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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri J. Sudhakar Reddy, AM & Shri A. T. Varkey, JM]
ITA No.370/Kol/2020 Naga Dhunseri Group Ltd. A.Y. 2015-16 आयकर अपील�य अधीकरण, �यायपीठ –“A” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA [Before Shri J. Sudhakar Reddy, AM and Shri A. T. Varkey, JM] I.T.A. No. 370/Kol/2020 Assessment Year: 2015-16
Naga Dhunseri Group Ltd. Vs. PCIT-2, Kolkata (PAN: AABCN 0997 R) Appellant Respondent
Date of Hearing (Virtual) 21.01.2021 Date of Pronouncement 27.01.2021 For the Appellant Shri Akkal Dudhwewala, FCA For the Respondent Shri Goulen Hangshing, CIT
ORDER Per Shri A. T. Varkey, JM: This appeal preferred by the assessee is against the order of Ld. PCIT-2, Kolkata dated 18.03.2020 for Assessment year 2015-16 u/s 263 of the Income Tax Act, 1962 (hereinafter referred to as the Act).
At the outset the Ld. A.R of the assessee Shri Akkal Dudhwewala assailing the action of the Ld. PCIT to interfere in the assessment order passed by the AO dated 18.12.2017 for AY 2015-16 by exercising his revisional jurisdiction contended that the Ld. PCIT erred in invoking the revisional jurisdiction u/s 263 of the Act without satisfying the condition precedent as contemplated u/s 263 of the Act. Therefore, according to Ld. A.R, the impugned order of Ld. PCIT is bad in law and therefore, being without jurisdiction has to be quashed. According to Ld. A.R, in this case for this assessment year, the assessee’s case was taken up for limited scrutiny under CASS which fact can be discerned from page 9 of PB-I and he drew our attention to the notice issued on 21.03.2016 u/s 143(2) of the Act informing that the assessee’s case has been selected for limited scrutiny under CASS. Thereafter the Ld. A.R drew our attention to page 89 of PB-II wherein CASS reason for limited scrutiny
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ITA No.370/Kol/2020 Naga Dhunseri Group Ltd. A.Y. 2015-16 selection in assessee’s case is given. From a perusal of the same, we note that the reason for limited scrutiny was for three items;
i) Introduction of capital in NBFC/investment company ii) large deduction claimed u/s 57 of the Act iii) Mismatch of amount paid to related persons u/s 40A(2)(b) reported in audit report and ITR.
This fact of limited scrutiny on these three items are also discernible from perusal of page 10 and 11 of PB-I which is the copy of notice sent by the AO u/s 142(1) dated 28.01.2017 and it is noted that the assessee has replied to the notice of AO vide letter dated 25.10.2017 and 13.11.2017 which is available at page 17 and 18 of the PB along with annexures 1 & 2. And the AO after going through the submissions and replies along with supporting documents and after hearing the assessee, the AO has passed the assessment order dated 18.12.2017 wherein he accepted the income as per return of income at Rs. 4,28,31,790/-.
Thereafter the Ld. PCIT-2, Kolkata issued show cause notice dated 13.01.2020 u/s 263 of the Act wherein he disclosed his desire to interfere and revise the assessment order passed by the AO dated 18.12.2017 for AY 2015-16 (copy of SCN which is placed at 30 & 31 of PB). The only issue that has been pointed out by the Ld. PCIT in the SCN is regarding disallowance under Rule 8 of Income Tax Rules, 1962 (hereinafter referred to as the Rule) which the Ld. PCIT has stated in his SCN as under:
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ITA No. ITA No.370/Kol/2020 Naga Dhunseri Group Ltd. Naga Dhunseri Group Ltd. A.Y. 2015-16
Pursuant to SCN of Ld. PCIT of Ld. PCIT, the assessee had filed its reply objecting to reply objecting to the very invocation of revisional jurisdiction by of revisional jurisdiction by Ld. PCIT vide letter dated 03.03.2020 letter dated 03.03.2020. A copy of which is seen placed at 32 to 37 of PB in which the assessee has placed at 32 to 37 of PB in which the assessee has placed at 32 to 37 of PB in which the assessee has clearly stated that the assessee’s case assessee’s case for AY 2015-16 was selected for scrutiny assessment cted for scrutiny assessment only for the limited scrutiny under CASS limited scrutiny under CASS for the three (3) items discussed supra for the three (3) items discussed supra and issue of disallowance u/s 14A read with Rule 8D issue of disallowance u/s 14A read with Rule 8D in respect of exempt income in respect of exempt income was not the reason for selection of the case for limited scrutiny. not the reason for selection of the case for limited scrutiny. It was pointed out by It was pointed out by assessee that as per CBDT Instruction No. 2/2014 dated 26.09.2014, the field assessee that as per CBDT Instruction No. 2/2014 dated 26.09.2014, the field assessee that as per CBDT Instruction No. 2/2014 dated 26.09.2014, the field officers were directed to confine their enquiries strictly to CASS reasons and they officers were directed to confine their enquiries strictly to CASS reasons and they officers were directed to confine their enquiries strictly to CASS reasons and they were not permitted to make enquiries not permitted to make enquiries in respect to the issues for which in respect to the issues for which case was not selected for limited scrutiny. It was therefore contended selected for limited scrutiny. It was therefore contended before the Ld. PCIT that before the Ld. PCIT that when the CBDT has prohibited the AO from making when the CBDT has prohibited the AO from making any other enquiries other than any other enquiries other than for the issues for which limited scrutiny has been for the issues for which limited scrutiny has been selected for by CASS selected for by CASS, the AO could not had gone into the issues of disallowance ould not had gone into the issues of disallowance in respect of exempt income in respect of exempt income. So, according to Ld AR the AO was justified in not enquiring in to the issue of the AO was justified in not enquiring in to the issue