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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 26/08/2024 Date of Order – 02/09/2024
O R D E R PER K.M. ROY, A.M.
The present appeal has been filed by the assessee challenging the impugned order dated 24/02/2021, passed under section 263 of the Income Tax Act, 1961 ("the Act") by the learned Principal Commissioner of Income Tax, Nagpur–2, Nagpur, [“learned PCIT”], for the assessment year 2016–17, revising the assessment order dated 25/11/2018, passed under section 143(3) of the Act by the Assessing Officer.
In its appeal, the assessee has raised following grounds:–
“1. Whether the revision order passed by the learned Pr. Commissioner of Income Tax by taking a recourse to section 263 is illegal and bad in law.
Sagar Fibers Pvt. Ltd. ITA no.57/Nag./2021
Whether the revision order passed by the learned Pr. Commissioner of Income tax invoking explanation 2(b) of Section 263, is illegal and bad in law as apparently the appellant has not been allowed any relief vis-à-vis any claim made in the return of income by the Assessing Officer.
Whether the revision order passed by the learned Pr. Commissioner of Income Tax, without considering appellant's submission is illegal and bad in law, specifically in the light of the requirement of the statute to give assessee an opportunity of being heard. 4. Whether the learned Pr. Commissioner of Income Tax, was justified in setting aside the entire assessment order for fresh assessment instead on the issues on which according to him additional verification should have been done. 5. Appellant craves leave to add or alter any other ground at the time of hearing.”
During the course of hearing, the Registry has pointed out that there is a delay of 64 days in filing the present appeal by the assessee. In this regard, we find that the assessee has filed an application dated nil, which was received by the Registry on 07/10/2021, with a prayer to condone the delay in filing the present appeal. We also find that the Hon’ble Supreme Court, vide judgment dated 10/01/2022, passed in M.A. no.21 of 2022, in M.A. no.665 of 2021, in Suo-Motu Writ Petition (Civil) no.3 of 2020, the limitation period for filing the appeal was extended upto 29/05/2022. In view of the above, since the present appeal has been filed within the extended time granted by the Hon’ble Supreme Court during the COVID period, there is no delay in filing the present appeal and hence we proceed to decide the matter on merits.
To adjudicate the issue before us, it is necessary to refer to the order under section 263 of the Act passed by the learned Principal Commissioner of Income Tax ("the learned PCIT"), the relevant portion of which is reproduced below:– Page | 2
Sagar Fibers Pvt. Ltd. ITA no.57/Nag./2021
“6.1. On perusal of facts On perusal of the facts it is seen that the case was selected for Limited scrutiny for the reasons that there was a substantial increase in share application money which is pending for more than a year and mismatch in sales turnover. It is seen from the balance sheet that the Long term borrowings of Rs. 2,14,84,137/- Includes Rs. 1,50,00,000/- as Loans and advances from Sara Spintex Pvt. Ltd.(UL), On verification it is noticed that M/s Sara Spintex Pvt. Ltd is an associate Company of Sagar Fibers Pvt. Ltd where the directors and major share holders are identical with both holding more than 10% of voting power. Therefore the amount of Rs. 1,50,00,000/- should have been treated as Deemed Dividend u/s 2(22)(e) in the hands of the assessee. The AO has not raised this issue at all in the assessment proceedings. As regards the loans and advances. The AO has not verified the genuineness and creditworthiness of the lender Smt Bhavana Mahalle who had given unsecured loan of Rs.15,00,000/- Further the AO has also not ascertained the genuineness of interest free amount of Rs. 9,67,620/- advanced to Shri GR Bhutani Further the AO has not investigated the genuineness and source of money claimed by the assessee as share application money which was pending for more than a even though it was one of the reasons for selection under CASS /-Further the AO has not given any finding that he has examined the books and documents impounded at the time of survey and whether the additional income declared in view of the discrepancy of Rs.25,00,000/- as additional income for A.Y. 2016-17 is included in the income shown in the return of income 6.2 In the light of facts mentioned in the foregoing paras it is to be construed that the assessment order passed u/s. 143(3) by the then A.O. is erroneous and prejudicial to the interest of revenue. The details on record clearly indicate that the said issue and discrepancies were neither verified nor inquired upon and the effect of the same has not been brought on the record and in the absence of express consideration and reflection of same in the assessment order as well as on perusal of the records, it is clear that the Assessing Officer has not properly caused the necessary enquiries and verification of the minute facts and figures and also failed to include the same in the calculation and computation for arriving at the correct figure as per the provision of the Income Tax Act 1961. From the above narrated facts it is clear that the AO has not applied his mind with reference to the relevant provisions of the I.T. Act, 1961 while framing the assessment order rendering the assessment order erroneous as well as prejudicial to the interest of revenue. In the case of the assessee assessment order was passed by the AO and the time to invoke section 263 of the Act has not elapsed. 6.3 Besides, it is also relevant to cite the provisions of Explanation 2 to Section 263 of the Income Tax Act which is as under:- 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 have been made; Page | 3
Sagar Fibers Pvt. Ltd. ITA no.57/Nag./2021
(b) The order is passed allowing any relief without inquiring into the claim; (c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119, or (d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 6.4 In this case, the assessment order has been passed allowing the relief without inquiring into the claim, which should have been made by the AO. Accordingly, it has to be considered erroneous and prejudicial to the interest of revenue.”
