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Income Tax Appellate Tribunal, “G” Bench, Mumbai
Before: Shri S. Rifaur Rahman & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax-11, Mumbai under Sec.263 of the Income Tax Act, 1961 (for short „Act‟), dated 15.023.2019. The assessee has assailed the impugned order on the following grounds of appeal : “1. On the facts and under the circumstances of the case and in law, the Learned Commissioner of Income-tax, erred in setting aside the order of the AO holding that the order passed by the AO is erroneous and prejudicial to the interests of the revenue which is bad in law.
2. On the facts and under the circumstances of the case and in law, the Learned Commissioner of Income Tax, erred in revisiting the Limited Scrutiny order of the AO without appreciating that AO was not required to look into matters other than that forming part of limited scrutiny as decided by CBDT Instruction 7/2014, dated 26.09.2014 and further clarification on its scope vide instruction no. 20/2015, dated 29th December, 2015. Hence revision u/s 263 on the ground that AO has not looked into other grounds is bad in law as such areas were not required to be verified/inquired by the AO.
M/s Su-Raj Diamond Dealers Pvt. Ltd. Vs. Pr. CIT-11, Mumbai A.Y 2014-15 2 Without prejudice to the above, 3. On the facts and under the circumstances of the case and in law, the Commissioner of Income-tax, erred by doubting that there was stock lying with the appellant of Rs. 7.92 crores without appreciating that the entire stock of Rs. 14.78 crores was sold at Rs.6.86 crores incurring loss of Rs. 7.92 crores. Hence the hypothecated calculation made by the A.O from the amounts derived from profit and loss account and 3CD filed is mere a guess work. Revising order based on mere hypothetical inference drawn or guess work is bas in law.
The appellant craves for leave to add or alter and/or withdraw the above ground of appeal
, if necessary. “
2. Briefly stated, the assessee company which is engaged in the business of manufacturing, trading, import & export of diamonds, jewellery, gold & silver had e-filed its return of income for A.Y. 2014-15 on 29.11.2014, declaring its total loss under the normal provisions of the Act at (-) Rs. 6,44,44,917/- and „book profit‟ under Sec. 115JB, at a loss of (-) Rs. 6,74,18,402/-. Subsequently, the case of the assessee was selected for “Limited scrutiny through CASS” and notice under Sec. 143(2) was served upon the assessee. As is discernible from the order of the Pr. CIT, the case of the assessee was selected for „Limited scrutiny‟ under 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. On the basis of the order passed under Sec. 143(3), dated 08.12.2016 the income of the assessee was assessed by the A.O under the normal provisions at a loss of (-) Rs. 6,31,90,753/-, while for the „book profit‟ under Sec. 115JB was worked out at a loss of (-) Rs. 6,65,17,726/-.
3. In exercise of the powers vested with him under Sec. 263 of the Act, the Pr. CIT called for the records of the assessee. After perusing the financial statements of the assesssee company, it was observed by him that the assessee during the year under consideration had out of its „manufactured goods‟ of Rs. 14,78,69,007/- sold goods worth Rs. 6,86,49,334. Observing, that the „closing stock‟ of the finished goods with the assessee company should have been reflected at Rs. 7,92,19,673/- [Rs. 14,78,69,007/- (-) Rs. 6,86,49,334/-] as against that shown by it at Rs. Nil, the Pr. CIT held a conviction that the A.O had prima facie failed to carry out a proper investigation. On the basis of his conviction that the failure on the part of the A.O to carry of a proper investigation in the course of the assessment proceedings had rendered the assessment framed by him under Sec. 143(3), dated 08.12.206 as erroneous, insofar it was prejudicial to the interest of the revenue, M/s Su-Raj Diamond Dealers Pvt. Ltd. Vs. Pr. CIT-11, Mumbai A.Y 2014-15 3 the Pr. CIT called upon the assessee to explain as to why the same may not be revised under Sec. 263 of the Act. In reply, the assessee tried to impress upon the Pr. CIT that the „closing stock‟ was rightly reflected in its „books of accounts‟. Also, it was submitted by the assessee, that the A.O in the course of the assessment proceedings had made relevant enquiries, and only after necessary deliberations framed the assessment. However, the Pr. CIT did not find favour with the contentions advanced by the assessee. It was observed by the Pr. CIT, that as the case of the assessee was selected for „Limited scrutiny‟ under 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, therefore, the A.O had no occasion to carry out a comprehensive scrutiny of the issues relating to „closing stock‟ in the course of the assessment proceedings. Accordingly, the Pr. CIT holding a view that the assessment order passed by the A.O under Sec. 143(3), dated 08.12.2016 was erroneous, insofar it was prejudicial to the interest of the revenue, therefore, „set aside‟ his order, with a direction to examine the issue relating to „closing stock‟ after affording an opportunity of being heard to the assessee.
