TaxTMI 
TaxTMI 
2022 (8) TMI 1334
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....nt 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 submission that the Pr. CIT has in his order u/s.263 of the....
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....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 order dated 18.12.2019, wherein, the Tribunal has taken the similar view. It....
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....tails. 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 records, the Pr. CIT noticed that the assessment order passed by the Assessing Officer was prima facie erroneous in so far ....
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....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.Srinidhi Mines v. ITO [3084/Bang/2018 - order dated 25.04.2019] ITAT Bangalore Benches. (v) Smt.Gurpreet Kaur v. ITO [87/Asr/2016 - order dated 24.03.2016] ITAT Amritsar Bench....
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.... 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 specific to CASS were called for from the assessee vide notice issued u/s. 142(1) dated 27/06/2016 and the Assessing Officer accepted the explanation offered by the assessee in response to such notice. 6.1 The Ld. DR relied on the subsequent Circular No.20/2015 dated 2....
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....elines 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 cases. This functionality is expected to be operationalised by 15th October, 2014. Further, the Assessing Officer while issuing notice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verify only the specific aspects requiring examination/verification. In such cases....
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....uiry 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 therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. The Assessing Officer should protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his e....
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....ie 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, the ground relating to challenging of the exercise of jurisdiction by the Pr. CIT u/s. 263 is rejected. 12. On going through the assessment order, there is no any whisper in the order of assessment passed by the AO regarding the subject matter of purpose for the scrutiny and he has made addition on the other subjects which was not part of the aforesaid purpose of the limited scrutiny....
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.... 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 scrutiny proceedings. The AO by way of notice u/s.142(1) initiated enquiry on this issue but after filing reply of the assessee in compliance to the said notice, the AO as an adjudicator and investigator did not bother to deliberate this issue in the assessment order and in our humble opinion,until and unless inquiry started by the AO is terminated to a logical and plausible end, such kind of enquiry has to be held as i....
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....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 statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is duty t....
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....rat 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 of CIT vs. South India Shipping Corpn. Ltd. [233 ITR 546], Hon'ble Madras High Court held as under :- "Even assuming that the Income-tax Officer had called for the particulars, which were also furnished by the assessee, if the Income-tax Officer without probing into the matter further had allowed the claim of the assessee for weighted deduction and if the Commissioner on the basis of materials formed an opinion that the grant of allowance made by the officer was erroneous and not warra....
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....he 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 142(1) of the Act alongwith questionnaire to the assessee both on 1.8.2016, which were duly served and complied by the assessee by way of filing replies on 19.8.2016, 30.11.2016, 19.1.2017 and 20.3.2017. From the replies of the assessee placed at assessee's paper book at pages 50-51, it is clearly discernible that the assessee explained that in its profit and loss account, the total turnover has been shown at Rs.2,31,60,000/- and the same figure has been reflected in the tax audit report in Cl.40 of Form 3CD under the head P&L, the to....
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....sal 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 estate business with high closing stock, the information about estimated cost of construction of the project, estimated sale value of the project, selling price of individual flats, period of construction etc should have been examined before completion of scrutiny assessment. But due to non-submission of the required details by the assessee, the AO estimated net profit @ 4.24% instead of 3.24% as declared by the assessee and completed the scrutiny assessment. In para 3.4 of the said note sheet, ld ACIT noted that in the interest of revenue, as proposed by t....
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....t 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 of the Act has not been followed and on this count, the impugned order u/s.263 of the Act also become unsustainable. While taking this view, we respectfully follow the order of ITAT Kolkata in the case of Manish Chirania order of Pune Bench of ITAT in the case of Span Overseas Ltd and order ITAT Mumbai 'F' Bench in the case of Vinay Pratap Thacker (supra). 21. On the above foregoing discussion, we reach to a logical conclusion that the ld JCIT Range-2, Sambalpur prepared a proposal for revisional proceedings u/s.263 and ld ACIT, Sambalpur in the order sheet dated 14.1....
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....e 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 which have been raised in the limited scrutiny in an assessment proceedings. Here one must clearly understand that the fetters have been placed on the assessing authority in respect of limited scrutiny by various circulars issued by CBDT in Instruction No.7/14 dated 26.9.2014 and Instruction no.20/15 dt.19.12.2015. In the Instructions, it is categorically mentioned that in the case of Limited Scrutiny, the Assessing Officer cannot go beyond the issues which have been directed under the limited scrutiny. Once such fetters are placed on the AO in respect of limited scrutiny, the AO....