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Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR.
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
ORDER Per:Anikesh Banerjee, JM: The instant appeal of the assessee was filed against the order of the ld. Principal Commissioner of Income Tax (in short ‘PCIT’), Jodhpur-1, order passed u/s 263 of the Income Tax Act 1961, [in brevity ‘the Act’] for A.Y. 2017-18. The impugned order was emanated from the order of the ITO, Ward- 1(5), Jodhpur,[in brevity ‘the AO’] order passed u/s 143(3)of the Act. 2. The assessee has taken the following ground:
“1.That on the facts and in the circumstances of the case the order u/s 263 passed by the, Id PCIT-1, Jodhpur is bad in law and without jurisdiction . 2. That on the facts and in the circumstances of the case the Id PCI1-
1. 1. Jodhpur grossly erred in issuing notice u/s 263 of the Act as same was issued without basic enquiry as per law 3 That on the facts and in the circumstances of the case, the Id Pr. CTT-1, Jodhpur erred in not recording own satisfaction in respect of assessment order passed by the ld AO is erroneous so as it prejudicial the interest of revenue as per provision of section 263 of the Act.
4. That on the facts and in the circumstances of the case the Id PCIT-1, Jodhpur grossly erred in holding the order of the AO is erroneous and prejudicial to the interest of the revenue by treating the inquiry in the wake of a notice under Section 263 is just an empty formality 5. That on the facts and in the circumstances of the ease the Id PCIT-1, Jodhpur grossly erred in not considering the explanations and documentary evidences in right prospective and judicious manner.
6. That on the facts and in the circumstances of the case, the Id Pr. C1T-1, Jodhpur grossly erred in setting aside the assessment order passed by the u/s 143(3) without any finding as to how the assessment order passed by the Id AO is erroneous so as it prejudicial the interest of revenue.
That on the facts and in the e ire urn stances of the case id Pr. CIT.-l, Jodhpur grossly erred in representing erroneous and irrelevant finding in the order and thereby putting the assessee to erroneous harassment and inconvenience.
That the petitioner may kindly be permitted to raise any additional or alternative grounds at or before the time of hearing. 9. The petitioner prays for justice & relief.”
Brief fact of the case is that the assessee filed its return u/s 139(1) and the assessment was completed on CASS basis on the ground “cash deposit during the demonetisation period”, u/s 143(3) of the Act. The ld. PCIT by invoking section 263 had issued notice on the ground that the debtors’ outstanding amount of Rs.17,74,442/- and the debtors to whom the sales have not made is unverified and purchased during the year Rs.19,32,330/- which was not properly verified due to disparity in purchased on creditors. Accordingly, the assessee filed a written submission and explained that the assessee has filed return u/s 44AD of the Act and the creditors are included both the financial creditor and the trade creditors. Also, the details of debtors were explained during compliance of the notice u/s 263. But the ld. PCIT has set aside the assessment order and passed the order u/s 263 of the Act. The order passed by the ld. PCIT considering the assessment order erroneous and prejudicial to the interest of the revenue. Being aggrieved assessee filed an appeal before us.
The ld. AR filed the written submissions which are kept in the record. The ld. AR first, invited our attention and placed that the ld. PCIT had wrongly ascertained the amount due to verification of the cash. 4.1 The ld. AR invited our attention in bank statement in APB pages 8 to 10 and placed that the balance of the bank account was duly taken wrongly by the ld. PCIT. Further, the ld. AR placed that the assessment was selected and completed on basis of the CASS system, on the basis of specific direction “cash deposit during the demonetisation period”. The ld. AO has no jurisdiction to make a complete scrutiny against the assessee. Therefore, the entire assessment was done within purview of the limited scrutiny. The ld. AR further invited our attention in copies of the ITR and computation bearing APB page nos. 11 to 14 where the assessee claimed that the assessee submitted return u/s 44AD of the Act on the presumption basis. The ld. AR prayed before the bench for rejection of the order passed U/s 263. 5. The ld. DR vehemently argued and disputed that this scrutiny is not a limited scrutiny, it is a complete scrutiny. The ld. DR filed the written submission bearing No. ITO/Ward 1(92)/Ju/2023-24/183 dated 27/07/2023 invited our attention in RPB page 2 that the ld. AO had wrongly mentioned the limited scrutiny in notice U/s 142(1) of the Act. But in notice U/s 143(2) and in order U/s 143(3) has mentioned only ’Scrutiny’ not limited scrutiny.
The ld. AR invited our attention in notice u/s 142 in APB page nos. 15 to 16 where the ld. AO clearly mentioned that this notice only for the limited scrutiny. The ld. AR further invited our attention in the order of Hon’ble Orissa High Court in the case of PCIT, Sambalpur vs. M/s Shark Mines and Minerals Pvt. Ltd., Keonjhar, the relevant paragraphs 9 and 10 are reproduced as below: “9. Indeed, the Court finds that the Madras High Court has while affirming the decision of the ITAT in Smt. Padmavathi (supra) taken the view that while exercising suo motu revisional power under Section 263 of the Act, the CIT cannot travel beyond the scope of the issues which form part of the ‘limited scrutiny’ in the original Assessment Order. This Court concurs with the above view.
What persuades this Court to reach this conclusion is the requirement in law that if the AO has to go beyond the scope of the issues for which ‘limited scrutiny’ has to be undertaken by him, he has to seek prior permission of the superior officer in terms of the CBDT Instruction No.7/14 dated 26th September, 2014 and Instruction No.20/15 dated 19th December, 2015. Consequently, it was not open to the Pr. CIT while exercising suo motu revisional power under Section 263 of the Act to find fault with the assessment order of the AO on the ground of its being erroneous on an issue not covered by the ‘limited scrutiny’ when the AO could not have possibly examined such issue. To reiterate, in the present case, the limited scrutiny was in respect of excess disallowance under Section 40A(3) of the Act whereas the SCN under Section 263 was regarding the FIFO method of valuation of closing stock adopted by the Assessee. These were, as rightly noted by the ITAT, unconnected issues and the assessment order could not have been held to be “erroneous and prejudicial to the interest of Revenue” when the AO could not have travelled beyond the issues forming subject matter of the ‘limited scrutiny.’