4. The assessee being aggrieved with the order passed by the Pr. CIT under Sec. 263, dated 15.02.2019, has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal submitted, that as the A.O after due application of mind had framed the assessment, therefore, the Pr. CIT had exceeded his jurisdiction and in the garb of the revisional powers vested with him under Sec. 263 had actually sought to review the order passed by the A.O. Apart therefrom, the ld. A.R also assailed the validity of the order passed by the Pr. CIT under Sec. 263 of the Act. It was submitted by the ld. A.R, that as the case of the assessee was selected for limited scrutiny under 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, therefore, the A.O was divested of his jurisdiction to advert to the other aspects except for those on the basis of which the case was taken up for scrutiny assessment. It was submitted by the ld. A.R, that the fact that the case of the assessee was selected for limited scrutiny under CASS for the aforesaid 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 M/s Su-Raj Diamond Dealers Pvt. Ltd. Vs. Pr. CIT-11, Mumbai A.Y 2014-15 4 shares, was an admitted fact and was categorically admitted by the Pr. CIT in his order passed under Sec. 263 of the Act. In order to drive home his aforesaid contention, the ld. A.R had drawn our attention to the order passed by the Pr. CIT under Sec. 263, wherein the aforesaid factual position was clearly discernible. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R, that in case of a limited scrutiny assessment the A.O is prohibited from adverting to the issues except for those on the basis of which the case had been selected for being scrutinized. In order to fortify his aforesaid claim the ld. A.R had relied on the orders of the coordinate benches of the Tribunal viz. (i). Mrs. Sonali Hemant Bhavsar Vs. Pr. CIT-29 [ITA No. 742/Mum/2019, dated 17.05.2019 (Mumbai)]; (ii) Sanjeev Kr. Khemka Vs. Pr. CIT-15, Kolkata [ITA No. 1361/Kol/2016 (Kolkata)]; and (iii). Gift Land Handicrafts Vs. CIT [(2007) 108 TTJ 312 (Delhi)]. It was thus the contention of the ld. A.R, that now when in the backdrop of the limited scope of scrutiny, it was not permissible for the A.O to have adverted to and therein adjudicated on the aspect of „closing stock‟, as the same admittedly fell beyond the realm of the reasons for which the case of the assessee was taken up for limited scrutiny, therefore, the Pr. CIT in the garb of powers vested with him under Sec. 263 could not have stretched the scope of the jurisdiction vested with the A.O. In sum and substance, it was the claim of the ld. A.R that the Pr. CIT had gravely erred in law in holding the assessment order passed by the A.O under Sec. 143(3), dated 08.12.2016 as erroneous, for the reason, that the latter had erred in not traversing beyond the limited scope of his jurisdiction and adjudicating those issues which fell beyond the realm of the „limited reasons‟ for which its case was selected for limited scrutiny assessment under CASS.
