TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 1312
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee's return of income outside the areas specified in the notice u/s. 143(2) on the basis of which the said return stands selected for scrutiny, euphemistically called a "limited scrutiny' case. In other words, is there any restriction in law on the power of revision u/s. 263, or, on its exercise, to extend the scope of enquiry by the AO beyond that on the basis of which the jurisdiction stand assumed by him to verify the assessee's return of income? 2.1 The issue afore-stated arises in view of the fact that in the instant cases the ld. Pr. CIT has required the assessing authority (AO) to, vide the impugned orders, examine matters which fall outside the scope of the areas specified in the respective notices u/s. 143(2), and for that reason not inquired into by the AO while framing the assessment subject to revision. Without doubt, the circumstance of the AO having himself not caused to extend the scope of enquiry obtains. 2.2 We begin by reproducing section 263 of the Act which, in its relevant part, reads as under: "Revision of orders prejudicial to revenue. 263 (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....434 (Gau)(FB)), for an order to be regarded as erroneous. For instance, an assessment made by accepting the income returned as such, without inquiring if the income returned had been earned by the person returning the same, was held by the Apex Court to be erroneous and prejudicial to the interest of the Revenue (Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)). The case law in the matter is legion, with Hon'ble Courts all through, including the Apex Court (as in Toyota Motor Corp. v. CIT [2008] 306 ITR 52 (SC), affirming the decision by the High Court reported at [2008] 306 ITR 49 (Del), and the Hon'ble jurisdiction High Court (as in CIT vs. Deepak K. Garg [2008] 299 ITR 435 (MP); CIT v. Mahavar Traders [1996] 220 ITR 167 (MP)), holding like-wise in different fact settings. Reference, however, is being made only to the decision in Gee Vee Enterprises v. CIT (Addl.) [1975] 99 ITR 375 (Del), wherein reliance has been placed on the decisions in Rampyari Devi Saraogi vs. CIT [1968] 67 ITR 84 (SC) and Tara Devi Agarwal (supra), also referred to in Malabar Industrial Co. Ltd. (supra) and Jawahar Bhattacharjee (supra). As explained therein: "It is not necessary for the Commissione....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT (I.T.A. No.57/Jab/2019, dated 07/9/2020), upheld this proposition. If the Assessing Officer himself is unable to, in view of his limited jurisdiction, act in a particular manner, his order cannot be regarded as erroneous and prejudicial to the interest of the Revenue on account of not inquiring into aspects (of the assessee's return) outside his purview in such proceedings. However, in Vishal Sethi (supra), the tax effect of the issues not considered by the AO did not exceed Rs. 5 lacs, i.e., the threshold (monetary) limit for seeking such conversion (for non-metro charges). The (said) Board Instruction itself requires the AO to, where deemed proper, undertake proper inquiry in the matter after seeking approval from the competent authority, being Pr. CIT/DIT, i.e., under whose administrative charge he functions. Board Instructions are binding on the AO u/s 119. In fact, this forms the very basis of our holding in Vishal Sethi (supra), as also by the Tribunal in similar cases, that the AO cannot travel beyond the limited scrutiny on his own, and therefore his order cannot be faulted with on that score. However, the Board instruction/s itself enjoins the AO to, where circumstances....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5, w.e.f. 01/06/2015, so that the same deems an order bearing the said infirmity as erroneous and prejudicial to the interests of the Revenue. 7.3 Now, it is axiomatic that while an assessment under comprehensive scrutiny is to be regarded as erroneous in-so-far as it is prejudicial to the interest of Revenue for want of proper inquiry, a limited scrutiny assessment cannot, particularly considering that there is nothing in law, i.e., except the Board Instruction u/s. 119, binding on him, that stops him from travelling to and examining those areas that merit his consideration. That is, no difference could be drawn between the two categories of assessments - limited and comprehensive, except the Board Instruction limiting the scope of inquiry in one category of assessments. However, what when the Board Instruction itself enjoins him to get the said scope extended in the appropriate cases? And which aspect is not in dispute; rather, patent from the Board Instruction. Now, it cannot be that one Board Instruction is binding and the other not, or one part of it is binding and the other not. That would clearly be ludicrous and without any legal basis; in fact, would make an order statin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....order becomes erroneous because such an enquiry has not been made and not because what is stated in the return is not correct. d) the Board Instruction (BI), unless the same is not in force, as where it stands struck down by a competent Court as bad in law or as incompetent, for (say) exceeding the purview thereof u/s. 119, is binding on the assessing authority; and e) there is no limitation on the revisionary power where circumstance/s for its exercise is shown to exist. There is no dispute in principle on all these aspects, which form part of the settled jurisprudence, even as admitted by Shri Bardia, the ld. counsel for the assessee, during hearing, who would though "rely' on the decision by the Tribunal in Mahendra Singh Dhankar (HUF) v. Asst. CIT [2021] 204 DTR (Trib) 377 (Jp), reading out the same. Though, he would add, there are several other orders by the Tribunal in the assessee's paper-book (APB), this order, being the most comprehensive, is only being referred to. In the said order, which is subsequent to the order in Nitin Sharma (supra), the Tribunal states that the AO ought to, in case he considers that an aspect of the assessee's return other than that specified....