TaxTMI 
TaxTMI 
2023 (4) TMI 1301
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....BDT letter dated 13.11.2017 and thus asking further details was beyond the purview of the assessment, and 2. That without prejudice the ground No. (1) above the ld. Pr.CIT, Jaipur-1 is further wrong and has erred in law in holding that the assessment order for AY. 2017-18 passed by the ld. A.O. u/s 143(3) of the I.T. Act, 1961 on 26.09.2019 is erroneous as well as prejudicial to the interest of revenue alleging that the A.O. has passed the assessment order without proper enquiries and verification with regard to: (a) Utilization of loans raised (b) Rate of interest on loan received and advanced (c) Nexus between loan taken and loan advanced and (d) Reason of excess interest paid to the extent of Rs.2270883/- over interest earned. The impugned finding recorded by the Pr. CIT-1, Jaipur is wrong and bad in law in as much as appellant filed complete details of name, address and PAN number of persons from whom loan was raised and also details of interest paid and received. Further appellant also submitted that no claim of excess interest paid of Rs. 2270883/- was made by the appellant in ITR filed. 3. That the appellant crav....
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....ssed under section 143(3) on 26.09.2019 may not be revised under section 263 of the IT Act, 1961 in a suitable manner. 2.1. In reply to the Show Cause notice under section 263 of the IT Act, 1961 issued by the ld. Principal CIT, the assessee filed his detailed reply/submission on 11.03.2022. The assessee in his reply submitted the complete facts of the case along with documentary evidences of interest paid and confirmation letters of fresh unsecured loans which were filed before the AO and accepted by him after application of his mind on evidences submitted during the course of hearing. As such it is quite wrong to allege that AO has failed to enquire into interest expenses claimed and new unsecured loans taken. The ld. PCIT considered the reply of the assessee dated 11.03.2022 but could not find favour, and on the findings given in Show Cause notice held that the assessment order dated 26.09.2019 for Asstt.Year 2017-18 passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue and accordingly set aside the assessment on the issue discussed above and directed the AO to pass fresh assessment order on those issues. Aggrieved by the order of the ld. Pri....
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....under head income from other sources. The assessee also filed name, complete address and IT PAN of persons to whom said interest paid alongwith their confirmation letters. For verification of submission made complete details interest paid having name, complete address, IT PA number etc. alongwith confirmation letters filed before lower authorities are enclosed herewith. The said details filed were duly examined by the Ld. AO and after verification of complete details/documents passed the assessment order accepting the returned income. It is further submitted on the similar reasons preceding assessment years 2013-14 and 2016-17 were also completed by department u/s 143(3) of the I T Act, 1961. The assessee does now know how the Ld. CIT selfdrawn the conclusion that Ld. AO not verified the interest claimed. 3. Regarding verification of extra interest expenses Rs.22,70,883/- it is submitted that assessee only claimed interest expenses up to the interest income. The said fact is verifiable from the computation of total income available on assessment record that assessee claimed interest expenses only up to the interest income. The above said extra interest of Rs.22,70....
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....under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verifyonly the specific aspects requiring examination/verification. In such cases, all efforts would be made to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date. CBDT Instruction No. 20/2015 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-one is'Limited Scrutiny' and other is Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under: (a) .... (b) The Questionnaire under section 142(1) of the Act in 1Limited Scrutiny * cases shalre nut in confined only to the specific reasons/issues for which case has been picked upforscrutiny.Further, the scope ofenquiry shal be restricted to the Limited S....
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....e the inquiry, where the scope of inquiry is limited only to the extent of that issue. And till date the position is same there is no change. It was not a complete assessment it was a scrutiny for the limited purpose or issue and on perusal of the entire record or detailed it cannot be said that the ld. AO has not made inquiries. In this preposition we would like to draw your kind attention to the latest decision of this Honble Bench in the In the case of Mahendra Singh Dhankhar HUF vs. ACIT ITA No. 265/JP/2020 Jun 30, 2021 (2021) 62 CCH 0271 Jaipur Trib where It has been held that:- "Revision-Ordering revision where case is selected for limited scrutiny- Assessee firm is a real estate firm engaged in colonizing and developing residential projects-Case of assessee was selected for limited scrutiny through CASS on account of mismatch of AIR and CIB data, and mismatch in sale turnover reported in audit report and ITR-An addition for wrong calculation of LTCG was made by A.O. which was not challenged by assessee-Subsequently, on basis of certain audit objections, PCIT issued notice u/s 263-Assessee submitted that it is a case outside jurisdiction of Commissioner of Income tax....