Per contra, the ld. Departmental Representative (for short „D.R‟) objected to the contentions advanced by the counsel for the assessee. It was submitted by the ld. D.R, that the Pr. CIT had rightly exercised his jurisdiction under Sec. 263 and directed the A.O to adjudicate the issue as regards valuation of „closing stock‟ after affording a reasonable opportunity of being heard to the assessee. In order to drive home his claim that the Pr. CIT had not exceeded his jurisdiction, the ld. D.R had drawn support from “Explanation 2” of Sec. 263 of the Act. In the backdrop of his aforesaid contentions, it was submitted by the ld. D.R that as the appeal of the assessee was M/s Su-Raj Diamond Dealers Pvt. Ltd. Vs. Pr. CIT-11, Mumbai A.Y 2014-15 5 bereft and devoid of any force, therefore, the same did not merit acceptance and was liable to be dismissed.
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:
M/s Su-Raj Diamond Dealers Pvt. Ltd. Vs. Pr. CIT-11, Mumbai A.Y 2014-15 6 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}, M/s Su-Raj Diamond Dealers Pvt. Ltd. Vs. Pr. CIT-11, Mumbai A.Y 2014-15 7 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.
5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance.
6. Hindi version to follow (F.No 225/269/2015-ITA.II) (Ankita Pandey) Under Secretary to the Government of India” Now, the case of the assessee before us was selected for limited scrutiny through CASS, for the reasons, that there were 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.. Accordingly, it can safely be concluded that the assessment framed by the A.O fell within the realm of the limited purpose for which its case was selected for scrutiny assessment viz. 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.
As observed by us hereinabove, as per the CBDT instruction No. 20/2015, dated 29.12.2015, in a case which had been selected for scrutiny assessment on the basis of Computer Aided Scrutiny Selection ('CASS'), the scrutinising of such case would be confined only to the specific reasons/issues for which the case has been picked up for scrutiny. However, the case may thereafter be taken up for complete scrutiny with the approval of the administrative Principal commissioner of income-tax/Commissioner of income-tax, where it is felt that apart from the CASS information there is potential escapement of income of more than Rs.10,00,000/-. Accordingly, the CBDT had in clear and unequivocal terms clarified that for broadening the scope of a case selected for limited scrutiny as per CASS information the approval of the administrative Principal commissioner of income-tax/Commissioner of income-tax would be required. In the case before us, it is an admitted fact that the case of the assessee was selected for “limited scrutiny” under CASS M/s Su-Raj Diamond Dealers Pvt. Ltd. Vs. Pr. CIT-11, Mumbai A.Y 2014-15 8 ,for the 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. In fact, it is neither a fact nor the case of the revenue that the said case was thereafter taken up for complete scrutiny with the approval of the administrative commissioner. In the backdrop of the aforesaid facts, we are of the considered view that as the scope of the assessment framed by the A.O under Sec. 143(3), dated 08.12.2016 was circumscribed by the limited reasons for which the case of the assessee was selected for scrutiny assessment, therefore, he was absolutely divested of his powers from traversing on issues which did not fall within the realm of the said limited purpose for which the said case was selected for being scrutinised.
We shall now in the backdrop of our aforesaid observations deliberate on the validity of the order passed by the Pr. CIT under Sec.
As observed by us hereinabove, the Pr. CIT had held the order passed by the A.O under Sec. 143(3), dated 08.12.2016 as erroneous, in so far it was prejudicial to the interest of the revenue, for the reason, that he had failed to carry out proper investigation as regards the issue of valuation of the „closing stock‟ as reflected in the audited accounts of the assessee. We are of a strong conviction that now when the case of the assessee was selected for limited scrutiny for the 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, therefore, no infirmity could be attributed to the assessment framed by the A.O on the ground that he had failed to deal with other issues which though did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment. In other words, the Pr. CIT in the garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment. In sum and substance, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the A.O while framing the assessment. As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A.O had aptly confined himself to the issues for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for the reason, that he had failed to dwell upon certain other issues which did not form part of the reasons for