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Assessee by Shri Hiren M. Diwan, C.A. & Miss. Pinaz Bhagat, C.A. Department by Shri Ashok B. Koli, CIT-DR Date of Institution of Appeal 10/04/2023 Date of hearing 27/07/2023 Date of pronouncement 31/07/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned Principal Commissioner of Income Tax, Surat-1, Surat [in short the ld. Pr.CIT] dated 21/03/2023 passed under Section 263 of the Income Tax Act, 1961 (in short, the Act) for the Assessment Year (AY) 2018-19. The assessee has raised following grounds of appeal: “1. The ld. P.C.I.T has erred in law and on facts in assuming jurisdiction u/s 263 of the Act.
2. The ld. P.C.I.T has erred in law and on facts in setting aside the original assessment order dated 03/02/2021 made by the ld. A.O. and directing him to frame the fresh assessment order.
3. The ld. P.C.I.T. has erred in law and on facts in directing the ld. A.O. to consider while framing the fresh assessment order the issue of deemed rent income from house properties owned by the appellant.
Mitsu Praful Doshi Vs Pr.CIT 4. The appellant craves leave to add, amend, alter, modify, substitute, delete, change or vary all or any of the ground of grounds of appeal
.”
2. Brief facts of the case are that the assessee is a Doctor and engaged in medical profession/practice, filed her return of income for A.Y. 2018-19 on 22/02/2019 declaring income of Rs. 3.27 crores. The case was selected for limited scrutiny to examine high income reported in return of income and about details of asset and liabilities. The Assessing Officer after examining certain aspect of asset and liability accepted the return income and passed assessment under Section 143(3) on 03/02/2021. The ld. Pr.CIT revised the assessment order dated 03/02/2021 by taking a view that the assessment order passed by the Assessing Officer is erroneous and in so far as prejudicial to the interest of revenue and directed the Assessing Officer to pass fresh assessment order after taking into consideration the issues as may have already been considered together with the issue discussed. Before revising the assessment order, the ld. Pr.CIT issued show cause notice under Section 263 of the Act.
3. In the show cause notice, the ld. Pr.CIT noted that in the fixed asset column, the assessee has shown nine immovable properties aggregating of Rs. 5.33 crores but the assessee has offered rental income of Rs. 43,400/- after claiming standard deduction under Section 24(a) of the Act. Annual letting value (ALV) is required to be determined in accordance with Section 23 of the Act by taking into account, only rent 2 Mitsu Praful Doshi Vs Pr.CIT received, municipal rent, fair market and standard rent. The ld. Pr.CIT was of the view that in absence of any other data fair rent may be determined by taking 7% of ALV of assets/flats shown in the balance sheet and by deducting 30% of standard rent. The ld. Pr.CIT worked out the short levy of income under the head “income from house property” of Rs. 25,70,679/-. The ld. Pr.CIT further noted that the assessee has not offered any income from house property, except of Rs. 43,400/-. During assessment, the Assessing Officer has not raised any query in respect of income from house property for remaining properties. By referring such fact, the ld. Pr.CIT issued show cause notice under Section 263 of the Act that the assessment order passed by the Assessing Officer is erroneous and in so far as prejudicial to the interest of revenue vide notice dated 24/02/2023.
The assessee filed her reply vide reply dated 16/03/2023. In the reply, the assessee explained about each and every flats/properties mentioned in the list of assets. The contents of reply of assessee is recorded in para 3.1 of order of ld. Pr.CIT. The ld. Pr.CIT recorded that on verification of assessment order, he found that the Assessing Officer has not made any inquiry or verification regarding the deemed income with respect to properties of assessee owned during the year under consideration nor the assessee offered income from house property, except of one property, though the assessee is owner of nine residential properties.
Mitsu Praful Doshi Vs Pr.CIT The ld. Pr.CIT by referring certain decisions, held that the assessment order passed by Assessing Officer without making enquiries and verification, which should have been made in this case, the assessment order is erroneous in so far as prejudicial to the interest of revenue and directed the Assessing Officer to pass assessment order afresh after granting reasonable opportunity to the assessee. Aggrieved by the order of ld. Pr.CIT, the assessee has filed present appeal before this Tribunal.
