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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU R L REDDY, HON’BLE & SHRI S. BALAKRISHNAN, HONBLE
PER S. BALAKRISHNAN, ACCOUNTANT MEMBER
This appeal is filed by the assessee against the order u/s 263 of the Income Tax Act, 1961 (herein referred to as “Act”) by the Ld. Principal Commissioner of Income Tax (PCIT), Visakhapatnam-1 vide DIN and Letter No. ITBA/COM/F/17/2020-21/1031856813(1), dated 28/03/2021 for the AY 2015-16.
Brief facts of the case are that the assessee is a Primary Agricultural Cooperative Credit Society which filed its return of income for the AY 2015-16 on 23/3/2017 declaring total income of Rs. NIL. The assessee is engaged in selling fertilizers, diesel, granting loans against mortgage of Gold ornaments, accepting deposits and granting loans for agricultural operation to its members and running the activities in the name and style of M/s. Sri Venu Gopala Primary Agricultural Cooperative Credit Society Limited. The case was selected for limited scrutiny for the reason “to examine whether the cash deposit has been made from disclosed sources”. Subsequently, notices u/s. 143(2) and 142(1) of the Act were issued and in response to the notices the AR of the assessee appeared and produced information and relevant documents. The Ld. AO after examining these documents submitted during the course of scrutiny proceedings, finalized the assessment accepting the income returned by the assessee.
3. Subsequently the Ld. Pr. CIT, Visakhapatnam-1 under the powers vested as per the provisions of section 263 of the IT Act, 1961 disallowed the deduction claimed U/s. 80P of the Act as the assessee was dealing in sale of diesel and PDS commodities which were to be treated as other items of trading and not relevant to the core activities of the assessee.
He further observed that the assessee has also not maintained separate books of accounts towards trading activity not relevant to the core areas of the assessee’s business activity. He therefore concluded that allowing the claim of deduction u/s. 80P of the Act is not in order. Accordingly, the Ld. Pr. CIT directed the Ld. AO to pass consequential order after affording an opportunity of being heard to the assessee before passing such consequential order. Aggrieved by the order of the Ld. Pr. CIT, the assessee has raised the following grounds of appeal.
“1. The order of the Ld. Pr. CIT is contrary to the facts ;and also the law applicable to the facts of the case.
2. The Ld. Pr. CIT is not justified in assuming jurisdiction U/s. 263 of the Act in as much as the assessment order dated 10/11/2017 u/s. 143(3) of the Act is neither erroneous nor prejudicial to the interests of the revenue.
The Ld. Pr. CIT in directing the Assessing Officer to examine the eligibility of the appellant to claim deduction in respect of sale of diesel and PDS commodities in as much as issue is outside the scope of limited scrutiny that was taken up by the Assessing Officer to examine the issue whether the cash deposit has been made from disclosed sources.
4. Without prejudice to the above, the Ld. Pr. CIT erred in observing that the sale of diesel and PDS commodities is not related to the activity of the appellant in providing banking and credit facilities to its members and hence not eligible for deduction u/s. 80P of the Act.
5. Any other ground that may be urged at the time of appeal hearing.”
The Ld. AR argued that the assessee was subjected only to the limited purpose of scrutiny for verification of cash deposits from disclosed sources. He also argued that the Ld. Pr. CIT has exceeded his powers and has passed an order U/s. 263(1) of the Act by disallowing the deduction u/s 80P of the Act, which is not the subject matter of limited scrutiny. The Ld. AR also submitted that the Ld. AO has passed the assessment order in accordance with the CBDT Instruction No. 20/2015, dated 29/12/2015 and the Ld. Pr. CIT has wrongly exercised the jurisdiction U/s. 263 of the Act.
On the other hand, the Ld. DR supported the order passed by the Ld. Pr. CIT and submitted that since the Ld. AO has not examined the issues pointed out by the Ld. Pr. CIT there is no infirmity in the order passed U/s. 263 of the Act.
We have heard the rival submissions and gone through the material produced before us. We find merit in the arguments of the Ld. AR that where the case was selected for a limited scrutiny, the Instruction of the CBDT No. 20/2015, dated 29/12/2015 (supra) has been rightly following by the Ld. Assessing Officer by limiting the assessment proceedings to the limited issue as generated by the CASS.
The Coordinate Bench of the Mumbai Tribunal in the case of M/s. Su- Raj Diamond Dealers Pvt Ltd vs. CIT in has quashed the order passed U/s. 263 of the Act in the case of limited scrutiny assessment, holding that the Ld. Pr. CIT under the garb of section 263 of the Act, cannot exceed his jurisdiction. The observations of the Bench are as under:
“8. We shall now in the backdrop of our aforesaid observations deliberate on the validity of the order passed by the Pr. CIT under Sec.
As observed by us hereinabove, the Pr. CIT had held the order passed by the A.O under Sec. 143(3), dated 08.12.2016 as erroneous, in so far it was prejudicial to the interest of the revenue, for the reason, that he had failed to carry out proper investigation as regards the issue of valuation of the 'closing stock' as reflected in the audited accounts of the assessee. We are of a strong conviction that now when the case of the assessee was selected for limited scrutiny for the reasons viz. (i). Large other expenses claimed in the P&L A/c; and (ii). Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to the assessment framed by the A.O on the ground that he had failed to deal with other issues which though did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment. In other words, the Pr. CIT in the garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment. In sum and substance, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the A.O while framing the assessment. 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.0 had aptly confined himself to the issues 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 did not form part of the reasons for which the case was selected for limited scrutiny under CASS. 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 08.12.2016 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.”
As well, in the case of R &H Property Developers vs. CIT ITA (supra) the “D” Bench of the Tribunal has set aside the order passed by the Ld. Pr. CIT u/s 263 of the Act, in a limited scrutiny assessment case holding that the Ld. Pr. CIT has wrongly assumed the jurisdiction u/s 263 of the Act.
Further, In the case of Nayek Paper Converters vs. ACIT the Kolkata Bench of the Tribunal has held that where the case was selected for limited scrutiny under section 143(2)(i) of the Act, the AO cannot be expected to make an enquiry of the issues pointed out by the Ld. CIT in his order u/s 263 of the Act, and directing the AO to make enquiry of the said issues was beyond the powers of the AO u/s 143(2)(i) read with section 143(3)(i) or beyond the scope of limited scrutiny.
Admittedly, the case of the assessee was selected for limited scrutiny under CASS for the reason to verify whether the cash deposit has been made from disclosed sources. However, the Ld. Pr. CIT by exercising his jurisdiction u/s. 263 of the Act, directed the Ld. AO to make a fresh assessment on the issues which were not the subject matter of the limited scrutiny.
Considering the facts and circumstances of the case, since the issue raised by the assessee in the present case has already been decided in favour of the assessee by various Benches of the Tribunal as discussed above, we find merit in the arguments of the Ld. AR that the Ld. Pr. CIT has exceeded his jurisdiction U/s. 263 of the Act by directing the Ld. AO to make a fresh assessment on the issues which were not the subject matter of the assessment framed on the basis of the limited scrutiny. However, no contrary decision was brought to our notice by the Ld. DR. Hence, respectfully following the decisions of the Tribunal in the foregoing paragraphs, we allow the appeal of the assessee and set- aside the order of the Ld. Pr. CIT passed U/s. 263 of the Act.
In the result, appeal filed by the assessee is allowed.
Pronounced in the open Court on the 07th April, 2022.