny scope emphasized.

The Tribunal quashed the Principal Commissioner of Income Tax's revision order under Section 263, ruling that the original assessment was not erroneous or ... Revision u/s 263 - Assessee deposited in old SBN during demonetisation period in excess of the cash on hand at the opening of 09.11.2016 - Assessee was selected for scrutiny under CASS “LIMITED SCRUTINY” category to examine the “Cash deposit during the year” - HELD THAT:- The vehicle loan interest, interest on overdraft and other interest payments debited in the profit and loss account nothing to do with the cash deposits made during the year. Therefore, the AO has only examined cash deposited during year for which the case was selected under CASS – Limited Scrutiny correctly. As per para 3 of the CBDT circular, referred hereinabove, the Assessing Officer cannot proceed further to examine except what is provided in para 3 of the circular. Therefore, the order passed by the AO cannot be said that it is erroneous and prejudicial to the interest of the Revenue. Following the decision of the Coordinate Benches of the Tribunal in the case of Subbunadar Chandra Sekar [2023 (1) TMI 683 - ITAT CHENNAI] the revision order passed by the ld. PCIT under section 263 of the Act cannot be upheld in the eyes of law. The case law relied on by the ld. DR has no application to the facts of the present case. - Decided in favour of assessee. Issues Involved:1. Legality of the Principal Commissioner of Income Tax's (PCIT) revision order under Section 263 of the Income Tax Act.2. Scope of assessment under 'Limited Scrutiny' as per CASS guidelines.3. Examination of issues beyond the scope of 'Limited Scrutiny' without proper approval.Detailed Analysis:1. Legality of the PCIT's Revision Order under Section 263:The assessee filed an appeal against the PCIT's order dated 23.02.2022, which revised the original assessment order under Section 263 of the Income Tax Act for the assessment year 2017-18. The PCIT argued that the original assessment was erroneous and prejudicial to the interest of the revenue as the Assessing Officer (AO) did not examine certain issues, including the cash deposits during demonetization and interest payments without TDS deduction.2. Scope of Assessment under 'Limited Scrutiny':The case was selected for 'Limited Scrutiny' to examine the 'Cash deposit during the year.' The assessee provided all necessary details, including bank account information and month-wise cash deposit details, which the AO accepted, completing the assessment under Section 143(3) on 27.09.2019. The assessee contended that the AO could not examine issues beyond the scope of 'Limited Scrutiny' without prior approval from the PCIT, as per CBDT circular F.No. 225/402/2018/ITA.II dated 28.11.2018.3. Examination of Issues Beyond the Scope of 'Limited Scrutiny' Without Proper Approval:The PCIT issued a show-cause notice arguing that the AO failed to consider the possibility that cash deposits during demonetization represented undisclosed receipts from the pre-demonetization period. Additionally, the PCIT noted that the AO did not examine interest payments on vehicle loans, overdrafts, and other secured loans, which might require disallowance under Section 40(a)(ia) due to non-deduction of TDS.The Tribunal found that the AO correctly adhered to the 'Limited Scrutiny' scope, focusing solely on the cash deposits. The Tribunal cited CBDT's instructions, which restrict the AO from examining issues beyond the flagged ones in 'Limited Scrutiny' cases unless credible material or information from law enforcement or regulatory authorities indicates tax evasion, requiring prior approval from the PCIT.The Tribunal referenced the case of Subbunadar Chandra Sekar v. ITO, where it was held that the AO could not be faulted for not examining issues outside the 'Limited Scrutiny' scope. The Tribunal also noted that the PCIT did not have credible material or information justifying the expansion of the scrutiny scope.Conclusion:The Tribunal quashed the PCIT's revision order under Section 263, ruling that the original assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal emphasized that the AO followed the 'Limited Scrutiny' guidelines correctly, and the PCIT's attempt to expand the scrutiny scope without proper approval was invalid. Consequently, the appeal filed by the assessee was allowed.