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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (in short “Ld. PCIT”), Ahmedabad vide order dated 19.03.2020 passed for Assessment Year 2015-16.
The Assessee has taken the following grounds of appeal:-
“(1) That on facts, and in law, the learned CIT has grievously erred in assuming jurisdiction u/s.263 of the Act, as the original assessment order u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of Revenue. (2) That on facts, and in law, the proceedings u/s.263 are void as the original assessment order was passed u/s.143(3) of the Act after due inquiry and application of mind / and is not erroneous and prejudicial to the interest of the Revenue. (3) That on fact, and in law, the learned CIT has grievously erred in setting aside the assessment order to make proper verification and frame the assessment order afresh, and without dealing with the reply of the appellant on merits and after making incorrect observations in the order under appeal. (4) The appellant craves leave to add, alter, amend any ground of appeal.”
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The brief facts of the case are that the assessee is engaged in the business of doing civil construction works of Government construction. The assessee filed return of income declaring total income at Rs. 1,33,15,100/- for the impugned year under consideration. The assessment under Section 143(3) of the Act was finalized on 08.12.2017 by accepting the returned income as assessed income. Subsequently, the PCIT observed that the assessee had debited an amount of Rs. 82,61,921/- under the head interest and financial charges. The PCIT further observed that the assessee has given loans and advances to the tune of Rs. 4,14,35,978/-, on which the assessee has not charged any interest. Accordingly, the PCIT held that the assessee has diverted interest bearing funds for the purpose of giving interest free loans and advances. Accordingly, the PCIT was of the view that since the Assessing Officer had not examined this issue during the course of assessment proceedings, the order passed under Section 143(3) of the Act was erroneous and prejudicial to the interest of the Revenue. Accordingly, the PCIT set-aside the assessment order and directed the Assessing Officer to pass a fresh order after properly verifying the facts in respect of interest free advances.
The assessee is in appeal before against the aforesaid order passed by Ld. PCIT under Section 263 of the Act.
Before us, at the outset, the Counsel for the assessee submitted that the assessment was initiated under Section 143(3) of the Act as “limited scrutiny assessment”, for examining certain issues and the aforesaid issue of disallowance of interest under Section 36(1)(iii) of the Act was not one of the issues for consideration / examination under the scheme of limited scrutiny assessment. Accordingly, since the Assessing Officer, under the scope of limited scrutiny assessment could not have possibly examined this aspect in the
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143(3) proceedings, the assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue on account of non-examination / disallowance of interest under Section 36(1)(iii) of the Act. In response, Ld. D.R. placed reliance on the observations made by the PCIT in the 263 order.
We have heard the rival contentions and perused the material on record. It would be useful to reproduce the Office Note of Department, which lists down the issues which were required to be examined during the course of assessment proceedings:-
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On going through the several issues for which the assessment proceedings were initiated, we observe that the issue of proportionate disallowance of interest under Section 30(1)(iii) of the Act was clearly not part of the limited scrutiny assessment. In the case of Sahita Construction Company Vs. Pr.CIT (ITAT Indore) in ITA No.119/Ind/2021, the Tribunal held that when the assessment is taken up for limited scrutiny, Ld. Pr. CIT cannot hold the assessment order as erroneous and prejudicial to the interest of revenue in respect of issue which was not a reason for selection of the case for limited scrutiny. The ITAT observed that perusal of records shows that assessee’s case was selected for limited scrutiny through CASS for verification of “contract receipts/fees mismatch, sales turnover mismatch and tax credit mismatch”. The issue of payment to contractors and tax deducted thereon was never a part of reasons for the limited Therefore, there was no occasion for the Ld. AO to examine this issue for payment to contractors. It is well settled that in case of limited scrutiny matter Ld. AO has to work within the parameters observed by the Central Board of Direct Taxes; instruction dated 29.12.2015 and various other circular issued in this behalf. Since the assessee’s case was selected for limited scrutiny on certain issues and Ld. AO has examined these issues and framed the assessments and the issue of examination of payment to contractors was not a part of the limited scrutiny reasons, in our considered view, Ld. Pr. CIT erred in assuming jurisdiction under Section 263 of the Act and also erred in holding that assessment order is erroneous and prejudicial to the interest of revenue. In the case of Shark Mines and Minerals (P.) Ltd. 151 taxmann.com 71 (Orissa), the High Court held that it is not open to Commissioner while exercising power under Section 263 to find fault with assessment order on ground of it’s being erroneous on an issue not covered by 'limited scrutiny' when Assessing Officer could not have possibly examined
