DR. KEYUR H PARIKH,,AHMEDABAD vs. THE PR. CIT-4, AHMEDABAD

आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

2. The assessee has raised the following grounds of appeal: (1) The Learned Principal Commissioner of Income Tax, Range

4. Ahmedabad failed to understand the facts and circumstances of the case and provision of the law. (2) The Learned Principal Commissioner of Income Tax, Range

4. Ahmedabad erred in holding that the assessment order passed u/s 143(3) of the Income Tax Act, 1961 pursuant to selection of the case for scrutiny under Limited Scrutiny is erroneous and prejudicial to the interest of the revenue by invoking provisions of section 263 of the Income Tax Act, - 1961. The assessing officer has made inquiries on the issues for which the case was selected for Limited Scrutiny. (3) The Learned Principal Commissioner of Income Tax, Range

4. Ahmedabad erred in directing the assessing officer, to carry out thorough inquiries on the issue of fees paid to Harvard school of Business, USA and the marriage expenses of the son of the assessee along with the other issues as deemed fit and which may be noticed during the course of assessment proceedings in pursuant to this order u/s 263 of the Act. (4) Your Appellant preys for appropriate relief on above grounds of appeal. (5) Your appellant craves leave to add, alter, amend, substitute or withdraw any of the grounds of appeal stated hereinabove.

3. The interconnected issue raised by the assessee is that the learned Pr. CIT erred in holding the assessment order framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of revenue.

4.1 Subsequently, the Pr. CIT under section 263 of the Act on verification of the assessment records found that the assessee has claimed expenditure under the head “Professional Development Expenditure” amounting to Rs. 85,38,295.00 only. The said expense was inclusive of the following expenses: i. Rs. 23,64,618/- Paid to Harvard Business School paid as study fee for President Management Proform. ii. Rs. 53,97,904/- incurred on the occasion of son’s marriage reception.

4.2 As per the learned Pr. CIT, the fees paid to the University was capital in nature and therefore the same cannot be allowed as deduction in its entirety. As such, the learned Pr. CIT was of the view that the same should be treated as intangible assets and accordingly the depreciation at the rate of 25% should have been allowed. Likewise, the learned Pr. CIT was of the view that the marriage expenses are of personal nature and therefore the same cannot be allowed as deduction while computing the business income. As per the ld. Pr. CIT the AO has not carried out the verification of the above facts during the assessment proceedings.

4.3 The learned Pr. CIT further observed that, though the scrutiny assessment was selected for the limited purpose which was not covering the above expenses. However, the information regarding the impugned expenditure claimed was very much with the AO as evident from the assessee’s letter vide dated 30-08-2017. As per this letter the assessee has submitted the detail of payment made to Harvard Business School such as bills voucher, foreign remittance certificates etc. Accordingly, the learned Pr. CIT was of the view that in such facts and circumstances the AO could have proceeded for the conversion of limited scrutiny into complete scrutiny after forming his opinion but the AO has not done so. Thus the AO violated the CBDT instruction no. 20 of 2015 dated 29-12-2015 r.w. instruction no. 05 of 2016 dated 14-07-2016 which was mandatory for authorities below under the Act to follow.

4.4 In view of the above the learned Pr. CIT held that the order of the AO framed under section 143(3) of the Act dated 04-12-2017 is erroneous insofar prejudicial to the interest of revenue on account of non-verification of the facts as discussed above.

5. Being aggrieved by the order of the learned Pr. CIT, the assessee is in appeal before us.

6. The learned AR before us contended that the fees paid to the University was duly verified by the AO during the assessment proceedings. The learned AR to this effect has drawn our attention on pages 72-86 of the paper book where the details of enquiries conducted by the AO during the assessment proceedings were placed.

6.1 The learned AR further contended that the case of the assessee was selected under limited scrutiny to verify the following details: (i) Contract Receipts/ Fees Mismatch (ii) Unsecured Loans (iii) Tax Credit Mismatch 7. It is also a fact on record that the limited scrutiny was not converted into a normal/detailed scrutiny by the AO. As such, the AO had no jurisdiction to carry out any verification with respect to the items as highlighted by the learned Pr. CIT. It was also contended by the learned AR that though the AO did not had the jurisdiction to verify the professional development expenses as it was beyond his scope of the scrutiny assessment, however, he has exceeded his jurisdiction and verified the part of the professional expenses paid to the University.

8. On the other hand, the learned DR submitted that the instruction issued by the Board was mandatory to follow for the sub-ordinates officer but the AO has not done so for converting the limited scrutiny to complete scrutiny. The ld. DR vehemently supported the order of the authorities below.

