TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 647
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....sequently, the case of the assessee was selected for scrutiny assessment under the E-Assessment Scheme, 2020 with the reason "Very Low PBDIT (Profit before Depreciation, Interest and Taxes) as compared to business turnover." Pursuant thereto, notices under section 143(2) dated 28.06.2022 and 142(1) dated 11.08.2022, 08.10.2022, 24.11.2022 of the Act were issued to the assessee calling for details in relation to its return of income, profit and loss account, and other supporting documents. 2.2 Despite initial non-compliance, the assessee eventually furnished replies electronically through the e-filing portal along with supporting documents in response to centralised communication dated 11.11.2022, show cause notice dated 13.11.2022, and notice under section 142(1) dated 24.11.2022. 2.3 The Assessing Officer recorded in the order that on the basis of details and evidences furnished, no variation was found in the returned income. Accordingly, the returned loss of Rs. (-) 27,49,550 was accepted in full as assessed income and the assessment was completed under section 143(3) r.w.s. 144B of the Act without any addition or disallowance. 2.4 Subsequently, on examination of assessment re....
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....03.2025, the PCIT held that since the directors of the assessee company were beneficial owners of shares in the lending company, the transaction of loan of Rs. 1.35 crore received by the assessee squarely fell within the definition of deemed dividend under section 2(22)(e) of the Act. It was further held that the Assessing Officer had failed to conduct necessary inquiries and verification, and that the order passed was erroneous in so far as it was prejudicial to the interests of the Revenue. The PCIT placed reliance on the judgment of the Hon'ble Gujarat High Court in the case of Katlary Kariyana Merchant Sahakari Sarafi Mandali Ltd. v. ACIT, as well as the decision of the Hon'ble Supreme Court in CIT v. Paville Projects Pvt. Ltd. 149 taxmann.com 115, besides other precedents, to emphasise that failure to conduct proper inquiry renders an assessment order erroneous and prejudicial. The PCIT also invoked clause (a) of Explanation 2 to section 263 inserted by the Finance Act, 2015, which deems an order passed without inquiries or verification, which should have been made, as erroneous in so far as it is prejudicial to the interests of the Revenue. On these findings, the PCIT set asi....
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....ed the assessment after being satisfied with the explanations tendered by the assessee. 4.1 It was submitted by the AR that the Assessing Officer did conduct inquiries as warranted by the reason for selection, and after due consideration of the material on record, accepted the returned income of the assessee. In such circumstances, it was contended that the Principal Commissioner was not justified in invoking section 263 of the Act to travel beyond the scope of CASS selection and to substitute his own opinion in place of that of the Assessing Officer. It was further submitted that the PCIT cannot enlarge the scope of scrutiny by taking recourse to section 263, especially when the Assessing Officer has acted within the confines of the reason recorded in the notice under section 142(1) and completed the assessment after inquiry. According to the learned Authorised Representative, the assumption of jurisdiction by the PCIT under section 263 is therefore bad in law, as the order of the Assessing Officer cannot be branded as "erroneous" merely because the PCIT holds a different view on an issue which was never the subject matter of scrutiny selection. 4.2 On the merits of the additio....
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....r. 5.2 We have carefully considered the rival submissions and have perused the material available on record. We have also examined the statutory notifications, CBDT instructions and the ITBA proceedings feedback produced before us. 5.3 The notice under section 143(2) is in a standard format and does not mention any specific reasons for selection. However, the notice issued under section 142(1) specifically states that the case was selected for scrutiny under CASS for the parameter of "Very Low PBDIT as compared to turnover." Thus, the scope of scrutiny was limited and confined only to that issue. The Assessing Officer, in line with the said parameter, issued questionnaires, sought replies and evidences, examined the matter and, being satisfied with the explanations offered, completed the assessment by accepting the returned loss. 5.4 The contention of the assessee that the Assessing Officer did conduct inquiries as warranted by the CASS reason is supported by the contemporaneous record. The ITBA "Proceedings Feedback" placed before us by the Departmental Representative also evidences that the inquiry was confined only to the said CASS parameter and that there was no conversion o....
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....limited scrutiny under the Faceless Assessment Scheme, to travel beyond the CASS parameter, unless the case was formally converted into complete scrutiny with prior approval of the competent authority. No such conversion is shown to have been done. In such circumstances, the order passed by the Assessing Officer cannot be termed erroneous merely because he did not make inquiries on an issue which was outside the scope of CASS selection. 5.8 The action of the PCIT in invoking section 263 of the Act on an altogether different issue, namely applicability of section 2(22)(e) to the inter-corporate loan of Rs. 1.35 crore received from M/s Kesar Built Systems Pvt. Ltd., amounts to enlarging the scope of assessment beyond the CASS parameter. This is impermissible in law. It is a settled position that once the Assessing Officer has raised queries on the issue for which the case is selected, considered the replies and taken a view, the order cannot be termed as "erroneous" merely because the PCIT has a different view on another issue which was never the subject matter of scrutiny. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83) and the Hon'ble Bombay High Court....