M/S RESULTS INVESTMENTS PRIVATE LIMITED,CHENNAI vs. DCIT CORPORATE WARD 5(3), CHENNAI

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this appeal, the assessee challenges the validity of revisional jurisdiction u/s. 263 as exercised by Ld. Principal Commissioner of Income Tax, Chennai-4 (Pr.CIT) for Assessment Year 2017-18 vide order dated 30-03-2022. The grounds raised

by the assessee read as under: -

2 - 3. The Commissioner of Income Tax erred in concluding that the interest income should be treated as income from other sources and hence no expenses would be adjusted against that income.

4. The Commissioner of income tax erred in disallowing the entire expenditure incurred by the company including that of employee cost and other statutory expenses like audit fees, ROC filing fees etc., 5. The Commissioner of Income tax erred in ignoring the facts submitted before him with regard to treatment of interest income as business income on the ground that the appellant company is a finance company engaged in the business of investments.

2. The Ld. AR advanced arguments and assailed the validity of revisionary order on the ground that the issues flagged therein could not have been examined by Ld. AO as held by this Tribunal in the case law of Subbunadar Chandra Sekar vs. ITO (ITA No.612/Chny/2021 dated 06-12-2022). The Ld. AR also raised plea of consistency and submitted that the interest income earned by the assessee has been accepted as business income in all the other years. The Ld. CIT-DR, on the other hand, controverted the arguments of Ld. AR and justified the revision of the order on the ground that the issue of head of income was never examined by Ld. AO. Having heard rival submissions, our adjudication would be as under.

3. From the case records, it emerges that the assessee is engaged in the business of making investment. The assessee earned interest income from fixed deposits kept with Bank and offered the same as business income. The case was selected for ‘Limited Scrutiny’ (Computer Aided Scrutiny Selection) for the limited purpose of examining the expenses incurred for earning exempt income. During the course of assessment proceedings, notices were issued u/s 142(1) calling for various details from the assessee which include brief note on nature of business, details of deposits, computation of book profits u/s 3 - 115JB and break-up of expenses incurred by the assessee. The assessee was specifically required to furnish the details of exempt income earned along with note on applicability of Sec.14A. The assessee filed the requisite details and the returned income was accepted by Ld. AO in an assessment framed u/s 143(3) on 28-11- 2019. The head of income i.e., ‘business income’ was not disturbed since the same was not the subject matter of limited scrutiny. This order was rectified u/s 154 on 04-12-2019 making disallowance u/s 14A for Rs.17.76 Lacs.

4. Subsequently, upon perusal of case records, Ld. Pr. CIT held an opinion that the assessment framed on 28-11-2019 was erroneous and prejudicial to the interest of the revenue and issued a show-cause notice to the assessee to raise objection against the proposed revision. In the notice, it was, inter alia, stated that interest income was to be treated as income from other sources and no expenses were to be allowed as deduction. The entire interest income was to be assessed as income from other sources without deduction of any expenditure.

5. The assessee, vide reply dated 18-03-2022, submitted that it was having investment as its main objects and accordingly, it placed the funds in the bank fixed deposits. The investment so made constitute primary objects of the assessee and therefore, offered as business income. The only source of income is interest income and dividend income. The same has been accepted as such since incorporation of the assessee. Therefore, the twin condition that the order should be erroneous as well as prejudicial to the interest of Revenue was not fulfilled in the present case and therefore, revision was not valid in law.

6. However, rejecting assessee’ submissions, Ld. Pr. CIT held that the expenditure had no nexus with the interest income. The assessment order was erroneous and prejudicial to the interest of the revenue and accordingly, the assessment order was set-aside with a direction to Ld. AO to allow only expenditure incurred exclusively to earn the taxable income and pass fresh assessment order after affording opportunity of hearing to the assessee. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 7. From the stated facts, it emerges that the case was selected for limited scrutiny ‘to examine expenses incurred for earning exempt income’ only. The scope of assessment proceedings was limited to examine that aspect only and nothing more. Nevertheless, Ld. AO called for various details including nature of assessee’s business, details of deposits, computation of book profits u/s 115JB and break-up of expenses incurred by the assessee etc. After having satisfied with assessee’ submissions, the returned income was accepted vide assessment order dated 28-11-2019. The assessment was rectified u/s 154 and disallowance u/s 14A was made. Thus, the purpose for which the case was selected for scrutiny was duly served and no further action was required on the part of Ld. AO, in this regard. The examination of head of interest income was beyond the scope of limited scrutiny assessment proceedings. In such a case, the assessment order could not be branded as erroneous and prejudicial to the interest of the revenue simply to enlarge the scope of limited scrutiny assessment proceedings. To consider other aspect, Ld. AO was bound by CBDT Instruction No. F.No.225/402.2018/ITA.II dated 28-11-2018 as held by this Tribunal in cited case as under: - Our findings and Adjudication 6. The undisputed facts that emerge are that the issues which have been flagged by Ld. Pr. CIT to seek revision could not have been, otherwise, examined by Ld. AO since the case was selected under ‘limited scrutiny’ to verify the genuineness of capital gains / losses. The issues lagged for ‘limited scrutiny’ was duly examined and verified by Ld. AO. To examine other issues, Ld. AO was bound by CBDT Instruction No. F.No.225/402/2018/ITA.II dated 28.11.2018 which, inter-alia, provide as under: - Under CASS cycles 2017 and 2018, some of the cases were selected for scrutiny as a 'Limited Scrutiny' case. In limited Scrutiny' cases, Assessing Officer cannot travel beyond the issue(s) for which the case was selected. The idea behind such a stipulation is to enforce checks and balances upon powers of an Assessing Officer to do fishing and roving enquiries in cases under 'Limited Scrutiny'.

7. It may be brought to the notice of all for necessary compliance.

Upon perusal of para-3 of above instructions, it could be seen that the scope of limited scrutiny for CASS cycles 2017 and 2018 could be widened only upon receipt of credible material or information from any law enforcement / intelligence / regulatory authority or agency regarding tax-evasion by an assessee. In such a case, the issues arising from such information could also be examined during the course of conduct of assessment proceedings in such 'limited scrutiny' cases with prior administrative approval of the concerned Pr. CIT/CIT. However, in the present case, we find that there is no such credible material or information which would justify widening the scope of limited scrutiny. Therefore, Ld. Pr. CIT, in our considered opinion, could not term the assessment order as erroneous or prejudicial to the revenue since the flagged issues, could otherwise be not examined by Ld. AO during the course of regular assessment proceedings.

8. The decision of Chennai Tribunal in M/s Sahayamatha Salterns Pvt. Ltd. vs. DCIT (ITA No.1498/Chny/2019 dated 11.12.2019), as relied upon by revenue, is factually distinguishable. Upon perusal of para-4 of the order, it could be seen that Ld. AO failed to consider the information passed on to him by other Income Tax Authority regarding on-money consideration and therefore, the revision was held to be justified. The same is not the case here.

Therefore, on this point alone, the revision of the order is unsustainable in the eyes of law and the same is, therefore, quashed. We order so.

8 - 9. Considering the stated position, the impugned revisionary order could not be sustained in the eyes of law and we have no hesitation in quashing the same. 10. The appeal stand allowed in terms of our above order. Order pronounced on 13th April, 2023.