Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI GIRISH AGRAWAL
आदेश /O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal by the assessee is arising out of the order of Principal Commissioner of Income-tax, Coimbatore-1 in Order No. ITBA/REV/F/REV5/2020-21/1031955773(1) dated 30.03.2021 passed u/s. 263 of the Income-tax Act, 1961 (herein after referred to as “the Act”).
2 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 2. The grounds taken by the assessee in this appeal are read as under: “(1) The learned PCIT-1, Coimbatore, having not rejected the submissions of the appellant made before him, in response to the show cause notice, as reproduced in paragraph 8 of the impugned order, has erred in law, in holding that the order of the AO as erroneous and prejudicial to the interest of the Revenue. (2) The learned PCIT ought to have held that as the impugned order of the AO could not go beyond the scope of 'Limited Scrutiny', it did not enable him to invoke jurisdiction u/s 263 of the I.T. Act, 1961, in the facts of the case. Without prejudice to the above, (3) The learned PCIT ought to have accepted that the order of the AO was not erroneous, on the reasons stated in paragraph 5 of the impugned order, in the facts and circumstances of the case and in law. (4) The learned PCIT ought to have held that the order of the AO was not erroneous, insofar as it was prejudicial to the interest of the Revenue, in the facts of the case. (5) For these and other additional grounds of appeal that may be adduced at the time of hearing, the order of the Principal Commissioner of Income Tax-1, Coimbatore, is opposed to law and unsustainable in the facts and circumstances of the case.”
There is a delay of 33 days in filing of this appeal by the assessee. The assessee placed on record petition for condonation of delay along with affidavit explaining the reason for the delay in filing the appeal. The Ld. Counsel for the assessee submitted that the delay in filing the appeal is attributable to the Pandemic of Covid-19 and is covered by the decision of Hon’ble Supreme Court in its decision in suo moto Writ Petition (Civil) No.3/2020 dated 10.01.2022 had held that the period from 01.03.2020 to 28.02.2022 should be excluded while reckoning limitation period. Further, the Hon’ble Supreme Court has
3 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 allowed 90 days from 01.03.2022 to file the belated appeals. Accordingly, the Counsel claimed that this appeal is filed within the time permitted by the Hon’ble Supreme Court and thus, prayed for its admission by condoning the delay. The assessee has put on record an Affidavit explaining the reasons for the delay. We have duly considered the contentions of the ld. Counsel and gone through the record. Accordingly, for the just decision of the controversy, we find it proper to condone the delay of 33 days which is related to Covid-19 pandemic and thus, admit it for adjudication.
The brief facts of the case are that the assessee is the partnership firm which is in the business of manufacture of steel bars. It filed its return of income on 17.10.2016 reporting the total income of Rs. 22,36,870/-. The case was selected for scrutiny for limited scrutiny for the reason of differences between closing WDV and opening WDV. The assessment was completed u/s. 143(3) of the Act on 27.06.2018, wherein the differences in closing WDV and opening WDV of Rs. 1,59,151/- was added to the return income. Subsequently, on the examination of assessment records and the assessment order u/s. 143(3) dated 27.06.2018 Ld. PCIT, Coimbatore-1 noted from the tax audit report u/s. 44AB that there is a difference in closing stock value when compared to that reported in the return income of the assessee
4 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 and hence, the difference should have been added to the gross sales value. On consideration of this observation, Ld. PCIT issued a show cause notice dated 18.03.2021 by invoking the revisionary powers u/s. 263 of the Act. In the course of revisionary proceedings u/s. 263 of the Act, it was submitted that the assessment was completed on the basis of selection of return of income selected for “limited scrutiny” for the reason of differences between closing WDV and opening WDV. However, the reasons given in the show cause notice dated 18.03.2021 is in respect of difference in closing stock value as compared to the value reported in the return of income. It was further submitted that the issue falling within the scope of query by the AO where the return of income is taken for limited scrutiny alone, should be considered and no other issues should be considered for issue of notice u/s. 263 of the Act. Reference to the CBDT Instruction No. 05/2016 dated 14.07.2016 was made. Reliance was placed on the decision of coordinate bench of ITAT Mumbai in the case of SU-RAJ Diamond Dealers Pvt Ltd vs Pr.CIT- 11 in ITA No. 3098/Mum/2019. Ld. PCIT while drawing his consideration for passing an order u/s. 263 of the Act held that the AO had not verified the issue of difference in closing stock value rendering the assessment order erroneous in as much as it being prejudicial to the interests of revenue. He thus directed the AO to re-do the
5 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 assessment afresh by giving adequate opportunity to the assessee and pass fresh assessment order accordingly.
