TaxTMI 
TaxTMI 
2022 (8) TMI 1334
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....u/s.263 of the I.T.Act and modifying the assessment order passed u/s.143(3) of the I.T.Act on 23.11.2016 under "limited scrutiny" category inconformity with CBDT Instructions on the facts in the circumstances of the case. 3. For that ld Pr. CIT is not justified in invoking jurisdiction u/s.263 in respect of valuation of closing stock when the same was not the subject matter of "Limited scrutiny" in the assessment completed u/s.143(3) on the facts and in circumstances of the case." 4. It was the submission by ld AR that the original assessment in the case of the assessee came to be completed u/s.143(3) on 23.11.2016 under Limited Scrutiny. It was the submission that the Limited Scrutiny was in relation to the issue of excess liability shown and disallowance under section 40A(3) of the Act. It was the submission that consequently, the Pr. CIT, Cuttack invoked his powers u/s.263 of the Act for the purpose of revising the assessment order on the ground that there was failure on the part of the Assessing officer to verify the under valuation of closing stock and this has rendered the assessment order both erroneous and prejudicial to the interest of the revenue. It was the s....
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.... assessment order erroneous and prejudicial to the interest of the Revenue. With this view of the matter, we find that the impugned order cannot be sustained and, therefore, the same is liable to be quashed. We accordingly quash the same." 6. Ld AR also placed reliance before us the decision of Co-ordinate Bench of Delhi Tribunal in the case of Rajani Venkata Naga Annavarapu Narayana vs Pr. CIT in ITA No.1871/Del/2020 for A.Y. 2015-16 order dated 16.6.2021, wherein, in para 12, it has been held as follows: "12. We find that the ld. PCIT has also mentioned at para no . 2 that the case has been selected for limited scrutiny under CASS. On going through order u/s 263 , we find that the order u/s 263 passed by the ld. PCIT dwelled into the issue of "re-computation of capital gains" which is beyond the mandate of the limited scrutiny issued by the CBDT. Hence , the directions o f the ld. PCIT which are beyond the selection criteria of scope of scrutiny for the instant year cannot be held to be legally valid." 7. He further relied upon the decision of the Co-ordinate Bench of this Tribunal in the case of Akash Ganga promoters & Developers vs Pr. CIT, in ITA No.164/CTK/2019....
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....ssment framed by the AO whereas in other hand, the assessee has challenged the order of Pr.CIT for examining in details. In our opinion, the contention of ld. AR regarding revisionary power exercised by the Pr.CIT in case of limited scrutiny, is not accepted on the basis of recent decision of the coordinate bench of the Tribunal in case of Baby Memorial Hospital Ltd. (supra). If there is an escapement of income or potentiality of income involved in the issues which has not been done by the AO while completing the limited scrutiny assessment the AO could have obtained the permission from the ld. Pr.CIT if he finds that there is a potentiality of the income. The case law relied on by the ld. DR is for the assessment year 2014-2015 and the assessee's case is also for the assessment year 2014-2015, therefore, the case is squarely covered by decision of the of coordinate bench of the Tribunal ITA No.226/CTK/2019 23 in case of Baby Memorial Hospital Ltd. (supra), wherein the Tribunal has observed as under :- 3. The facts of the case are that the assessment was completed u/s. 143(3) of the Act for the assessment year 2014-15 by accepting the income returned. On verification of re....
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....ails specific to the CASS reasons. It was submitted that the details were furnished in response to notice issued u/s. 142(1) of the Act dated 27/06/2016 and after verification the Asst. Commissioner had accepted the explanation given by the assessee, so proper enquiry was made in the limited scrutiny case and therefore, the A.O had applied his mind to the facts of the case and therefore, his order is not erroneous or prejudicial to the interest of the Revenue. Hence, it was submitted that the order of the Commissioner is invalid. 4.1 The learned AR had submitted that in a limited scrutiny assessment, the Assessing Officer has to restrict himself to the issues raised in the limited scrutiny and cannot make any addition on other issues. In support of this submission, the learned AR had relied on the following Tribunal orders:- (i) Nitin Killawala & Associates v. ITO [ITA No.1611/Mum/2013 - order dated 16.09.2015] ITAT Mumbai Benches. (ii) Ms.Yikti Tiwari v. ITO [ITA No.660/Lkw/2018 - order dated 22.02.2019] ITAT Lucknow Benches. (iii) Suresh Jugraj Mutha v. Addl.CIT [ITA No.05/Pun/2016 - order dated 04.05.2018] ITAT Pune Benches. (iv) M/s.....