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.... set aside-Assessee's appeal allowed." In the case of Paul Bharwaj vs. Pr.CIT in ITA No. 463/Chd/2019 May 13, 2021 (2021) 62 CCH 0120 Chd Trib Revision-Order erroneous or prejudicial to revenue-Over exercise of power-Assessee an individual filed his return declaring income and agricultural income-Case was selected for limited scrutiny for reason that there was a substantial increase in capital during year relevant to assessment year under consideration-AO accepted return filed by assessee-Pr. CIT issued notice to assessee u/s 263 and directed AO to make assessment afresh on issues mentioned in notice-Held, Tribunal in case of M/s Su-Raj Diamond Dealers Pvt. Ltd. CIT ITA No 3098/ Mum has quashed order passed u/s 263 in case of limited scrutiny assessment, holding that Pr. CIT under garb of section 263, cannot exceed his jurisdiction holding that when case of assessee was selected for limited scrutiny for reasons viz. (i) Large other expenses claimed in P&L A/c; and (ii) Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to assessment framed by A.O on ground that he had failed to deal with other issues whic....
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....fficer was held to be erroneous and prejudicial to the interest of revenue. In this regard, it may be pointed out that the case of assessee was picked up for scrutiny under CASS for the limited purpose of verifying the Chapter VI-A deduction. Once the case is picked up for specific purpose under CASS, then it is outside the purview of the Assessing Officer to look into any other aspect other than the aspect for which it is picked up. Hence, the Assessing Officer has not formed any opinion in respect of computation of book profits in the hands of assessee. Once, no such opinion has been formed by the Assessing Officer, the Commissioner has erred in holding the order of the Assessing Officer to be erroneous and prejudicial to the interest of revenue in this regard. Accordingly, we reverse the findings of the Commissioner. Accordingly, we hold that the order passed by the Commissioner under section 263 of the Act is invalid and the same is quashed for both the assessment years." B) In M/s R.H. Property vs. PCIT, ITA No. 1906/Mum/2019 it was held that,- "As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid....
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....been considered and examined by the then A.O. Thus the proceeding u/s 263 is a step to start again a second scrutiny/investigation of facts without there being any material to hold even prima-facie that the assessment order passed by A.O. is erroneous which is not valid in the eyes of law (CIT Vs. Trustees Anupam Charitable Trust (1987) 167 ITR (129) (Rajasthan), CIT Vs. Godawari Sugar Mills Ltd. (1993) 203 ITR 108 (Bom.) and CIT Vs. Shakti Charities (2000) 160 CTR 107 (Mad.). The facts and submissions are verifiable from the assessment record. The Supreme Court in case of CIT Vs. Green World Corporation (2009) 314 ITR 81 (Supreme Court) held that 'The jurisdiction under section 263 can be exercised only when both the following conditions are satisfied (i) the order of the assessing officer should be erroneous and (ii) it should be prejudicial to the interest of the Revenue. These conditions are conjunctive. An order of assessment passed by the Assessing officer should not be interfered with only because another view is possible. "The Rajasthan High Court in a recent judgement in case of CIT Vs. Chambal Fertilizers and Chemicals Ltd. (2013) 258 CTR (Raj.) 540 has held "The law is t....
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....aking enquiries or verification which should have been made, since the Pr. CIT had not brought any material on record to substantiate his inference, and so the impugned revision order is only to carry out fishing enquiries with objective of substituting his views with that of the Assessing Officer which is not permissible in law (refer Narayan Tatu Rane Vs. I.T.O. (2016) 70 Taxman.com227 (Mumb-Trib). Further the your good self has not gone in to the merit of the assessee's case or argument or contentions available on assessment record, if so than how it can be said or found out whether any prejudice in fact has been caused to revenue or not by lack of inquiry on the part of the AO. If no loss of revenue is caused and the result remains the same even after conduct the inquiry. It is very settled principal and legal position by various courts or judgments that it will be wrong to say that merely because proper enquiry was not conduct, the assessment would become prejudicial also. It was incumbent upon the Pr. CIT to have shown as to how the order was prejudicial to the interest of the Revenue. In the present case the appellant had furnished a detailed reply with the details ....
