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Income Tax Appellate Tribunal, VARANASI CIRCUIT BENCH, VARANASI
Before: SHRI. A. D. JAIN & SHRI T. S. KAPOOR
This is assessee’s appeal against the order of the Pr. CIT, Allahabad, dated 03.02.2020 for the assessment year 2016-17, raising the following grounds:
1. Because on the facts and in the circumstances of the case the initiation of proceedings u/s 263 and the order passed there under by the Id. CIT is wrong, unjustified, bad in law. The conditions precedent for initiation of action u/s 263 did not exist and were not satisfied in this case. The Appellant prays that the order so passed u/s 263 deserves to be cancelled in limine.
2. Because the learned Pr. CIT grossly erred in holding that the original assessment order passes s.143 (3) dated 03.05.2018 is erroneous and prejudicial to the interests of Page 2 of 6 the revenue and Ld. Pr. CIT also erred in cancelling the original assessment order of AO and directing AO for framing it de novo. 3. Because the Leaned Pr. CIT failed to understand that there is no loss to revenue, if full cost of land is allowed during the year under consideration. 4. Because the Ld. Pr. CIT also failed to understand that if full cost of land is not allowed during the year consideration the same would be highly prejudicial to the interest of assessee as the assessment of subsequent years have attained finality and the proposed disallowance of land cost cannot be claimed in subsequent years. 5. Because the proposed direction of Pr. CIT would cause a double jeopardy to the assessee of being made liable to pay double tax on the same income. 6. Because the Ld. CIT ignored the evidences produced before him during the revisionary proceedings to substantiate that no land cost has been claimed in subsequent years.
2. At the outset, the ld. Counsel for the assessee has contended that the case of the assessee was selected for Limited Scrutiny on the issue of verification of capital gain/loss. Our attention was drawn, in this regard, to the notices issued under sections 143(2) and 142(1) of the Income Tax Act, at pages 17 & 18 of the paper book. It has been contended that the assessment order under section 143(3) of the Act was passed on 3.5.2018, assessing the income of the assessee at Rs.11,85,48,340/-, by making addition of Rs.32,803/-, applying section 43CA of the Act. It has been contended that despite the case having been selected for Limited Scrutiny on the above said issue, and the same having not converted to Complete Scrutiny, the Pr. CIT Page 3 of 6 initiated and completed the proceedings under section 263 of the Act. This, according to the assessee, is not sustainable in law.
The ld. D.R., on the other hand, has placed strong reliance on the order under appeal. 4. Heard. APB:18 and the backside thereof is a copy of notice dated 1.12.2017 issued under section 142(1) of the Act by the ACIT, Circle-1, Varanasi. The “particulars of accounts and/or documents required”, as given in this notice (backside of page 18) include the following item No.3: “3. Please explain capital gains/loss is genuine and has been correctly shown in the return of income. Please justify the same with supporting documents and evidences.”
APB:17 is a copy of notice dated 10.8.2017 issued under section 143(2) of the Act by the ITO-1(1), Varanasi, for “Limited Scrutiny (Computer Aided Scrutiny Selection)”. Therein, the following issues have been identified for examination: “i. Whether capital gains/loss is genuine and has been correctly shown in the return of income. ii. Whether capital gains/loss on sale of property has been correctly shown in the return of income.”
Thus, evidently, the assessee is correct in contending that the case was selected for Limited Scrutiny on the issue of verification of capital gains/loss. In the written submission (APB:18A – 18C) filed by the assessee before the Assessing Officer, the assessee duly explained the issue of capital gains, demonstrating that the query regarding capital gain on sale of land and building was not applicable in the assessee’s case. The assessee furnished, in compliance of the notice, complete books of account along with bills/vouchers and Bank statement. The Assessing Officer completed the assessment, vide order dated Page 4 of 6 3.5.2018, by making an addition of Rs.32,803/-, applying the provisions of section 43CA of the Act. The notice under section 263 of the Act was issued, as is available from the impugned order itself, to verify the cost of land in the profit and loss account. It was on this issue that the Pr. CIT held the Assessing Officer’s order to be erroneous and prejudicial to the interests of the Revenue.
The grievance of the assessee is that the Pr. CIT has erred in expanding the scope of the Limited Scrutiny and, that therefore, the proceedings initiated under section 263 of the Act, culminating the order under appeal, are unsustainable in law and the same be quashed. 8. In ‘Balvinder Kumar vs. PCIT’, [2021] 125 taxmann.com 83 (Delhi – Trib.), it was held that in a case of Limited Scrutiny, the Assessing Officer could not go beyond the reason for which the matter was selected for Limited Scrutiny, thus, it would not be open to the PCIT to pass revisionary order under section 263 of the Act on other aspects and remit the matter to the Assessing Officer for fresh assessment. 9. Then, in Instruction No.5/2016, issued by the CBDT, a direction has been issued regarding the scope of enquiry in cases under Limited Scrutiny selected through CASS 2015 & 2016, clarifying that in cases under 'Limited Scrutiny', the scrutiny assessment proceedings would initially be confined only to issues under 'Limited Scrutiny' and questionnaires, enquiry, investigation, etc. would be restricted to such issues; that only upon conversion of a case to 'Complete Scrutiny' after following the procedure outlined above, the Assessing Officer may examine the additional issues besides the issue(s) involved in 'Limited Scrutiny', and that the Assessing Officer shall also expeditiously Page 5 of 6 intimate the payer concerned regarding conducting 'Complete Scrutiny' in such cases.
The CBDT has, thus, made it clear that only upon conversion of a case to 'Complete Scrutiny', the Assessing Officer may examine the additional issues involved in the 'Limited Scrutiny'. Thus, where the case has not been converted from one of ‘Limited Scrutiny’ to that of ‘Complete Scrutiny’, no additional issue shall be examined by the Assessing Officer, other than the issue(s) involved in the ‘Limited Scrutiny’. In the present matter, undisputedly, the case was not converted from one of ‘Limited Scrutiny’ to that of ‘Complete Scrutiny’.
Once the case remained to be of ‘Limited Scrutiny’, confined to the issue of Capital Gain, obviously, the Pr. CIT could not call in question, the issue of land cost/expenditure debited in the profit and loss account by the assessee.
In view of the above, the grievance of the assessee by way of Ground no.1 is found to be justified and it is accepted as such. The revisionary proceedings initiated, culminating in the order under appeal issued under section 263 of the Act are, therefore, found to be unsustainable in the eye of the law and, are quashed.
Nothing further survives for adjudication, nor was any other point argued.
In the result, the appeal of the assessee stands allowed. Order pronounced in the open Court on 01/09/2021.