Before us Mr R. Vijayaraghavan, Advocate appeared on behalf of the assessee and Mr. AR V Sreenivasan, Addl. CIT represented the matter on behalf of the Department.
The contents of show cause notice dated 18.03.2021 issued by Ld. PCIT for invoking the provisions of section 263 of the Act are as under: 1. “Whereas an order of assessment was made in your case on 27.06.2018 u/s.143 (3) of the Income tax Act (order under consideration) by assessing income at Rs.23,96,021/-. 2. Whereas on verification of the assessment records, it is noticed that the Order of assessment passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue due to the· following reasons: 2.1 On verification of 44AB report, it is seen that there is a difference in closing stock value when compared to that in your return of income Hence the difference amount is to be added to gross sales value. 3. Thereby the AO has failed to verify the above mentioned issue during the assessment proceedings for the AY 2016-17. 4. For the above mentioned reason, the assessment order made for the A.Y.2016-17 is found to be erroneous and prejudicial to the interests of the revenue as the order has been passed without making enquiry or verification which ought to have been made. Hence necessitating invoking the provisions of the Section 263 of the I.T. Act, to remedy the loss of the revenue. It is therefore, proposed to invoke the provisions of the Sec.263 of the I. T. Act, 1961.” The reply of the assessee dated 24.03.2021 in response to the above show cause notice is reproduced as under:
6 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 “The order u/s 143(3) of the Assistant Commissioner of Income Tax, Non Corporate Circle -2, Coimbatore, dated 07.06.2018, was on the basis of selection of the return of income filed, for 'Limited Scrutiny' for the reason Closing WDV and opening WDV differences. Consequently, notice u/s 142(1) was issued on 07.06.2018 calling for clarification regarding assets added / deleted and reply was uploaded on 18.06.2018. Since, the AO was not satisfied with the explanation offered for WDV differences, as noted by him, depreciation on the amount of difference in the WDV was disallowed by an addition of Rs.1,59,151/- to the income returned, in the assessment order. However, it is seen from the Show Cause Notice u/s 263 that on verification of 44AB report, the difference in closing stock value, when compared to the value as per return of income, has to be added to the income. Therefore, it is stated in paragraph 4, the assessment order made for Asst. Year 2016-17 is found to be erroneous and prejudicial to the interests of the revenue, as the order has been passed without making enquiry or verification which ought to have been made. Hence, necessitating invoking the provisions of the section 263 of the 1.T.Act. However, the assessee is not in agreement with the reasons stated in the Show Cause Notice u/s 263, for treating the assessment order. as erroneous in so far as it is prejudicial to the interest of revenue for the following reasons. The issue falling within the scope of enquiry by the AO where return of income is taken for Limited Scrutiny atone, should be considered, and no other issue should be considered, for issue of Notice u/s 263 of the Income Tax Act, 1961. In this regard, the Board reiterated the directions regarding scope of enquiry in cases under "Limited Scrutiny" selected through CASS 2015 and 2016 vide Instruction No.5/2016 dated 14.07.2016, wherein it was stated as under: It is further clarified that in cases under "Limited Scrutiny", the scrutiny assessment proceedings would initially be confined only to issues under 'Limited Scrutiny' and question.0aires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to 'Complete Scrutiny' after following the procedure outlined above, the AO may examined the additional issues besides the issue(s) involved in 'Limited Scrutiny' The AO shall also expediously intimate the taxpayer concerned regarding conducting 'Complete Scrutiny' in such cases." The AO, therefore, had no jurisdiction to look into other matter outside the scope of limited Scrutiny is very clear. If the AO had thought it fit, to take up the case a wider scrutiny, he ought to have followed the mandate in this regard. (l) The amendment in section 263 by addition the explanation 2 by the Finance Act,
7 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 "Explanation 2.--For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a] the order is passed without making inquiries or verification which should haye been nude; Considering the scope of 'Limited Scrutiny', as specified in the assessment order, the addition of Rs.1,59,151/- to the income returned, was duly made by the AO, in the order, and it cannot be said, that the order was passed without making enquiries or verification, which should have been made, in respect of items falling outside the scope of 'Limited Scrutiny'. The AO was not competent to make any other enquiry without converting the scope of enquiry from Limited Scrutiny to wider scrutiny after following standing operating procedure of the Board in this regard. The Hon'ble ITAT, Mumbai held in the case of SU-RAJ Diamond Dealers Pvt.Ltd in ITA No. 3098/MUM/2019 as under: "Assessee's case was selected under CASS for 'limited scrutiny' for verification of large amount