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such issue. In the case of PCIT v. Rakesh Kumar 152 taxmann.com 398 (Punjab & Haryana), the High Court held that where Principal Commissioner invoked revisionary proceedings on the ground that assessee made purchases in cash in contravention to Section 40A(3), since assessee's case was selected for limited scrutiny for verification of cash deposited in bank account, AO was not required to make enquiry on the issue with respect to cash purchase and thus, order of AO could not be said to erroneous. In the case of Naga Dhunseri Group Ltd 146 taxmann.com 424 (Calcutta), the High Court held that where Principal Commissioner invoked revisionary proceedings on grounds that disallowance under Section 14A in respect of exempt income was not considered by AO even when assessee’s case was selected for limited scrutiny to verify introduction of capital in NBFC/investment companies which was linked to such disallowance, since issue of disallowance under Section 14A was not an issue selected for limited scrutiny, Principal Commissioner could not make a roving enquiry in guise of a limited scrutiny and thus, impugned revisionary order was to be quashed. In the case of Balvinder Kumar v. Principal CIT [2021] 125 taxmann.com 83 (Delhi - Trib.), the ITAT held that in case of limited scrutiny, Assessing Officer could not go beyond reason for which matter was selected for limited scrutiny thus, it would not be open to Principal Commissioner to pass revisionary order under Section 263 on other aspects and remit matter to Assessing Officer for fresh assessment. On the aspect, the Pune Tribunal in the case of Deccan Paper Mills Co. Ltd. v. CIT [IT Appeal no. 1013 & 1635 (Pun.) of 2015, made the following observations:
“40. Now, coming to the aspect of book profits which was considered by the Commissioner and the order of the Assessing Officer was held to be erroneous and prejudicial to the interest of revenue. In this regard, it may be pointed out that the case of assessee was picked up for scrutiny under CASS for the limited purpose of
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verifying the Chapter VI-A deduction. Once the case is picked up for specific purpose under CASS, then it is outside the purview of the Assessing Officer to look into any other aspect other than the aspect for which it is picked up. Hence, the Assessing Officer has not formed any opinion in respect of computation of book profits in the hands of assessee. Once, no such opinion has been formed by the Assessing Officer, the Commissioner has erred in holding the order of the Assessing Officer to be erroneous and prejudicial to the interest of revenue in this regard. Accordingly, we reverse the findings of the Commissioner. Accordingly, we hold that the order passed by the Commissioner under section 263 of the Act is invalid and the same is quashed for both the assessment years.”
In the case of R&H Property Developer (P.) Ltd. v. Pr. CIT [IT Appeal No. 1906 (Mum.) of 2019, dated 30.07.2019, the Mumbai ITAT made the following observations in this regard: “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 issue 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 were clearly beyond the realm of the reason for which the case of the assessee was selected for limited scrutiny as per the AIR information. We thus not being able to concur with the view taken by the Pr. CIT that the order passed by the A.O under sec. 143(3), dated 10-10-2016 is erroneous, therefore, set aside his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT under sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the Id. A. R on the merits of the case, which thus are left open.”
Similar view was taken by the ITAT the following decisions as well:
(i) Aakash Ganga Promoters & Developers v. Pr. CIT [IT Appeal No. 164 (CTK) of 2019, dated 18-12-2019]
(ii) Sonali Hemant Bhavsar v. Pr. CIT [IT Appeal No. 742 (Mum.) of 2019, dated 17-5-2019]
(iii) Agrawal Promoters vs. Pr. CIT in ITANo.1708/CHD/2017 (I.T.A.T., Chandigarh)
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(iv) Mrs. Sonali Bhavsar vs. PCIT ITANo.742/Mum/2019 (I.T.A.T., Mumbai)
(v) Rakesh Kumar vs. CIT ITANo.6187/Del/2015 (I.T.A.T., Delhi)
(vi) Baby Memorial Hospital vs. ACIT ITANo.420/Coch/2019 (I.T.A.T., Cochin)
(vii) Sanjeev Kr. Khemka v. Pr.CIT [1361/Kol/2016 - order dated 02.06.2017] ITAT Kolkata Benches.
We, therefore, respectfully following the judicial precedents cited above hold that Ld. Pr. CIT erred in assuming revisionary powers under Section 263 of the Act in respect of issues not forming part of scope of immediate scrutiny assessment. The impugned order of Ld. Pr. CIT is quashed.
Since, we have decided the case on the issue of jurisdiction to initiate proceedings under Section263 of the Act, we are not separately discussing the merits of the case. Thus, in our considered view assessment order passed under Section 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue and the same is restored. All the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 10/04/2024
Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 10/04/2024 TANMAY, Sr. PS TRUE COPY
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आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file.
आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 03.04.2024 2. Date on which the typed draft is placed before the Dictating Member 04.04.2024 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 05.04.2024 5. Date on which the fair order is placed before the Dictating Member for pronouncement .04.2024 6. Date on which the fair order comes back to the Sr.P.S./P.S 10.04.2024 7. Date on which the file goes to the Bench Clerk 10.04.2024 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………………………………