We have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Commissioner of Income Tax-Departmental Representative (ld. CIT-DR) for the revenue. We have also perused the orders of the lower authorities carefully. The ld. AR of the assessee submits that the assessee filed return of income declaring income of Rs. 3.27 crores. The case was selected for limited scrutiny, copy of notice under Section 143(2) of the Act is filed on record. The ld. AR of the assessee submits that the case of assessee was selected for limited scrutiny “details of assets and liabilities”. The Assessing Officer during the assessment, issued show cause notice dated 16/12/2020 for seeking details with regard to schedule of asset and liabilities in return of income filed alongwith computation of income, books of account, audit report, comparison of balance sheet and profit and loss account for the year under consideration vis a vis previous year, reasons of reporting NIL figure in Mitsu Praful Doshi Vs Pr.CIT schedule of assets and liabilities alongwith copy of schedule of assets and liabilities. The assessee filed her reply vide reply dated 15/01/2021, in furnishing complete details as desired by the Assessing Officer. The ld. AR further submits that in respect of specific query of Assessing Officer with regard to schedule of assets and liabilities, the assessee furnished all details /entries of assets and liabilities as held by the assessee in part A-BS of Form ITR-3 and explained that no other assets and liabilities are left to be specified in schedule of assets and liabilities. The assessee also furnished complete details of ITR for A.Y. 2018-19. The assessee also submitted that all assets and liabilities are disclosed by her in the balance sheet and is not required to fulfill assets and liabilities statement in ITR. The ld. AR of the assesse invited our attention on the list of fixed assets as shown in the balance sheet, relevant part of which is filed as per page No. 17 of paper book and would submit that all nine properties held by assessee are duly shown. The ld. AR of the assessee further submits that as required earlier for the purpose of wealth tax, the assessee has shown assets and liabilities other than those included in the part A-BS of return of firm wherein the assessee is a partner. Such details were required for the purpose of wealth tax. The ld. AR of the assessee submits that now wealth tax is repealed.
The ld. AR of the assessee further submits that in reply to the show cause notice of ld. Pr.CIT, the assessee explained about the each and Mitsu Praful Doshi Vs Pr.CIT every property, such details are recorded by ld. Pr.CIT in his order, however, no adverse comment or independent finding before revising the assessment order is given. The ld. AR of the assessee submits that the flat at Rajdeep is rented and rent realized from such property is offered to income. So far as flat No. 10 in Block No. M-2, EWS Piplod and flat No. 1, Block No. B-1, EWS Piplod are concerned, both flats are used by the Nurses of the partnership firm (Hospital) for professional purposes, where the assessee is a partner and no rental income is earned. Fourth property i.e. 13, Adarsh Society is self-occupied property of her husband. Fifth property i.e. 13A, Adarsh Society is open plot with garage and used as a parking place. Sixth property i.e. 403, Chancellor Flat is used for professional purpose of partnership firm wherein the assessee is a partner and the property used to store stock of material, stationary, medical consumables etc. Property No. 7 is mentioned at Kailashnagar is not owned by assessee and only advance was given. 8th property at Ornate house is also used for professional purpose by partnership firm-hospital, wherein the assessee is a partner and ninth property at Flat No. H-201, Pragati Nagar is self-occupied property. The ld. AR of the assessee submits that none of the properties other than Rajdeep flat is let out by the assessee.
The ld. AR for the assessee reiterated that the case of assessee was selected for limited scrutiny. The Assessing Officer made sufficient Mitsu Praful Doshi Vs Pr.CIT enquiry on the issue on which the case was selected for scrutiny, thus the Assessing officer has no jurisdiction to examine any other issue or income qua such properties, thus the assessment order passed by the Assessing Officer is not erroneous. Scope of limited scrutiny is limited to the issue of scrutiny and not to make any full-fledged scrutiny without taking permission from higher authorities. The ld. AR of the assessee submits that on similar set of facts, combination of this Bench in Vijay Haribhai Patel Vs PCIT in dated 18/10/2022 quashed the order passed under Section 263 of the Act.
The ld. AR of the assessee further submits that despite giving complete details and explanation about various properties as recorded by ld. Pr.CIT, the ld. Pr.CIT instead of giving his finding, directed the Assessing Officer to pass fresh assessment order. The ld. Pr.CIT has not dealt with explanation offered by assessee in the course of proceedings under Section 263 of the Act. Section 263 does not empower Ld PCIT to take action on such fact to arrive at a conclusion that the assessment order is erroneous and prejudicial to the interest of revenue, unless he deal with the plea of the assessee. To support such submission, the ld. AR of the assessee submits that on such similar submission, the combination of this Bench in Nilkanth Stone Industries Vs Pr.CIT (2021) 128 taxmann.com 416 (Surat-Trib) quashed the similar order under Section 263 of the Act.
Mitsu Praful Doshi Vs Pr.CIT 9. On the other hand, the ld. CIT-DR for the revenue after submits that Section 263 of the Act prescribed only twin condition that assessment order passed by Assessing Officer is erroneous and prejudicial to the interest of revenue. There is no restriction on the power of Pr.CIT that case was selected for limited scrutiny or not, if the assessment order is passed by the Assessing Officer is erroneous and passed without verification of required facts and details enquired on the issue which ought to have been enquired, the assessment order is certainly erroneous. And not bringing various property to tax net the order passed by assessing officer is prejudicial to the interest of revenue. On the submission of ld. AR that flat No. 1 & 10 in Piplod was given for residential purpose of nurses, the ld CIT-DR for revenue submits that assessee may be realising sum but such issue is examined by Assessing Officer whether such flats were given as a condition of special lease and on rent, has not been enquired. The Assessing Officer has not examined the other property whether any rent is received as on account of contract with partnership firm, where the assessee is a partner. The ld. CIT-DR for the revenue submits that certainly the order passed by Assessing Officer is erroneous and it cannot be said that case was selected for limited scrutiny cannot be revised by exercising jurisdiction under Section 263 of the Act when twin condition of Section 263 are fulfilled.