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....y of the ld. AO shall revel that the required details have been filed and explained to the AO. No one (AO) can read the mind of other person (Pr. CIT) while doing the work on its sprite and cannot guess the expectation or manner of his superior authority. Here the meaning is that non making of an enquiry may render the subject assessment erroneous, however the process of making enquiries may be endless. For someone, some enquiries may be sufficient (here AO), however, the same may be insufficient for the other (here Pr. CIT). There is no straight jacket formula or parameter to make inquiry in the assessment proceedings. What is required is that the AO should frame the assessment in accordance with the provisions of the Act, as interpreted and in the light of the relevant judicial pronouncements, as available on the date of framing the assessment or material available before him. The AO being a quasi-judicial authority can also take support from one set of the decisions, if there, in case is a diversions of opinion. He can't be directed to make an assessment in a particular manner, as specifically prohibited by S. 119. Kindly refer recent judgment of Jodhpur Bench in the ca....
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....(SC)]. As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the Assessing Officer does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servantthat an Assessing Officer is expected to be, Commissioner cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simpl....
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....on to the test and probe everything stated in the income tax return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills [(1896) 2 Ch 279, 288)], in respect of the role of an auditor, would equally apply in respect of the role of the Assessing Officer as well. His Lordship had said that an auditor (read Assessing Officer in the present context) "is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watchdog, but not a bloodhound.". Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bonafide opinion, he need not conduct further inquiries just bec....
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....reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. ClT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. On perusal of the order in the present case the ld. CIT has taken action u/s 263 only on the assumption and presumption that the no inquiry has been made by the AO on the issues and not verified. Kindly refer CIT v/s Paras Cotton Co. 288 ITR 211(Raj.) where held that CIT could not have acted on mere assumption. Mere suspicion cannot take place of proof and the order of CIT u/s 263 cannot be sustained. It is further s....
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....al to the interests of the revenue. He has referred to the Explanation 2 and submitted that the order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue if in the opinion of the ld. PCIT or ld. CIT the order is passed without making enquiry or verification which should have been made. Further, if the order is passed allowing any relief without enquiring into the claim. Thus, in the case in hand, the AO has not conducted any enquiry on the issue of extra interest expenses of Rs. 22,70,883/- over the interest earned of Rs. 42,98,442/- and fresh loans of Rs. 1,22,00,000/- taken during the year. The ld. D/R submitted that the specific provisions of section 263 of the Act lays down that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interests of the revenue is the basic pre-condition for exercise of jurisdiction under section 263 of the Act. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the ....
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.... the submission made by the assessee, the returned income declared of Rs. 22,36,980/- so filed by the assessee in her returns of income for the year under consideration is hereby accepted." Thus the assessment order was passed at the returned income. However, thereafter the ld. Principal CIT examined the assessment order of the assessee and opined that the AO failed to make enquiry with reference to the explanation offered by the assessee during the course of assessment proceedings. For sake of convenience, the show cause notice issued by the ld. PCIT is reproduced below :- " On examination of assessment record for A.Y. 2017-18, it has been noticed that your case was selected for scrutiny assessment. The assessment was completed and vide order dated 26.09.2019, return income of Rs. 22,36,980/- was accepted. The case was selected for limited scrutiny under CASS for the reason of large deduction claimed u/s 57. During the year under consideration, interest payment of Rs. 65,69,325/- to parties was made and interest of Rs. 42,98,442/- was earned. On going through the details submitted during assessment proceedings, it is noticed the activity of taking ....
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.... Revenue Authorities goes to show that those were examined by the AO and accordingly order of assessment accepting the returned income was passed. We also noticed that on similar reasons, preceding assessment years i.e. 2013-14 and 16-17 were also completed by the department under section 143(3) of the IT Act. 6.2. As far as, regarding verification of extra interest of Rs. 22,70,883/- is concerned, in this regard assessee has categorically submitted that he has only claimed interest expenses upto the interest income. On this aspect, we have also perused the Computation of Income which is in the paper book. Since the extra interest of Rs. 22,70,883/- was not at all claimed by the assessee, therefore, there was no reason for verification of the said extra interest expenses made by the assessee. Although, the ld. PCIT raised the issue of non verification of fresh loans of Rs. 1.22 crores by the AO, but in this context we further noticed that the assessee had filed confirmation letters of each of the fresh unsecured loan creditors having complete address and PAN number and that being so, assessee had already discharged his onus to prove the genuineness and identity of the said loan ....