of the AO was justified in not enquiring in to the issue of disallowance u/s 14A read with Rule 8D in respect of exempt income, which disallowance u/s 14A read with Rule 8D in respect of exempt income, which disallowance u/s 14A read with Rule 8D in respect of exempt income, which omission on the part of AO has been racked up in the revisional jurisdiction, which f AO has been racked up in the revisional jurisdiction, which f AO has been racked up in the revisional jurisdiction, which Ld PCIT cannot do because the AO’s omission is as per the CBDT circular Ld PCIT cannot do because the AO’s omission is as per the CBDT circular Ld PCIT cannot do because the AO’s omission is as per the CBDT circular and therefore cannot be held to be erroneous. Therefore, according to Ld AR therefore cannot be held to be erroneous. Therefore, according to Ld AR therefore cannot be held to be erroneous. Therefore, according to Ld AR, the impugned action of Ld. PCIT by Ld. PCIT by exercising jurisdiction u/s 263 of the Act jurisdiction u/s 263 of the Act on this 3 | P a g e
ITA No.370/Kol/2020 Naga Dhunseri Group Ltd. A.Y. 2015-16 issue i.e. issue of disallowance invoking section 14A read with Rule 8D of the Rules is akin to Ld. PCIT trying to do indirectly what the AO could not have done directly. It was brought to our notice that even though these material facts were brought the notice of Ld. PCIT, he did not drop the proceedings. Further, the Ld. A.R pointed out that on merits also there was no case made out by the Ld. PCIT, since disallowance as per Rule 8D(1)(iii) has been suo-motto done by the assessee in accordance to law i.e. 0.5% of the investment which yielded exempt income [ Rs. 14,18,798/- u/s 14A ]by relying on the decision of ITAT Kolkata in REI Agro Ltd. in 144 ITD 141 (Kol-Trib) which was upheld by the Hon’ble jurisdictional Calcutta High Court in the order dated 09.04.2014 in ITA No. 220 of 2013. Therefore according to Ld. A.R on merits also no disallowance was warranted. Therefore, looking from any angle according to Ld. AR, the AO by accepting the computation & suo-moto disallowance in respect of exempt income is a correct action or plausible view on the issue, and so he pleaded that impugned action of Ld PCIT may be quashed. Per-Contra, the Ld CIT DR, fully supported the impugned order and does not want us to interfere.
After hearing both parties and perusal of records, we are of the opinion that the Ld. PCIT could not have exercised his revisional jurisdiction on the issue on which he found fault with the action/omission on the part of AO because in the first place the AO could not have been faulted for not conducting any enquiry on the issue of Section 14A of the Act in respect of exempt income, since the assessee’s case was selected for scrutiny only for limited purpose under CASS and the issue of disallowance u/s 14A read with Rule 8D in respect of exempt income was not the reason for selection of the case for limited scrutiny. Therefore, as per the CBDT circular (supra) the AO could not have initiated enquiry on the issue of section 14A of the Act and it is settled that CBDT circulars are binding on income tax authorities. Therefore in such a scenario, the Ld. PCIT could not have invoked jurisdiction u/s 263 of the Act because he could not have held the AO’s order to be erroneous because the AO was justified in not enquiring in to the issue of disallowance u/s 14A read with Rule 8D in respect of exempt income, since the AO 4 | P a g e
ITA No.370/Kol/2020 Naga Dhunseri Group Ltd. A.Y. 2015-16 has gone as per the dictum of CBDT circular on the subject. Therefore, the AO’s action/ omission of not looking into the issue of 14A of the Act cannot be a ground for the Ld. PCIT to exercise his jurisdiction since he cannot hold the AO’s omission to be erroneous as well as prejudicial to Revenue and the impugned action of Ld. PCIT is akin to do indirectly what the AO could not have done directly. Thus it is noted that Ld. PCIT has ventured to exercise his revisional jurisdiction by issuing SCN dated 18.12.2017 without even satisfying the condition precedent to invoke the jurisdiction u/s 263 of the Act. Therefore the SCN itself is bad in law and therefore it is quashed. Consequently all further actions/proceeding including the impugned order of Ld. PCIT is non-est in the eyes of law. For this we rely on the decision of this Tribunal in Sanjib Kumar Khemka in ITA No. 1361/ Kol/2016 for AY 2011-12 dated 02.06.2017 wherein it has been held that : “Now coming to the facts of the instant case, we find that the instant case was selected on the basis of AIR Information as evident from the order of AO under section 143(3) of the Act. There is also no whisper in the order of the AO for expanding the scope of limited scrutiny after obtaining the permission from the Administrative CIT. The ld. DR has also failed to bring anything contrary to the argument of the ld. AR. Therefore in our considered view the scrutiny should have been limited only to the information emanating from the AIR. Admittedly, the assessee has claimed to have filed an appeal before Ld. CIT(A) challenging the jurisdiction exceeded by the AO while framing the assessment order u/s 143(3) of the Act. We find that the impugned issue being legal in nature and goes to the root of the matter therefore we are inclined to proceed with this issue first by holding that, from the above submission and after examining of the records, we find that the Ld. CIT in his impugned order u/s 263 of the Act has exceeded his jurisdiction while holding the order of AO as erroneous in so far prejudicial to the interest of Revenue. In view of the above we hold that the ld. CIT has in his order u/s. 263 of the Act exceeded the jurisdiction by holding the order of AO as erroneous in so far as prejudicial to the interest of Revenue on those items which are not emanating from the AIR. Thus, we are inclined to adjudicate only those matters which are emanating from the AIR as discussed above.”