The learned Authorised Representative for the assessee submitted before us that the original assessment under section 143(3) in the case of the assessee was completed on 25/11/2018 wherein, the assessment proceedings were initiated as a limited scrutiny case through CASS based on specific issues namely (i) large increase in share application money pending for more than one year as compared to preceding year; and (ii) mismatch in sales turnover reported in Audit Report and Income Tax Return. The learned A.R. submitted that the Assessing Officer, after due examination of the issues under limited scrutiny, completed assessment without making any adverse findings against the assesse on these matters. The learned A.R. further submitted that the order passed by the learned PCIT under section 263 of the Act vide order dated 24/01/2021, is bad–in–law and unsustainable for the following reasons:–
Scope of limited scrutiny:– The original assessment proceedings were initiated under limited scrutiny, which was confined to the examination of specific issues mentioned above. Therefore, the scope of enquiry of the learned A.O. was legally restricted to these matters only and any other issues was outside the ambit of the assessment.
Sagar Fibers Pvt. Ltd. ITA no.57/Nag./2021
Lack of jurisdiction u/s 263:- The learned PCIT raised the following issues which according to him were not examined by the learned AO during the course of assessment proceedings:- The AO has not raised any issue in the assessment proceedings regarding treatment of Rs.1,50,00,000/- which was allegedly given as a unsecured loan to the assessee. The AO has failed to ascertain the genuineness and credit worthiness of a lender Smt. Bhavana Mahalle who had advanced Rs. 15,00,000/- to the assesse. The AO has failed to ascertain the genuineness of interest free amount of Rs.9,67,620/-advanced by the assessee to Shri. G.R. Bhutani, Yavatmal. The AO also has failed to investigate the genuineness and source of amount claimed by assessee as share application money. Though the assesse has replied to all these concerns raised in response to the notice issued u/s 263. The learned PCIT has erred in invoking jurisdiction u/s 263 by raising issues that were not part of the limited scrutiny proceedings. Hence, the learned AO's non examination of the issues mentioned by the learned PCIT cannot be a ground for revision u/s 263, as the learned AO was not empowered or mandated to examine issues bevond the scope of limited scrutiny, The learned PCIT is not justified in invoking jurisdiction u/s 263 of the Act by directing the fresh assessment when the earlier assessment as assessed u/s 143(3) of the Act has been covered under Limited Scrutiny category and the learned AO has passed the order in conformity with the CBDT instruction No. 20/2015 applicable for limited scrutiny considering all the relevant facts available on the matter. We humbly wish to plead that the PCIT cannot exercise the power of revision to look into any other issue which the assessing officer himself could not look into under the limited scrutiny proceeding. In other words the powers of the PCIT for revision under Section 263 of the Act would be limited to the issues which has been considered in the limited scrutiny assessment).
The learned A.R. relied on the following judicial precedents:–
i) Smt. Padmavathi v/s ITO, ITA no.1306/Chny./2019, order dated 02/12/2019, reported in [2019] 177 Taxlok.com (IT) 652 (ITAT– Chennai);
Sagar Fibers Pvt. Ltd. ITA no.57/Nag./2021 ii) Balvinder Kumar v/s Pr. CIT reported in [202-0] 183 Taxlok.com (IT 349 (ITAT–Delhi); iii) Shark Mines & Minerals Pvt. Ltd. v/s PCIT reported in [2022] 193 Taxlok.com (IT) 848; and iv) Rajani Venkata Naga Annavarapu Narayana v/s PCIT reported in [2021] 186 Taxlok.com (IT) 556 (ITAT Delhi).