of other expenses' and lower income. Assessment order u/s. 143(3) was passed after making certain additions. Subsequently, PCIT exercising revision of power u/s.263 contended that since original assessment was selected for 'limited scrutiny' and hence AO had no occasion to carry out: comprehensive scrutiny w.r.t. valuation of 'closing stock' wherein there could be discrepancy of Rs.7.92 Crores. Setting aside the order passed U/s 143(3), PCJT directed AO to examine the issue in closing stock'. Assessee argued that when original assessment was taken up for 'limited scrutiny: PC!T has no jurisdiction u/s. 263 to direct the AO to conduct verification of other issues. Drawing support from 'Explanation 2 of Section 263', revenue argued that the AO had Jailed to carry out proper verification and hence order u/s. 143(3) was erroneous and prejudicial to the interest of revenue. Hon'ble !TAT held as follows: a) As per CBDT instruction No. 20/2015; in case of limited scrutiny' the verification should be confined to specific issues for which the case was picked for scrutiny. In order to convert into 'complete scrutiny' approval of PCIT is required and specific procedure needs to be followed. in the present case, 'limited scrutiny' was not converted to 'complete scrutiny'. b) When the case was selected for 'limited scrutiny'; the original assessment order cannot be said to be erroneous & prejudicial just because AO did not verify issues which were outside the scope of 'limited scrutiny'. c) What cannot be done directly cannot be done indirectly. PCIT in the garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the AO while framing the original
8 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 assessment. Accordingly, order of PCIT u/s. 263 was quashed by Hon'ble ITAT." It is submitted that the proposal conferred in the Show Cause Notice be dropped, as the Show Cause Notice is beyond your jurisdiction in the facts of the case.” 7. Considering the above, Ld. PCIT arrived at a consideration to pass the impugned order u/s. 263 of the Act dated 30.03.2021, by holding as under: “The reply furnished by the assessee is perused. The fact remains that the AO did not verify this issue at the time of assessment. However the AO may examine the plea of the assessee with regard to the facts and circumstances of the case. 9. Surely the order under discussion has rendered itself erroneous as much as it is prejudicial to the interest of revenue, since the AO has omitted to verify thoroughly the above mentioned point in Para 5 above. The erroneous order needs a remedy and therefore an intervention u/s.263 of the Act. 10. On a careful consideration of the facts of the case and in the light of the circumstances detailed above, I have no hesitation in holding the order passed by the AO, as erroneous and prejudicial to the interest of revenue. 11. For the reasons mentioned above, the order under consideration passed u/s. 143(3) on 27.06.2018 is hereby, set-aside u/s. 263 of the Act, with directions to the Assessing Officer to re-do the assessment afresh, considering the issues discussed in this order. The Assessing Officer shall give adequate opportunity to the assessee and pass fresh Assessment order accordingly.”
At the outset, Ld. Counsel of the assessee submitted that jurisdiction assumed by the ld. PCIT in invoking the provisions of section 263 of the Act are devoid of any merit and bad in law, since the assessment u/s. 143(3) of the Act was taken up and completed for limited scrutiny on account of differences between the closing WDV and opening WDV. More importantly, the differences in the closing WDV and opening WDV formed the basis of scrutiny for limited scrutiny
9 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 which was added to the returned income and the assessment was accordingly completed. Further, he strongly submitted that the issue falling within the scope of query by the AO where the return of income is taken up for limited scrutiny alone should be considered and no other issues can be considered for the purpose of issuing show cause notice u/s. 263 of the Act as the AO had no occasion to apply his mind on the issue referred to in the show cause notice issued for the purpose of invoking the provisions of section 263 of the Act. Ld. Counsel invited the attention of the bench to the CBDT Instruction No. 05/2016 dated 14.07.2016 and submitted that as per the said instruction in the cases under limited scrutiny, scrutiny assessment proceedings would be confined only to issues raised for the limited scrutiny. It is only upon the conversion of the case of limited scrutiny to complete scrutiny by following the prescribed procedure that the AO could examine the additional issues besides the issues involved in limited scrutiny. He thus, submitted that the AO could have taken up the matter for complete scrutiny, if thought fit, for which he ought to have followed the prescribed procedure. Ld. Counsel thus submitted that as the addition of Rs. 1,59,151/- was made to the returned income in respect of the issue covered for limited scrutiny, it cannot be said that the order passed by the Ld. AO was without making queries or verification
10 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 which should have made in respect of all items falling outside the scope of limited scrutiny.