And to the decision of this Tribunal in the case of M/s Chengmari Tea Co. Ltd. in ITA NO. 812/Kol/2019 for AY 2014-15 dated 31.01.2020 which is placed at page 62 to 70 wherein the Tribunal held as under:
“8. Next comes the assessee’s second substantive argument that since the Assessing Officer had framed his regular assessment involving limited scrutiny on the above stated issues not including sec. 33AB deduction to the purpose of the impugned withdrawals. We find that the same is duly covered in its favor as per this tribunal’s co-ordinate bench’s decision in ITA No.1361/Kol/2016 in Sanjeev K. Khemka vs. Pr. Commissioner of Income-Tax-15, Kolkata decided on 02.06.2017 as under:- 5 | P a g e
ITA No.370/Kol/2020 Naga Dhunseri Group Ltd. A.Y. 2015-16
“4. We have heard the rival contentions of the parties and perused the materials on record. The primary issue in the case on hand revolves whether it is a case selected under CASS for limited scrutiny or regular scrutiny. It can be seen from the grounds of appeal that the assessee wants to contend that the very initiation of proceedings u/s 143(3) of the Act on the basis of regular scrutiny under the Act was bad in law. The proceedings under section 143(3) of the Act should have been limited to the extent of the information gathered through AIR. Accordingly the proceedings u/s 263 of the Act cannot be expanded beyond the issue raised in AIR. Thus the order u/s 143(3) of the Act beyond the points of AIR is invalid in law and so the same is with the order passed u/s 263 of the Act. It is the further contention of the assessee that in the items which are not subject matter of AIR cannot subject matter of scrutiny. Such matters include salary of the assessee, loans & interest on loans, payment of LIC, Commission & brokerage income etc. It is the case of the assessee that in the assessment order passed u/s 143(3) of the Act, the AO has travelled beyond the points of the AIR on the basis of which the case of scrutiny was selected under CASS module. It is the plea of the assessee that when no addition/disallowance can be made beyond the points mentioned in AIR in the assessment proceedings then same is the case with proceedings initiated u/s 263 of the Act. 9. This tribunal’s yet another decision in ITA No.1011/Kol/2017 in Sri Hartaj Sewa Singh vs. DCIT,(IT),Circle1(1), Kolkata decided on 27.04.2018 also decides the instant issue in assessee’s favour on identical reasoning. We conclude in these facts and circumstances that the PCIT has erred in law and on facts in holding the impugned assessment as erroneous causing prejudice to the interest of Revenue on the ground which nowhere formed subject-matter of the CASS scrutiny as it is evident from the case records. We reiterate the learned co-ordinate bench’s detained reasoning hereinabove that the sec. 263 revision proceedings ought not to have been set into motion for expanding the jurisdiction of the Assessing Officer to examine the issues beyond the scope of limited scrutiny. We therefore reverse the PCIT’s action assuming sec. 263 revision jurisdiction in these facts and circumstances.” 8. In the light of the discussion and case laws (supra), we are inclined to hold that the SCN dated 18.12.2017 issued by Ld PCIT itself is bad in law and therefore it is quashed. Consequently all further actions/proceeding including the impugned order of Ld. PCIT is non-est in the eyes of law. 9. In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 27th January, 2021.
Sd/- Sd/- (J.S. Reddy) (A. T. Varkey) Accountant Member Judicial Member Dated: 27.01.2021
SB, Sr. PS
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ITA No.370/Kol/2020 Naga Dhunseri Group Ltd. A.Y. 2015-16
Copy of the order forwarded to:
Appellant- Naga Dhunseri Group Ltd., 4A Dhunseri House, Woodburn Park, Minto Park, Kolkata, West Bengal-700020
Respondent – PCIT-2, Kolkata 3. The CIT(A)- , Kolkata (sent through e-mail) 4. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)