2024 (2) TMI 460 - AT - Income Tax

PCIT cannot expand limited scrutiny scope beyond original parameters under section 263

The ITAT Chennai quashed a revision order under section 263 where PCIT attempted to enlarge the scope of limited scrutiny. The assessee's return was ... Revision u/s 263 - PCIT enlarging the scope of limited scrutiny - PCIT has observed that while computing the profit before tax assessee had debited to profit and loss account a sum towards provision for bad and doubtful debts which is not an allowable expenditure and the same was not added back while computing the total income under normal provisions of the Act - return filed by the assessee was selected for limited scrutiny for verification of duty drawback, unsecured loans & disallowance u/s. 40A(7) (Gratuity Provision) - HELD THAT:- As in this case, the AO has examined the case of the assessee for which it was selected under “Limited Scrutiny”. Under the above facts and circumstances, we are of the considered opinion that it is not a fit case to invoke the provisions of section 263 and pass revision order, where the case of the assessee was picked up for limited scrutiny in view of the decision of Smt. Padmavathi [2020 (10) TMI 425 - MADRAS HIGH COURT] as the ld. PCIT cannot enlarge the scope of limited scrutiny. Thus, the revision order under section 263 of the Act stands quashed. Appeal filed by the assessee is allowed. Issues involved:The issues involved in this case include the validity of the revision order passed under section 263 of the Income Tax Act, 1961 regarding the disallowance of provision for bad and doubtful debts made by the assessee while computing profit before tax for the assessment year 2018-19.Comprehensive details of the judgment:Issue 1: Disallowance of provision for bad and doubtful debtsThe assessee had debited a sum towards provision for bad and doubtful debts while computing profit before tax, which was not added back when computing the total income under normal provisions of the Act. The Principal Commissioner of Income Tax (PCIT) issued a notice under section 263 proposing revision, considering this as an error prejudicial to the interest of Revenue. The PCIT set aside the assessment order and directed a fresh assessment. The assessee contended that it was a clerical mistake and no revision was warranted as it did not cause prejudice due to carry forward losses. The Tribunal observed that the assessee had furnished all details during limited scrutiny, and the addition of the disallowed amount would result in a nil income, making the TDS collected refundable. The Tribunal held that invoking section 263 was not justified, quashing the revision order based on the limited scrutiny nature of the case and relevant legal precedents.Decision:The Tribunal allowed the appeal filed by the assessee, quashing the revision order under section 263 of the Act.Separate Judgement:No separate judgment was delivered in this case.