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the basic legal principles involved, which, as indeed the law as explained by the higher courts of law, must guide us in the matter and govern our adjudication. That the power of inquiry in assessment or indeed the power of the assessing authority in the matter of assessment, is plenary, brooking no interference, is well-settled, for which we may, for the sake of completeness of this order, refer to some, viz. CIT v. Greenworld Corporation [2009] 314 ITR 81 (SC); J.K. Synthetics Ltd. v. CIT [1972] 83 ITR 335 (SC), rendered in different fact settings. The reason for, and premise of, the same is simple. He is duty bound to bring all the income chargeable to tax in the hands of the assessee for the relevant year, i.e., 'total income' to tax, even as explained in CIT vs. Deepak K. Garg [2008] 299 ITR 435 (MP); Ahmedabad Electric Co. vs. CIT [1993] 199 ITR 351 (Bom)(FB), again, to cite some. A BI circumscribing the power of an assessing authority to venture into areas outside those specified in the notice u/s. 143(2) must therefore only be regarded as putting fetters on this power of assessment, which in law cannot be, and is therefore necessarily to be understood, as explained in Nitin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....may have supervisory jurisdiction over the Assessing Officer but it is difficult to conceive that even the merits of the decision should be discussed and should be rendered by the higher authority, who is a supervisory authority. It is one thing to say that while making the orders of assessment the Assessing Officer should be bound by the statutory circulars issued by the CBDT, but it is another thing to say that the assessing authority exercising quasi-judicial functions, keeping in view the scheme contained in the Act, would lose his independence to pass an independent order of assessment. When a statute provides for different hierarchies providing for forums in relation to passing of an order as also appellate or revisional order, by no stretch of imagination can a higher authority interfere with the independence which is the basic feature of any statutory scheme involving adjudicatory process.' (emphasis, supplied) 3.4 Continuing further, it needs to be appreciated that the notice u/s. 143(2), though on the basis of extant criteria as may be specified by the Board, the said notice is in law issued by and under the authority of the AO, i.e., it is the AO who decides which area....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowed throughout by Hon'ble High Courts across the country in different fact settings, with some by the Hon'ble jurisdictional High Court being Deepak Kumar Garg (supra); CIT v. Kohinoor Tobacco Products [1998] 234 ITR 557 (MP); CIT v. Mahavar Traders [1996] 220 ITR 167 (MP); H.H. Maharaja Raja Pawar Dewas v. CIT [1982] 138 ITR 518 (MP). 3.7 Now, as also explained in Nitin Sharma (supra), it stands to reason that while a "complete scrutiny' case is regarded as erroneous and prejudicial to the interests of the Revenue for want of proper enquiry, a "limited scrutiny' cannot be. That apart, the proposition is without any basis in law, for which reference is drawn to ss. 143(2), 143(3), 147, 119 & 263. We have already noted that there is no, nor cannot be, any legal bar for conversion of a limited scrutiny to a complete scrutiny, both of which enjoy the same status in law, i.e., a regular assessment, the purpose of which is to assess the total income of an assessee for the relevant year. A procedure for the same, i.e., for the said conversion or extension, can definitely be put in place - which again ought to be preferably through law. Why, sec. 143(2) itself is a part of procedure. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be regarded as clarificatory of law, statutorily prescribing what the law was always understood as. And, perhaps, with a view to remove any doubt that may obtain. This is as if an enquiry is warranted in the facts and circumstances of the case, not so doing, given the law in the matter, s. 263 would apply. No case law circumscribing the said power, being rather now statutorily provided for and, as explained, consistent with the law on revision as explained by the Apex Court, has been brought to our notice. The only limitation that we observe is where the AO has upon enquiry taken a view, which is a plausible view, thus representing the legal bar aforesaid. The reason is not far to seek. A revisionary authority does not sit in judgment of the assessing authority, so as to substitute his view, i.e., which is the domain of the appellate authority. Sure, he reviews his orders, but only from the stand point of it being erroneous and prejudicial to the interests of the Revenue, and which in turn is for the reason that the Revenue has under law no right to appeal. This gets also manifest in Explanation 1(c) to s. 263(1). 