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.... dated 30.07.2019] ITAT Mumbai Benches. (vi) Mrs.Sonali Hemant Bhavsar v. Pr.CIT [742/Mum/2019 - order dated 17.05.2019] ITAT Mumbai Benches. 4.5 The learned AR had submitted that in response to the show cause notice u/s 263 of the I.T. Act, when the assessee has filed replies, the PCIT has to give positive finding on merits while setting aside the matter u/s 263 of the I.T. Act on how the assessment order is erroneous and prejudicial to the interest of the revenue. In support of his submission, the learned AR relied on the judgment of the Hon'ble Karnataka High Court in the case of CIT v. Narayana Pai (T) [98 ITR 422]. The Explanation 2(a) to section 263 of the I.T. Act, states that the assessment order shall deem to be erroneous and prejudicial to the interest of the revenue if I.T.A. No.420/Coch/2019 such an order was passed without making inquiry or verification, which should have been made. x x x x x 6. The Ld. DR submitted that in this case, the assessment was taken up for limited scrutiny under CASS on account of AR information. Notice under section 143(2) of the I.T. Act dated 31/08/2015 was issued to the assessee. Further details spe....
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....not match with the details submitted by the tax payer in the return of income. 2. Therefore, for proper administration of the Income-tax Act, 1961 ('Act'), Central Board of Direct Taxes, by virtue of its powers under section 119 of the Act, in supersession of earlier instructions/ guidelines on this subject, ere by directs that the cases selected for scrutiny during the Financial Year 2014-2015 under CASS, on the basis of either AIR data or CIB information or for non reconciliation with 26AS data, the scope of enquiry should be limited to verification these particular aspects only. Therefore, in such cases, an Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny. 3. The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice u/s 143(2), after generation from AST, is issued to the taxpayer with the remark "Selected under Computer Aided Scrutiny Selection (CASS)". The functionality in AST is being modified suitably to flag the reasons for scrutiny selection in cas....
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....ome-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner is well within his powers to treat an order as erroneous on the ground that the Assessing Officer should have made further inquiries before accepting the wrong claims made by the assessee. The Assessing Officer cannot remain passive in the face of a claim, which calls for further enquiry to know the genuineness of it. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The Assessing Officer was statutorily required to make the assessment under Section 143(3) after I.T.A. No.420/Coch/2019 scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. The Assessing Officer is th....
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....for doubtful debts, as necessary examination/verification has not been made during the assessment. 7.4 In this case, the assessment was based on limited scrutiny with reference to AR information and no addition was made by the Assessing Officer on that count. In our opinion, even in a case of limited scrutiny assessment, the Assessing Officer is duty bound to make a prima facie enquiry as to whether there is any other item which requires examination and in the assessment, the potential escapement of income thereof exceeded Rs.10 lakhs. He ought to have sought the permission of CIT/DIT to convert the 'limited scrutiny assessment' into a 'complete scrutiny assessment'. If there is no escapement of income, which would have been more than Rs.10 lakhs, the Pr. CIT could not exercise jurisdiction u/s. 263 of the I.T. Act. In the present case, the assessee itself agreed that the Pr. CIT is justified in giving direction to rework MAT income after adding back the provision for doubtful debts. Now, the argument of the Ld. AR that in case of limited scrutiny assessment, the Pr. CIT could not exercise jurisdiction u/s. 263 of the Act, is devoid of merit. Accordingly, t....
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....Circular/instruction No.5/2016 dated 14.7.2016 regarding scope of enquiry in cases under ' Limited Scrutiny' selected through CASS 2015 and 2016 but in the same instruction/circular, in paras 2 to 6, it has also been provided that in a case which was originally earmarked for ' Limited scrutiny', the AO shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under 'Complete scrutiny' and the case may be converted from limited scrutiny to complete scrutiny, which requires administrative approval from pr. CIT/CIT/Pr. DIT/DIT, as prescribed in para 3(d) of earlier instruction dated 29.12.2015. 30. From a careful reading of the impugned order passed u/s.263 of the Act, we clearly observe that the assessee company had shown gross turnover /revenue from operation of Rs.63,97,71,157/- for financial year 2013-14 but as per statement in 26AS, the assessee had shown Rs.16,91,82,966/- from works contract bit it had disclosed its gross receipts in the profit and loss account only Rs.15,69,31,397/- resulting that the gross receipts is understated by Rs.1,22,51,569/- which should have been verified by the AO during s....
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.... the interest of the revenue, then, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry, he deems necessary, pass such order thereon, as the circumstances of the case justify, which includes an order of enhancement or modification assessment or cancelling the assessment with a direction to pass fresh assessment order. Since both the issues were not considered by the AO in the original assessment order, Ld. Pr. CIT consider it necessary to direct the AO to enquiry the matter and reframe the assessment accordingly. 33. In the case of Gee Vee Enterprises vs. Addl. CIT [99 ITR 375], the Hon'ble Delhi High Court held as under :- "It is not necessary for the Commissioner to make further inquiries before canceling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Incometax Officer is very different from that of a civil court. The ....
