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 selected for limited scrutiny specifically for verification of duty drawback, unsecured loans disallowance under section 40A(7), and gratuity provision. PCIT observed that provision for bad and doubtful debts was not added back while computing total income. However, ITAT held that since AO had already examined the case for matters under limited scrutiny, PCIT cannot expand the scope beyond the original parameters. Following the Padmavathi HC precedent, the revision order was quashed and assessee's appeal was allowed.

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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 debts

The 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.

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