This is for your kind information that the return of income for Assessment Year 2015-16 filed vide ack. no.832582431290915 on 29/09/2015 has been selected for Scrutiny. Following issues have been identified for examination: i. Contractual Receipts/Fees Mismatch ii. Unsecured Loans iii. Tax Credit Mismatch 9.1 On perusal of the above details, we find that there was no mentioned about the professional development expenses and accordingly it can be inferred that the AO had no jurisdiction to verify such expenses. However the learned Pr. CIT held that when the AO, during the assessment proceeding, came to know about such expenses, then he (AO) should have proceeded for conversion of limited scrutiny into the complete scrutiny as per the procedure laid down by the CBDT in instruction no. 20 of 2015 dated 29-12-2015 r.w. instruction no. 05 of 2016 dated 14-07-2016. Now the question arises, whether the learned Pr. CIT can hold the order of the AO as erroneous insofar prejudicial to the interest of revenue on account of not proceeding with the conversion of limited scrutiny into complete scrutiny for verification of the professional development expenses. At this stage it is pertinent to take note of the CBDT instruction No. 20 of 2015 dated 29-12-2015 r.w. instruction no. 05 of 2016 dated 14-07-2016 which reads as under:

9.2 On perusal of above instruction it is transpired that the AO before proposing for conversion of limited scrutiny is required to form a reasonable view based on credible materials. In the case on hand the AO called for the details about the professional development expenditure paid to Harvard Business School, despite the same was not covered under limited scrutiny. However, the necessary details were duly supplied by the assessee about the professional development expenditure. After verification of the same the AO accepted the claim of the assessee. From the above fact what is transpired is this that the AO formed his view after examining the fact that there was no requirement for conversion of limited scrutiny. In our considered view the learned Pr. CIT cannot direct or impose its own view on the AO that how to conduct certain examination or verification or to which extent. As such the AO has an option to proceed for conversion of scrutiny but decided not to do so. Thus the AO has taken one of the possible view available. Therefore the Action of the AO cannot be termed as erroneous insofar prejudicial to the interest of revenue for taking one of the possible view. In this regard we find support and guidance from the judgment of Hon’ble Supreme court in case of Malabar Industrial Co. Ltd. where the Hon’ble court held as under;

The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by the Supreme Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue.

9.3 In view of the above, the answer stands in negative for the simple reason that the AO had no jurisdiction to verify the professional expenses in the given facts of circumstances. Thus in our considered view the learned Pr. CIT cannot go on to hold that the order of the AO is erroneous insofar prejudicial to the interest of the revenue on account of non-verification of the items which were beyond the jurisdiction of the AO. In holding so we draw support and guidance from the order of the Hon’ble Tribunal Mumbai in the case of Su-Raj Diamond Dealers Pvt. Vs. Pr.

CIT bearing for the AY 2014-15 vide order dated 27-11- 2019 wherein it was held as under:

“6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the case of the assessee was selected for limited scrutiny through CASS for two reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares. Insofar the fact that the case of the assessee was selected for limited scrutiny for the aforesaid reasons is concerned, the same as observed by us hereinabove is not disputed and is clearly discernible from the order passed by the Pr. CIT under Sec. 263 of the Act. In fact, we find, that the Pr. CIT in his order had categorically observed that the case of the assessee was not selected for examination on the issue relating to „closing stock‟, but was selected for limited scrutiny for the aforesaid two reasons viz. (i). Large other expenses claimed in the P&L A/c.;and (ii). Low income in comparison to High Loans/advance /Investment in shares. We find that as per the CBDT Instruction No. 20/2015, dated 29.12.2015, scrutiny in cases selected through Computer Aided Scrutiny Selection (CASS) is to be confined only to the specific reasons/issues for which the case has been picked up for scrutiny. In order to appreciate the issue under consideration, we deem it fit to cull out the CBDT instruction No. 20/2015, dated 29.12.2015., which reads as under: " INSTRUCTION NO. 20/2015, DATED: 29-12-2015 29/12/2015 Subject : Scrutiny Assessments-some Important issues and scope of scrutiny in cases selected through Computer Aided Scrutiny Selection ('CASS') - Reg.- The Central Board of Direct Taxes ('CBDT'), vide Instruction No. 7/2014 dated 26.09.2014 had clarified the extent of enquiry in certain category of cases specified therein, which are selected for scrutiny through CASS Further clarifications have been sought regarding the scope and applicability of the aforesaid instruction to cases being scrutinized 2. In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid Instruction, following clarifications are being made: i. Year of applicability: As stated in the Instruction No. 7/2014, the said Instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014. ii. Whether the said Instruction is applicable to all cases selected under CASS: The said Instruction is applicable where the case is selected for scrutiny under CASS only on the parameters) of AIR/CIB/26AS data. If a case has been selected under CASS for any other reason(s)/parameter(s) besides the AIR/CIB/26AS data, then the said instruction would not apply. iii. Scope of Enquiry: Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s) of AIR/CIB/26AS data. In such cases, the Assessing Officer, shall also confine the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in these cases can only be conducted as per the guidelines and procedures stated in Instruction No 7/2014 iv Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data, the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned 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. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny Further, the scope of enquiry shall be restricted to the Limited Scrutiny' issues. c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in 'Limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr CIT/CIT concerned. However, such an approval shall be accorded by the by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating Complete Scrutiny' in that particular case Such cases Shalt be monitored by the Range Head concerned The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata. Bengaluru, Hyderabad and Ahmedabad}, 4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show- cause notice.

9. The appeal of the assessee is allowed in terms of our aforesaid observations.”

9.4 In view of the above, we hold that there is no infirmity in the order of the AO which could be revised in the revisionary proceedings under section 263 of the Act. Accordingly in our considered view the revisionary order passed by the learned Pr.

CIT under section 263 of the Act is not sustainable and consequently we quash the same. Hence the ground of appeal of the assessee is allowed.

Order pronounced in the Court on 17/03/2021 at Ahmedabad.