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....e did not incur any cost in that regard. Any decision either way without considering these aspects would certainly be erroneous and any decision in favour of the assessee without considering these aspects would be prejudicial to the interests of the Revenue. The order passed by the Commissioner of Income-tax and the order passed by the Tribunal sustaining the same as a whole were valid." 36. In the case of Addl. CIT vs. Mukur Corporation [111 ITR 312], Hon'ble Gujarat High Court held as under :- "that the words "prejudicial to the interests of the revenue' in section 263 have not been defined but they must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. In the present case, it was obvious that the Income-tax Officer had committed an error in not making enquiry into the details as regards both the deductions and also that want of such enquiry had resulted in prejudice to the interests of the revenue. To this extent, the initiation of action under section 263 by the Commissioner was quite proper." 37. In the case ....
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.... Akash Ganga Promoters & Developers, ITA No.164/CTK/2019, order dated 18.12.2019, wherein the similar issue of limited scrutiny is involved, however, the Tribunal has decided the issue in favour of the assessee because in this case the AO has made sufficient, adequate and proper enquiry and thereafter took both the issues to a logical conclusion by way of adjudication and deliberation in the assessment order and he was satisfied that there was no escapement of revenue, therefore, there was no room for further enquiry by the Pr.CIT. For the sake of convenience, we would like to reproduce the relevant observations of the Tribunal in this regard, are as under :- 15. On careful consideration of rival submissions, first of all, we may point out that undisputedly, the case of the assessee for the assessment year 2015-16 was selected for limited scrutiny on two points i.e. (i) real estimate business with high closing stock (verify whether assessee has adopted percentage completion method) and (ii) mismatch in sales turnover reported in audit report and ITR. 16. It is also not in dispute that during the course of assessment proceedings, the AO issued notice u/s.143(2) and....
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....d order u/s.263 of the Act without application of mind on the proposal put forward by the Assessing Officer and draft notice prepared by the AO issued to the assessee. 19. In the present case the Assessing Officer passed limited scrutiny assessment order u/s.143(3) of the Act on 21.3.2017 and assessment proceedings terminated on the said date. From the order sheet of the Assessing Officer placed at page 52 of paper book vide dated 14.1.2019, we observe that subsequently, the AO. i.e. JCIT, Ragne-2, Sambalpur vide letter dated 5.7.2018 send a proposal to ACIT, Sambalpur for initiation of proceedings u/s.263 of the Act. From the second para of said order sheet, we note that the ACIT, Sambalpur mentioned that on analysis of the facts of the case, it is seen that the assessee has shown profit @ 3.24% on total turnover which is too low. Ld ACIT further noted that the AO asked the assessee to produce the documentary evidences related to the business of the assessee like bills & vouchers and details & documents of sale of flats etc but the assessee failed to submit the same before the AO during the scrutiny assessment. The ACIT further stated that as the reason for CASS is real e....
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....f after applying his mind to such record of proceedings, he consider that any order passed by the AO is erroneous and prejudicial to the interest of the revenue, then, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry, he deems necessary, pass such order thereon, as the circumstances of the case justify, which includes an order of enhancement or modification assessment or cancelling the assessment with a direction to pass fresh assessment order. In the present case, from the order sheet dated 14.1.2019, it is vivid that the JCIT, Range-2, Sambalpur sent a proposal for initiation of revisional proceedings u/s.263 of the Act to ACIT, Sambalpur and ld ACIT, Sambalpur after making observation regarding requirement of examination of certain issues forwarded the proposal to Ld. PCIT alongwith draft notice u/s.263 which was approved by ld PCIT in a manner in which administrative actions are proved. Hence, we are compelled to hold that the initiation of revisional proceedings, issue of notice has been done on the proposal of JCIT, Range-2, Sambalpur through ACIT, Sambalpur and mandate of procedure as provided in section 263 ....
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....nd prejudicial to the interest of the Revenue. It was the submission that the decision of the Co-ordinate Bench of this Tribunal in the case of Sri Sushant Kumar Choudhury (supra) was subsequent decision and in the said decision the earlier decision of this Bench in the case of Akash Ganga Promoters and Developers (supra) had been considered and distinguished. It was the submission that it was a later decision which should apply. It was the submission that in the event that this Bench is unwilling to follow the decision in the case of Sri Sushant Kuamr Choudhury (supra), then the matter should be referred to the a Large Bench in view of the decision of ITAT Cochin Third Member in the case of ACIT vs Chandragiri Construction Co(2021) 21 taxmann.com 167 (Coch.) (TM). It was the prayer that the order of the Pr. CIT be upheld or the matter be referred to a Larger Bench. 10. We have considered the rival submissions. The crux of the issue in the present case is whether the Pr. CIT could use his revisionary powers to direct to make the addition by holding the assessment order erroneous and prejudicial to the interest of the Revenue on issues which are not connected issues to the issues....