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....tiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under: (a) .... (b) The Questionnaire under section 142(1) of the Act in 1Limited Scrutiny * cases shalre nut in confined only to the specific reasons/issues for which case has been picked upforscrutiny.Further, the scope ofenquiry shal be restricted to the Limited Scrutiny' issues. CBDT Instruction No. 5/2016 "4. It is further clarified that in cases under 'Limited Scrutiny \ the scrutiny assessment proceedings would initialy be confined only to issues under 'Limited Scrutiny' and Questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon comers ion of case to 'Complete Scrutiny' after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in 'Limited Scrutiny'. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting 'Complete Scrutiny' in such cases." CBDT Letter dated 30.11.2017 Instances have come to notice of CBDT where some Assessing Officers are travelli....
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....mited scrutiny through CASS on account of mismatch of AIR and CIB data, and mismatch in sale turnover reported in audit report and ITR-An addition for wrong calculation of LTCG was made by A.O. which was not challenged by assessee-Subsequently, on basis of certain audit objections, PCIT issued notice u/s 263-Assessee submitted that it is a case outside jurisdiction of Commissioner of Income tax to raise objections outside scope of limited scrutiny-PCIT ordered for 'Denovo' assessment without considering reply filed by assessee-Held, there is no dispute that scope of enquiry in case of limited scrutiny is only to extent of issues for which case was selected for scrutiny under CASS-CBDT has issued instructions from time to time in this respect and has specifically instructed taxing authorities that scope of enquiry should be limited to verification of all particulars for which limited scrutiny was taken up under CASS-However, in case during assessment proceeding if AO is of view that substantial verification of other issue is also required then case may be taken up for comprehensive scrutiny with approval of Pr.CIT/DIT concerned-It is also instructed that such an approval sha....
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....CIT under garb of section 263, cannot exceed his jurisdiction holding that when case of assessee was selected for limited scrutiny for reasons viz. (i) Large other expenses claimed in P&L A/c; and (ii) Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to assessment framed by A.O on ground that he had failed to deal with other issues which though did not fall within realm of limited reasons for which case was selected for scrutiny assessment-In other words, Pr. CIT in garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond jurisdiction that was vested with A.O while framing assessment-As A.O had aptly confined himself to issues for which case of assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for reason, that he had failed to dwell upon certain other issues which did not form part of reasons for which case was selected for limited scrutiny under CASS-Case of assessee was selected for limited scrutiny under CASS for reason that there is substantial increase in capital in relevant year and AO passed assessment order and accepted return filed by....
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.... the findings of the Commissioner. Accordingly, we hold that the order passed by the Commissioner under section 263 of the Act is invalid and the same is quashed for both the assessment years." E) In M/s R.H. Property vs. PCIT, ITA No. 1906/Mum/2019 it was held that,- "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 infjrmity can be attributed to his order for the reason. that he had failed to dwel 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 f^Jr. 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, the....
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....he course permissible under the law or where two views are possible and the AO has taken one view which the CIT does not agree, it cannot be treated as an order erroneous and prejudicial to the interest of the Revenue, the AO exercises quasi judicial power vested in him and if he exercises such powers in accordance with law, arrives at a just conclusion such conclusion cannot be termed to be erroneous only because the CIT does not feel satisfied with the conclusion. The Delhi High Court in case of CIT Vs. Kelvinator of India Ltd. (2011) 332 ITR 231 (Delhi) it has held that Assessing officer taking one of two possible views with which commissioner not agreeing the assessment order cannot be treated as an erroneous order prejudicial to the interest of revenue. The Karnataka High Court after considering various judicial pronouncement in the case of CIT Vs. Gokul Das Exports (2011) 333 ITR 214 (Kar) has held that assessing officer taking one out of two views the assessment order is not prejudicial to interest of revenue. In view of the above judicial pronouncements and various other judgments on the issue the assessment order passed by A.O. cannot be treated as an erroneous and prejudi....