The learned A.R. in support of the aforesaid decisions submitted that it has been consistently held that when the assessment under section 143(3) of the Act has been taken up under limited scrutiny, then while invoking powers under section 263 of the Act, the PCIT/CIT cannot look into any other issue which the assessing officer himself could not look i.e. in other words while invoking powers u/s 263 of the Act PCIT/ CIT cannot dwelled into the issue which are beyond the mandate of limited scrutiny issued by the CBDT at the time of original assessment u/s 143(3) of the Act. He further submitted that another important aspect which he wishes to highlight before us that the provisions of Explanation 2 of Section 263 of the Act was inserted with effect from 01/6/2015, to apply only in the circumstances set out in the Explanation and is a deeming provision and is prospective in nature. In support of this argument, the learned A.R. invited our attention to such provisions Explanation 2 to section 263. She submitted that vide Para 6.4 of the order passed under section 263, the learned PCIT has stated that – “In this case, the assessment order has been passed allowing the relief without enquiring into the claim, which should have been made by the AO". Accordingly, it was considered by him that it has to be considered as erroneous and prejudicial to the interest of the revenue. In this context, the learned A.R. submitted that it apparently seems that the learned PCIT has invoked provisions of Clause (b)
Sagar Fibers Pvt. Ltd. ITA no.57/Nag./2021 of Explanation 2 to section 263, however, in assessee's case, no relief has been allowed vis-vis any claim made in the return of income by the learned AO and hence on this count also the revision order passed by the learned PCIT invoking Explanation 2(b) of section 263 is bad in law. She accordingly prayed that the order passed under section 263 of the Act deserves to be quashed.
The learned Departmental Representative placed on record Instruction no.4/2016, dated 13/07/2016, regarding compulsory manual selection of cases for scrutiny during the financial year 2016–17, he pointed out that this is a case pertaining to survey under section 133A of the Act and clause (ii) of the instruction requires the same for manual selection for compulsory scrutiny.
We have given a thoughtful consideration to the arguments made by the rival parties and perused the material available on record. The learned D.R. invited our attention to the notice dated 18/09/2017, issued under section 143(2) of the Act a copy of which is placed on record at Page–5 of the paper book, which specifies that it is a case of limited scrutiny (computer decided scrutiny selection) wherein following issues were identified for examination:–
“i) Whether sales turnover / receipts has been correctly offered for tax; and ii) Whether the share application money is genuine and from disclosed sources.
Sagar Fibers Pvt. Ltd. ITA no.57/Nag./2021 9.1 For better appreciation of facts, it is pertinent to reproduce the impugned assessment order, which are as follows:– “In this case the return of income has been electronically furnished by the assessee on 22.03.2017 declaring total income of Rs 38,19,940/-. The case has been selected for scrutiny through CASS. Notice u/s 143(2) of the I.T Act 1961 dated 18.09.2017 was issued and e-served on the assessee. The notice was also served by post. Subsequently notices u/s 142(1) of the I.T. Act 1961 were issued and duly served on the assessee through e-proceedings and by post as per order sheet. 11.12.2015. The assessee is engaged in the business of manufacturing of cotton yarn. During the course of assessment proceedings books of account and vouchers, bank statements etc have been produced which have been test checked. During the course of survey proceedings as discrepancies of stock was found, the assessee offered additional income to the turn of Rs 25 lacs vide letter dated 12.12.2015. The G.P ratio has increased from 5.60 to 7.31 during the year. The confirmation of unsecured loan have been furnished. In view of the above the total income is determined as under. Income as per return of income – ` 38,19,940 Add: Difference of prior period Expenditure – ` 38,95,456 Tax Calculation:– As per calculation sheet attached.
Assessed u/s 143(3) of the I T Act. Give credit for prepaid taxes as per record. Charge interest as per law. Issue demand notice and copy of order.”
9.2 As can be seen from the above, there is no reference to the fact that the case is under limited scrutiny. Further, as rightly pointed out by the learned D.R., the issue of non–examination of share application emanates from the second issue identified for examination. There is no whisper in the order as to whether the same was investigated. This is a clear case of no enquiry, as envisaged in the revisionary order passed under section 263 by the learned PCIT. Consequently, we hold that the usurpation of jurisdiction
Sagar Fibers Pvt. Ltd. ITA no.57/Nag./2021 under section 263 of the Act by the learned PCIT is justified. Accordingly, the grounds raised by the assessee in its appeal are dismissed.
In the result, appeal filed by the assessee is dismissed. Order pronounced in the open Court on 02/09/2024
Sd/- Sd/- V. DURGA RAO K.M. ROY ACCOUNTANT MEMBER JUDICIAL MEMBER