3.8 We have thus far sought to dilate only upon, with a view to e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions by the Apex Court, viz. Prakash Nath Khanna v. CIT [2004] 266 ITR 1 (SC); Padmasundara Rao (Decd.) v. State of Tamil Nadu [2002] 255 ITR 147 (SC), the provisions of the Act are to be read as a composite whole and in a manner which makes them and the scheme of the Act workable. Section 119 is to be, rather than an imposition, itself regarded as a part of the scheme of the Act, so that, except where the purpose is to mitigate the rigor of the specified provisions of law (in certain circumstances) or otherwise a genuine hardship (s.119(2)), it is toward proper administration of the Act and uniform application of its provisions. We do not, we may clarify, either see the Board Instruction/s issued qua limited scrutiny as restrictive of either the power of assessment of the assessing authority or of the power of revision by the revisionary authority. Rather, that would render it as legally infirm, as if seeking to usurp the power of assessment or of revision, which it legally cannot. On the contrary, the BI itself enjoins the assessing authority to, in appropriate cases, make out a case for extension of the scope of enquiry. That being the case, the argument as to the binding natur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eceding year, as that for the current year stands admittedly inflated on account of credit/inclusion of the excess stock found and declared at the time of survey), implies undisclosed sales of Rs. 1024 lacs for the relevant year up to 15/11/2016, the date of survey, as against the assessee's sale for the entire year is only at Rs. 446.69 lacs (PB pgs. 32-59). Further, sale implies availability of stock. How much of it was available as at the beginning of the year, inasmuch as it is only the profit on its sale during the year (upto 15/11/2016), even if by way of the capital being circulated again, that could be undisclosed profit earned during the relevant year. Then, again, is the aspect of incurring the cost of acquisition/conversion thereof inasmuch as the hypothesis implies incurring the entire of it outside books, which may not hold for every expenditure, implying a part thereof, as claimed in regular accounts, being in relation to undisclosed sales, requiring adjustment in its respect. We are not, we may clarify, thereby suggesting an addition for a higher sum, but only highlighting the issues that arise for determination and consideration. It is in view of these difficulties....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the AO not enquiring in the matter/s in view of the same, as explained by the assessee before the ld. Pr. CIT, being covered under Cl. 21(d) and Cl. 33 of the tax audit report, qua both of which the tax auditor had returned no violation. For Explanation 2(a) to s.263(1) to be attracted, as explained in Zila Sahakari Kendriya Bank Maryadit vs. Pr. CIT (ITA No. 45/JAB/2022, dated 15/06/2022), there should be circumstance/s warranting enquiry. We modify the impugned order accordingly. We may though add a caveat, i.e., if the AO in the course of his examining the assessee's profitability and, thus, verifying expenditure, which may not be limited to expenditure on raw material alone, comes across instances of apparent violation of s.40A(3) or the TDS provisions, he shall be at liberty to examine the same and adjudicate thereon, i.e., without any fetters. The income liable to be taxed, as explained in Poona Electric Supply Co. Ltd vs. CIT (1965) 57 ITR 521 (SC); Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577 (SC), is the real income, subject to the provisions of the Act. Also, the Revenue shall, in case of violation/s being found, so that the Auditor has misreported, be at lib....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld not preclude sec. 147 proceedings; the two operating in different fields, so that the only consideration relevant for the latter is a "reason/s to believe'. As again explained by it in the context of sec. 158BC proceedings (in Asst. CIT & Anr. v. Hotel Blue Moon [2010] 321 ITR 362 (SC)), a notice u/s. 143(2) would entitle the AO to repudiate the assessee's return of income. That sections 143(2) and 147/148 operate in different fields is wellsettled; the former being in effect an opportunity to substantiate the return furnished, while the latter is toward reassessment on the basis of information with the Revenue, and irrespective of the assessee having furnished a return or not. The only stipulation, and which the Board could make, inasmuch as it is a reasonable restriction on the right of the assessment of the AO, is to not regard the assessment as open, so as to make any enquiry, but only where circumstances provoking enquiry make it incumbent to do so. This is precisely the import of sec.263 proceedings. The same thus supports the Revenue's case that s.263 would lie where despite conditions for the exercise of power of enquiry u/s. 143(2), were not exercised by the AO. The q....