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Income Tax Appellate Tribunal, BENCH : COCHIN
Before: SMT. BEENA PILLAI & Ms. PADMAVATHY S.
O R D E R
Per Padmavathy S, Accountant Member:
This appeal is against the order of the Principal Commissioner of Income Tax, Thiruvananthapuram [PCIT], passed u/s. 263 of the Income Tax Act dated 6.3.2020 for the assessment year 2015-16.
“1. On the facts and circumstances of the case, and in law, the Principal Commissioner of Income-tax, Thiruvananthapuram ('Learned PCIT') erred in passing an order dated 6 March 2020 under section 263 of the Income-tax Act, 1961 ('Act') which was unjustified, unwarranted and bad in law.
2. On the facts and circumstances of the case, and in law, the Learned PCIT' has erred in not servicing the Order under section 263 of the Act on the registered office address or registered e- mail id.
3. On the facts and circumstances of the case, and in law, the Learned PCIT has erred in holding that the order dated 23 December 2017 passed under section 143(3) of the Act ('Order') by the Assistant Commissioner of Income-tax, Circle - 1(1), Thiruvananthapuram ('Learned AO') was erroneous and prejudicial to the interests of revenue. 4. On the facts and circumstances of the case, and in law, the Learned PCIT has erred in holding that the sum received from a Non-resident investor for subscribing to the debentures issued by the Appellant should be added to the total income of the Appellant. The Appellant craves leave to add, amend, alter, modify or withdraw any of the above grounds of appeal.”
The assessee is engaged in the business of development of property. The assessee filed the original return of income for AY 2015-16 on 30.9.2015 showing a loss of Rs.10,73,788, which was later revised on 13.7.2016 to Rs.10,61,125. The case was selected for scrutiny for the limited purpose of verifying large difference in the opening stock of current year and closing stock of previous year in P&L as per the return of income.
The AO issued notice u/s. 142(1) dated 15.4.2016 calling for specific details relating to the above issue and after verification, concluded the assessment by accepting the loss returned by the assessee. Subsequently, the PCIT initiated revisionary proceedings for the reason that certain discrepancies were noted with regard to the following:-
(i) The AO has not verified long term borrowings by way of issuing fully convertible debentures with huge premium compared to market price.
(ii) The assessee has also received FDI to the tune of Rs.50 crores through companies suspected of “layering” which need verification.
The assessee submitted before the PCIT the various details pertaining to these two issues raised by the PCIT. The assessee also contended that the case was selected for limited scrutiny and therefore cannot be held to be erroneous for non-verification of details which are outside the scope of the assessment proceedings. The PCIT did not accept the contentions of the assessee and passed an order u/s. 263 setting aside the assessment order u/s. 143(3) directing the AO to redo the assessment. Aggrieved, the assessee is in appeal before the Tribunal.
Before us, the ld. AR raised a contention that the assessment was for the limited purpose of verification of difference in the opening and closing stock. The ld. AR submitted that the assessee furnished all the relevant details before the AO who after verification concluded the assessment accepting the loss returned by the assessee. The ld. AR drew our attention to the show cause notice issued by the PCIT where the reasons were mentioned for treating the order of the AO to be erroneous and prejudicial to the interests of the revenue and submitted that the issues were not within the scope of assessment proceedings. The ld AR therefore submitted that the order of the AO cannot be held to be erroneous and prejudicial to the interests of the revenue on this count. The ld. DR supported the orders of the lower authorities.
We have heard the rival submissions and perused the material on record. We notice that in assessee’s case it was selected for scrutiny for the limited purpose of verifying the large difference in the opening and closing stock as per the P&L account filed along with the return of income. It is further noticed that the AO in page 2 of the assessment order has mentioned that the assessee has submitted the relevant details and based on verification of the documents regarding the reason for scrutiny selection, the returned income of the assessee is accepted. The discrepancies noted by the PCIT for which reason he held the order of the AO to be erroneous which is mentioned in the earlier part of this order are not subject matter of scrutiny. The revenue has not also brought anything on record to show that the limited scrutiny is converted into a complete scrutiny in assessee’s case. In view of the facts, we are of the considered view that the action of the PCIT holding the order of the AO to be erroneous for lack of enquiry on the part of the AO with regard to issues which are beyond the scope of limited scrutiny is not tenable. Accordingly, we quash the order passed u/s. 263 and allow the appeal in favour of the assessee.
In the result, the appeal by the assessee is allowed.
Pronounced in the open court on this 20th day of January, 2023.