TaxTMI 
TaxTMI 
2021 (10) TMI 1400
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....mit the appeal for adjudication on merit. 3. Briefly the facts are, the assessee is a resident company and engaged in business as a builder and developer. For the assessment year under dispute, assessee filed its return of income on 23-10-2015 declaring loss of Rs.14,34,236/-. The return of income filed by the assessee was selected under 'limited scrutiny' category for examining couple of issues and assessment in case of the assessee was ultimately completed under section 143(3) of the Act on 29-06-2017. After reviewing the assessment order, the Additional Commissioner of Income Tax in charge of the range found that the increase in loan taken by the assessee from Rs.8.57 crores in the preceding year to Rs.10.42 crores in the current year was not verified by the assessing officer. Further, he observed, the assessing officer did not also verify assessee's claim that all loans and advances given are for the purpose of business, by calling for details of transactions in subsequent years along with supporting documents. Further, he observed, the assessing officer did not verify the capitalization of interest paid. In view of these facts, a proposal was submitted to the learned PCIT for....
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....inced with the submissions of the assessee. He observed, though, the loan availed by the assessee during the year has increased from Rs.8.57 crores to Rs.10.42 crores, the assessing officer has not verified whether the increase in loan was for the purpose of business or not. He observed, the assessing officer had also not verified the capitalization of interest on unsecured loan. While so observing, learned PCIT observed that though assessee's case was selected for limited scrutiny, however, loan taken by the assessee was also part of the scrutiny. Referring to Explanation 2 to section 263 of the Act, learned PCIT opined that the assessing officer completed the assessment without making relevant enquiries. Therefore, he exercised power under section 263 of the Act as the assessment order is erroneous and prejudicial to the interest of revenue due to non enquiry by the assessing officer. Relying upon certain judicial precedents, ultimately, learned PCIT held the assessment order passed to be erroneous and prejudicial to the interest of revenue on the issues raised by him and set it aside with a direction to the assessing officer to examine the relevant details as observed in the rev....
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....f limited scrutiny. He submitted, in case, revenue wanted to examine other details / aspects, it should have converted the limited scrutiny to complete scrutiny. Further, he submitted, even on the issues of capitalization of interest and loans taken the assessment order is not erroneous and prejudicial to the interest of revenue as not only the assessing officer has examined these aspects but the assessee has not claimed the borrowing cost as expenditure. Thus, he submitted, the assessment order cannot be considered as erroneous and prejudicial to the interest of revenue to enable learned PCIT to revise it under section 263 of the Act. In support, learned counsel relied upon the following decisions:- 1. CIT vs Nirav Modi (2016) 71 taxmann.com 272 (Bom) 2. CIT vs Nirav Modi (2017) 77 taxmann.com 15 (SC) 3. Sir Dorabji Tata Trust vs Dy.CIT(Exemption), Cir.2(1), Mumbai (2020) 122 taxmann.com 274 (Mumbai-Trib) 4. CIT vs Reliance Communication Ltd(2016) 69 taxmann.com 103 (Bom) 5. CIT vs Reliance Communication Ltd (2016) 76 taxmann.com 226 (SC) 6. CIT vs Gabriel India Ltd (1993) 71 Taxman 585 (Bombay) 7. CIT, Bangalore vs Chemsworth (P) Ltd (2020) 119 taxmann.com 358 (Karn....
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.... the opening paragraph of the order passed under section 263 of the Act. Therefore, the two issues which require examination are, whether the limited scrutiny for which assessee's case was selected encompassed examination of loans taken by the assessee and capitalization of interest expenditure and if it is not so, whether the assessment order can be held to be erroneous and prejudicial to the interest of the revenue for not examining the issues relating to loan taken and interest expenditure capitalized. In other words, whether the assessing officer could have acted beyond the scope of limited scrutiny or expanded the scope of limited scrutiny. 9. We have noted, learned PCIT while exercising power under section 263 of the Act has attempted to expand the scope of limited scrutiny by observing that the assessing officer had not examined the increase of loan taken from Rs.8.57 crore to Rs.10.42 crore (increase of Rs. . 1.67 crore) and whether the loans taken were for the purpose of business as well as the capitalization of interest. 10. As already discussed, the scope of limited scrutiny was to examine the reason of low income compared to high loans / advances / investments in shar....