In the course of hearing, Ld. Counsel referred to the decision of coordinate bench of ITAT, Chennai in the case of Yuvraj vs ITO in ITA No. 1722/Chny/2019 dated 07.03.2022 and submitted that the issue on the hand is squarely covered by this decision. The findings given in the said order are reproduced as under: “6. We have heard both the parties, perused material available on record and gone through orders of the authorities below. We find that the assessment for the impugned assessment year has been taken up for limited scrutiny to verify large cash deposits into savings bank account and the Assessing Officer has completed assessment after verifying cash deposits in savings bank account and has made additions, when the assessee was unable to explain source for part of cash deposits. It is an admitted position of law that in limited scrutiny assessments, scope of verification is limited to the issues mentioned in the notice issued under CASS system. The Assessing Officer cannot travel beyond the issues on which assessment has been taken up for scrutiny. Therefore, once the Assessing Officer does not have power to go beyond the issues on which he has taken up case for scrutiny, then obviously, the learned PCIT cannot term the assessment order passed by the Assessing Officer as erroneous, insofar as it is prejudicial to the interests of revenue on issues other than the issue taken up by the Assessing Officer in scrutiny assessment proceedings. In this case, on perusal of materials available on record, we find that the learned PCIT has revised assessment order on the issues other than the issue considered by the Assessing Officer in assessment proceedings. Therefore, we are of the considered view that the learned PCIT has exceeded her jurisdiction in examining issues other than the issues which is subject matter of limited scrutiny assessment proceedings before the Assessing Officer. Hence, we are of the considered view that revision order passed by the learned PCIT u/s.263 of the Act is invalid and not sustainable. Hence, we quash order passed by the learned PCIT u/s.263 of the Act.”
11 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 10. Ld. Counsel also placed reliance on the decision of coordinate bench of ITAT Mumbai in the case of SU-RAJ Diamond Dealers Pvt Ltd vs Pr.CIT-11 (supra). Ld. Sr. DR on the other hand supported the order of the Ld. PCIT and submitted that there is no merit in the arguments of the assessee owing to the fact that there is a difference in the closing stock value as compared to the value reported in the return of income and therefore, ld. PCIT has rightly invoked the provisions of section 263 of the Act.
We have heard the rival contentions and perused the material on record and given thoughtful consideration to the submissions made by both the parties. We note that it is an admitted position of law that under limited scrutiny assessment, scope of verification by the Assessing Officer is limited to the issues mentioned in the case selected under CASS system. The Assessing Officer cannot travel beyond the issues in which assessment has been selected for the purpose of scrutiny. In such a case, where the Assessing Officer has no occasion to deal with the matter and apply his mind on the issues beyond this, for which it has been selected for scrutiny assessment. The Ld. PCIT cannot invoke the revisionary proceedings to hold the assessment order as erroneous in as much as it being prejudicial to the interests of revenue on the issues other than the issues taken up by the Assessing Officer. In the present case before us, we find that Ld. PCIT has
12 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17 invoked the provisions of section 263 of the Act by drawing his consideration that on verification of 44AB report, the difference in closing stock value when compared to the value as compared with return of income is to be added to the total income. In respect of this consideration, the Ld. PCIT has found assessment order to be erroneous and prejudicial to the interests of revenue and that the order has been passed without making enquiry or verification which ought to have been made. Under these facts and circumstances of the case and considering the CBDT instruction no. 05/2016 and the jurisprudence referred above, we are of the considered view that Ld. PCIT has exercised his judgments in invoking the revisionary proceedings and passing the order u/s. 263 of the Act by holding the assessment order passed u/s. 143(3) of the Act as erroneous and prejudicial to the interests of revenue, which in fact was subject matter of limited scrutiny assessment proceedings.
On the issue considered by the Ld. PCIT in the impugned order, no action u/s. 263 of the Act is justifiable which cannot be sustained under the facts and circumstances of the present case and jurisprudence dealt herein above. We therefore, quash the impugned order u/s. 263 of the Act and allow the grounds raised by the assessee. 13. In the result, the appeal of the assessee is allowed.
13 KAB Steel Industries ITA No. 244/Chny/2021 AY: 2016-17
Order pronounced on 26th May, 2022 at Chennai.
Sd/- Sd/- (िगरीश अ�वाल) (महावीर �सह ) (GIRISH AGRAWAL) (MAHAVIR SINGH) लेखा सद�य /ACCOUNTANT MEMBER उपा�य� /VICE PRESIDENT चे�ई/Chennai, �दनांक/Dated, the 26th May, 2022 JPV आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु� /CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF.