2023 (10) TMI 1232 - AT - Income Tax

PCIT's revision order quashed for raising issues beyond limited scrutiny scope under section 263

ITAT Surat quashed PCIT's revision order u/s 263 regarding limited scrutiny assessment. The assessee's case was selected for limited scrutiny solely to ... Revision u/s 263 - assessee case selected for limited scrutiny - share capital and other capital receipts - as per CIT AO failed to examine the issue relating to sale of shops and computation of long term capital gain - HELD THAT:- As gone through the assessment order, passed by AO and noted that assessment order was passed by the AO in the ‘limited scrutiny’ only to examine the items of ‘share capital and other capital’. The scrutiny assessment was for limited purpose to examine the issue of “share capital and other capital”. AO has examined the ‘share capital and other capital’ in the scrutiny assessment and framed the assessment order u/s 143(3) - PCIT has raised the issue, stating that there were sale of shop and computation of long-term capital gain, their on which was not the subject matter of ‘limited scrutiny’. Therefore, the issue raised by the L PCIT is outside the scope of limited scrutiny. Assessee’s case was selected for “limited scrutiny purpose” for the purpose of verification of “Share capital/other capital”. Therefore, AO need not to examine the issue relating to sale of shops and computation of long term capital gain, which was raised by the PCIT. Since in the limited scrutiny case, AO has to examine only those issues which are mentioned in the notice of limited scrutiny. If the AO wants to examine other items, which are not mentioned in the limited scrutiny notice, then in that circumstances, he has to convert the ‘limited scrutiny’ into ‘unlimited scrutiny’ by taking permission from the higher authorities, which the AO has not done in the assessee`s case under consideration. Therefore, the issue relating to sale of shops and capital gain thereon and other few issues raised by PCIT, which were raised by the PCIT in his order u/s 263 is outside the scope of the examination conducted by the AO hence order passed by PCIT in his revision order is not tenable and therefore, order of PCIT may be quashed. AO had rightly raised query regarding sources of substantial increase in capital, vide notice u/s 142(1) of the Act and the assessee had also submitted her detailed reply and explanation with supporting evidences, against notice u/s 142(1) - order passed u/s 143(3) of the Act is neither erroneous nor prejudicial to the revenue, as it was passed after detailed examination and proper verification of all documents of subject matter of limited scrutiny - Decided in favour of assessee. Issues Involved:1. Validity of the revision order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income-Tax Act, 1961.2. Whether the Assessing Officer's (AO) order was erroneous and prejudicial to the interest of revenue.3. Examination of issues outside the scope of limited scrutiny.Summary:1. Validity of the revision order passed by the PCIT under section 263 of the Income-Tax Act, 1961:The assessee challenged the correctness of the order dated 30.03.2023 passed by the Principal Commissioner of Income-Tax-Valsad under section 263 of the Income-Tax Act, 1961. The PCIT exercised jurisdiction under section 263, observing discrepancies in the assessee's capital introduction and long-term capital gains computation.2. Whether the AO's order was erroneous and prejudicial to the interest of revenue:The PCIT noted that the assessee introduced capital in M/s Sai Nath Petroleum from various sources, including capital gains and business income from the sale of land and shops. The PCIT observed a discrepancy in the sale consideration and the long-term capital gain computation. The assessee had shown a sale consideration of Rs. 63,58,500/- instead of Rs. 2,11,00,000/-, resulting in a lower reported capital gain. The PCIT held that the AO failed to make necessary inquiries or verification, thus rendering the assessment order erroneous and prejudicial to the interest of revenue.3. Examination of issues outside the scope of limited scrutiny:The assessee's case was selected for limited scrutiny to verify the sources of substantial increase in capital. The AO completed the assessment based on this limited scrutiny, examining the 'share capital and other capital.' The PCIT raised issues related to the sale of shops and long-term capital gain computation, which were not part of the limited scrutiny. The tribunal noted that the AO did not convert the limited scrutiny into complete scrutiny and thus was not required to examine issues beyond the specified scope. The tribunal cited the judgment in the case of Green Park, where it was held that in limited scrutiny, the AO could not go beyond the specified issues.Conclusion:The tribunal quashed the order of the PCIT, stating that the AO's order was neither erroneous nor prejudicial to the revenue as it was based on a detailed examination within the scope of limited scrutiny. The tribunal emphasized that the twin conditions for revision under section 263, namely, the order being erroneous and prejudicial to the interest of revenue, were not met in this case.Result:The appeal of the assessee was allowed, and the order of the PCIT was quashed.