2023 (3) TMI 41

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....ed PCIT has erred in confirming the initiating Proceeding u/s.263 of the Act. (5) The learned PCIT has erred in passing the order under section 263 of the Act in a limited scrutiny case where the ACIT, Circle 1(1), RKT has discharged his obligations as per the Instructions of CBDT vide F.No. 225/402/2018/ITA.II dated 28th November 2018. (6) The orders of the learned PCIT is illegal, unjustified and against the principles of natural justice. (7) Without prejudice to the above your petitioner craves leave to add, amend, alter, vary or withdraw all or any of the grounds on or before the hearing of appeal." 3. The brief facts of the case were that the return of income for assessment year 2017-18 was filed by the assessee on 20-01-2018 declaring total income of Rs. 87,34,990/-. The assessment was completed u/s. 143(3) of the Act on 08-12-2019 accepting the returned income of Rs. 87,34,990/-. On going through the assessment records, the PCIT observed that the assessee had deposited cash aggregating to Rs. 4,98,28,191/- during the demonetization period from 09-11-2016 to 30-12-2016 in various installments in several bank accounts held by the assessee with HDF....

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....h prior administrative approval of the PCIT/CIT as per procedure laid down in Circular dated 28-11-2018. The Assessing Officer did not apply his mind and ignored the above Instruction of CBDT, so there was failure on the part of the Assessing Officer to consider the instructions/directions of the higher authorities and there was evident lack of inquiry on the issue. Accordingly, ld. PCIT held that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. While passing the order, the PCIT made the following observations:- "As has been discussed in preceding paras that the AO has failed to enquire into the sources of the huge cash deposits made in the bank accounts during the demonetization period. He should have examined the comparative cash deposits of the demonetization period made by the assessee vis a vis the corresponding year of the preceding year so as to judge the genuineness of the cash sales vis a vis cash deposits made in the demonetization period. Similarly, he could have comparatively examined the cash sales prior to and post to demonetization period vis a vis the cash deposits in the demonetization period to judge t....

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.... PCIT holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Before us, the counsel for the assessee drew our attention to page no. 16 of the paper book (reply of the assessee dated 18th Nov, 2019) and submitted that the assessee had given copies of his bank account for the year under consideration during the assessment proceedings. Further, the counsel for the assessee submitted that in the instant case, the case of the assessee was opened under limited scrutiny under CASS to examine the issue of default in TDS and disallowance u/s. 40(a) of the Act for such default. The counsel for the assessee submitted that the scope of limited scrutiny assessment cannot be expanded by the PCIT in 263 proceedings as held by the various judicial precedent on this issue. Regarding the contention of the PCIT that looking into the instant facts and in the light of Circulars/Instructions issued by CBDT, it was the duty of the Assessing Officer to convert limited scrutiny assessment to full scrutiny assessment, the counsel for the assessee drew our attention to Guidelines for manual selection of return for complete scrutiny for financial ye....

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....e scrutiny. Further, we observe that the AO called for details of deposits made in the bank accounts held by the assessee and in response thereto, the assessee also submitted details of cash deposits made in the bank accounts held by him during the demonetization period. During the course of assessment, the above details were scrutinized by the AO and no infirmity was found with respect to the same. 6.1 On the issue whether scope of limited scrutiny assessment can be expanded by PCIT in 263 proceedings, in the case of Sahita Construction Company Vs Pr.CIT (ITAT Indore) in ITA No.119/Ind/2021, the Tribunal held that when the assessment is taken up for limited scrutiny, Ld. Pr. CIT cannot hold the assessment order as erroneous and prejudicial to the interest of revenue in respect of issue which was not a reason for selection of the case for limited scrutiny. The AO observed that perusal of records shows that assessee's case was selected for limited scrutiny through CASS for verification of "contract receipts/fees mismatch, sales turnover mismatch and tax credit mismatch". The issue of payment to contractors and tax deducted thereon was never a part of reasons for the limited There....

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....s quashed for both the assessment years." 6.2 In the case of R&H Property Developer (P.) Ltd. v. Pr. CIT [IT Appeal No. 1906 (Mum.) of 2019, dated 30-7-2019, the Mumbai ITAT made the following observations in this regard: 'As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A.O had aptly confined himself to the issue for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order for the reason that he had failed to dwell upon certain other issues which were clearly beyond the realm of the reason for which the case of the assessee was selected for limited scrutiny as per the AIR information. We thus not being able to concur with the view taken by the Pr. CIT that the order passed by the A.O under sec. 143(3), dated 10-10-2016 is erroneous, therefore, set aside his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT under sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adj....