DEVDEEP TEXTILES,JETPUR vs. THE PR. CIT-1, RAJKOT, RAJKOT

The instant appeal at the instance of the assessee is directed against the order dated 04.02.2022 passed under Section 263 of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) by the Principal Commissioner of Income Tax, Rajkot-1 (hereinafter referred to as ‘the PCIT’), arising out of the order (Devdeep Textiles vs. Pr.CIT) A. Y. 2017-18 - 2- dated 19.10.2019 passed by the Learned ACIT, DC/AC Circle-1(2), Rajkot under Section 143(3) of the Act for Assessment Year 2017-18.

We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.

The assessee firm having trading activity of printed saree and dress material , filed its return of income for A.Y. 2017-18 on 13.07.2017 declaring total income at Rs.4,91,05,510/- after a deduction of Chapter VI-A of Rs.25,500/-. The case was selected for limited scrutiny through Computer aided Scrutiny Selection ( in short ‘CASS’) on the issue of expenses incurred for earning exempt income. Notice under Section 143(2) of the Act dated 10.08.2018 was served upon the assessee followed by notice under Section 142(1) of the Act dated 13.06.2019 asking for certain details in regard to the issue involved in the matter whereupon required details were filed on 19.06.2019. Upon perusal of such details furnished by the assessee, the Ld. AO ascertained that the assessee has not earned any exempt income during the period of assessment and accepted the returned income. Subsequently, the Ld. PCIT raised the issue of excess remuneration paid of Rs.74,08,119/-. As the particular fact was not examined by the Ld. AO, the order passed by the Ld. AO dated 19.10.2019 accepting the returned income found to be erroneous and in as much as it is prejudicial to the interest of the Revenue. He, therefore, set aside the issue to the file of the Ld. AO for assessment afresh after conducting necessary verification and enquiries and upon providing opportunity of being heard to the assessee.

Ld. DR, on the other hand, failed to controvert such submissions made by the Ld. Counsel appearing for the assessee. It is a fact that the order passed under Section 143(3) of the Act in limited scrutiny was only in respect of the issue of expenses incurred for earning exempt income which was finalized by the Ld. AO upon making requisite enquiry in the matter and finally accepted the returned income filed by the assessee. The Ld. PCIT failed to observe any negative finding in regard to such issue involved in the said scrutiny proceeding. Therefore, the order passed by the Ld. AO under Section 143(3) of the Act dated 19.10.2019 cannot be said to be erroneous so far as it is prejudicial to the interest of Revenue. The power vested with the Ld. PCIT under the provision of Section 263 of the Act is not sufficient enough to reopen the scrutiny proceeding on a different issue than which was posed to the Ld. AO in limited scrutiny. We, therefore, find substance in the submissions made by the Ld. AO. We also find that the Ld. DR has failed to bring any such judicial pronouncement in support of the order passed by the Ld. PCIT under Section 263 of the Act in the present facts and circumstances of the case. We find that the power vested with Ld. PCIT in terms of the provision of Section 263 of the Act does not permit him to hold the order passed under Section 143(3) of the Ld. AO erroneous and prejudicial to the (Devdeep Textiles vs. Pr.CIT) A. Y. 2017-18 - 4- interest of Revenue in the instant case. In that view of the matter, we do not hesitate to hold that the order passed by the Ld. PCIT under Section 263 of the Act setting aside the assessment framed under Section 143(3) of the Act as erroneous and prejudicial to the interest of the Revenue is without jurisdiction, bad in law and void ab initio. The same is, thus, quashed.

In the result, assessee’s appeal is allowed.