Mitsu Praful Doshi Vs Pr.CIT 10. In the short rejoinder submission, the ld. AR of the assessee submits that on exactly same issue of limited scrutiny assessment, this combination has taken a view that when case was selected for limited scrutiny and the same was not converted from limited scrutiny to full- fledged scrutiny, and order under section 263 was quashed.
We have considered the submissions of both the parties and perused the order of ld. Pr.CIT carefully. We have also deliberated on case laws relied by the ld. AR of the assessee. We find that vide notice dated 22/09/2019, the issue under Section 143(2), the case of assessee was selected for limited scrutiny “details of assets and liabilities”. We further find that during the assessment, the Assessing Officer issued detailed show cause notice under section 142(1) dated 16.11.2020 for examining the issue of assets and liabilities and sought necessary details about reasons for reporting NIL figure in schedule of assets and liabilities. The assessee vide her reply dated 15/01/2021 furnished complete details, copy of such reply is placed on record at page No. 9 to 11 of paper book. Such raising of enquiry and reply furnished by assesse is not disputed by the ld. CIT-DR. We find that the Assessing Officer accepted the plea of assessee and passed the assessment order without any detail discussion, while accepting returned income of Rs. 3.27 Crore.
We further find that the ld. Pr.CIT in his show cause notice referred nine properties owned by assessee. In response to show cause notice, the Mitsu Praful Doshi Vs Pr.CIT assessee has explained about each and every property and user thereof or explaining that out of such property, plot No. 13A Adarsh Nagar is open plot and Kailashnagar property is still now owned by assessee and rest of the properties were either self-occupied or under the use of partnership firm wherein the assessee is a partner being Doctor in the hospital. The ld. AR of the assessee has also furnished necessary evidence with regard to each and every property as well as confirmation by the nurses who is occupying the flat No. 10, Piplod. We further find that despite giving all such details, the ld. Pr.CIT instead of giving his independent finding, directed the Assessing Officer to pass fresh assessment order.
We find that on similar submission, this combination of this Bench in Nilkanth Stone Industries Vs Pr.CIT (supra) by relying upon the decision of Hon'ble Delhi High Court in CIT Vs Vikas Polymers 341 ITR 537 (Delhi) held that it is a prerequisite that Pr.CIT must giving his reason to justify the exercise of suo moto revision. Mere reiteration that order of Assessing Officer is erroneous and in so far as prejudicial to the interest of revenue will not suffice. The exercise of power being quasi-judicial in nature must be of such as to show that the enhancement or modification of assessment or cancellation of the assessment or directions issued for fresh assessment was called for and must irresistibly lead to the conclusion that the assessment order is not only erroneous but Mitsu Praful Doshi Vs Pr.CIT prejudicial to the interest of revenue. Further this combination of Bench in Vijay Haribhai Patel Vs PCIT (supra) in a case of limited scrutiny also rejected the contention of revenue that ld. Pr.CIT has unlimited power under Section 263 to revise the assessment order passed by the Assessing Officer in case of limited scrutiny in absence of permission for full-fledged scrutiny.
We find that the Hon'ble Orissa High Court in a recent decision in PCIT Vs Sharkmines & Minerals (P) Ltd. (2023) 151 taxmann.com 71 (Orissa) held that it is not open to Commissioner while exercising power under Section 263 to find fault with assessment order on the ground of its being erroneous on an issue not covered by “limited scrutiny” when Assessing Officer could not have possible examined such issue. The Hon'ble High Court also referred the Circular of CBDT No. 7/2014 dated 26/09/2014 and 20/2015 dated 19/12/2015 that in case if the Assessing Officer has to go beyond scope of issue for which “limited scrutiny” has to be undertaken by him, he has to seek prior permission of the superior officer. Thus, we find that the submission of ld. CIT-DR for revenue is against the instruction of CBDT.
In view of the aforesaid factual and legal discussion, we find that when the case of assessee was selected for limited scrutiny and the Assessing Officer made complete investigation about the issue of limited scrutiny and accepted the return of income, the assessment order cannot be Mitsu Praful Doshi Vs Pr.CIT branded as erroneous. Thus, the twin condition of Section 263 of the Act is not fulfilled in the present condition. Thus, the order passed by the ld. Pr.CIT dated 21/03/2023 is quashed. In the result, the grounds of appeal
raised by the assessee are allowed.
16. In the result, this appeal of assessee is allowed. Order pronounced on 31/07/2023 in open court.