TMI Blog2022 (8) TMI 1334X X X X Extracts X X X X X X X X Extracts X X X X ..... t of assessment. It is in such cases, the AO is to take permission from the CCIT/Pr. CIT to expand the scope from limited scrutiny to complete scrutiny. Once such permission is granted and complete scrutiny is permitted, everything is opened to the AO to examine. Thus, in order to convert into a completed from limited scrutiny, connected issues should come up from limited scrutiny to give powers of the AO is to expand and get the permission for the complete scrutiny. In no other cases, the AO can go beyond what is directed in the limited scrutiny. Limited scrutiny was in relation to excess liability shown in respect of trade payable and second issue was disallowance u/s 40A(3) - The show cause notice in respect of 263 shows that the issue was in respect of adoption of FIFO method of valuation of its closing stock. This issue is nowhere connected to the issue of excess liability shown or disallowance u/s.40A(3) of the Act. This is absolutely fresh unconnected issues, which the Pr.CIT has picked up. A revision u/s.263 is permissible when an assessment order is shown to be erroneous and prejudicial to the interest of the Revenue. Both the conditions are compulsorily to be there. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the assessee and Shri M.K.Gautam, ld CIT DR appeared on behalf of the revenue. 3. This appeal had been disposed of by the order of the Co-ordinate Bench of this Tribunal dated 10.06.2021. As ground 2 3 of the assessee had not been adjudicated, the said order was recalled by order dated 17.6.2022 in M.A.No.02/CTK/2022. Consequently, only Ground Nos.2 3 are being adjudicated. Ground No2 3 reads as follows: 2. For that ld Pr. CIT is not justified in invoking jurisdiction u/s.263 of the I.T.Act and modifying the assessment order passed u/s.143(3) of the I.T.Act on 23.11.2016 under limited scrutiny category inconformity with CBDT Instructions on the facts in the circumstances of the case. 3. For that ld Pr. CIT is not justified in invoking jurisdiction u/s.263 in respect of valuation of closing stock when the same was not the subject matter of Limited scrutiny in the assessment completed u/s.143(3) on the facts and in circumstances of the case. 4. It was the submission by ld AR that the original assessment in the case of the assessee came to be completed u/s.143(3) on 23.11.2016 under Limited Scrutiny. It was the submission that the Limited Scrutiny was in relation to the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the assessee. in the circumstances, in view of the consistent view taken in similar matters, we are of the considered opinion that when the AO is bound to follow the CBDT instructions and while following such instruction and after verification of the material furnished by the assessee on the aspect covered by the limited scrutiny, is not open for the ld Pr. CIT to say that not adverting to the other aspects of the competition would render the assessment order erroneous and prejudicial to the interest of the Revenue. With this view of the matter, we find that the impugned order cannot be sustained and, therefore, the same is liable to be quashed. We accordingly quash the same. 6. Ld AR also placed reliance before us the decision of Co-ordinate Bench of Delhi Tribunal in the case of Rajani Venkata Naga Annavarapu Narayana vs Pr. CIT in ITA No.1871/Del/2020 for A.Y. 2015-16 order dated 16.6.2021, wherein, in para 12, it has been held as follows: 12. We find that the ld. PCIT has also mentioned at para no . 2 that the case has been selected for limited scrutiny under CASS. On going through order u/s 263 , we find that the order u/s 263 passed by the ld. PCIT dwelled into the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass a fresh assessment order. Ld.AR vehemently objected the powers exercised by the ld. Pr.CIT regarding passing of fresh assessment order as per the show cause notice issued by him whereas he was unable to demonstrate the action of the AO who has travelled beyond the limited scrutiny that means the order of AO has been accepted. In one hand, the assessee has accepted the assessment framed by the AO whereas in other hand, the assessee has challenged the order of Pr.CIT for examining in details. In our opinion, the contention of ld. AR regarding revisionary power exercised by the Pr.CIT in case of limited scrutiny, is not accepted on the basis of recent decision of the coordinate bench of the Tribunal in case of Baby Memorial Hospital Ltd. (supra). If there is an escapement of income or potentiality of income involved in the issues which has not been done by the AO while completing the limited scrutiny assessment the AO could have obtained the permission from the ld. Pr.CIT if he finds that there is a potentiality of the income. The case law relied on by the ld. DR is for the assessment year 2014-2015 and the assessee s case is also for the assessment year 2014-2015, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MAT income after adding back the provision for doubtful debts, as necessary examination/verification has not been made during the assessment. 4. Against this, the assessee is in appeal before us. The Ld. AR submitted that this was a limited Scrutiny assessment and the reasons for which the case was selected for scrutiny for furnishing of details specific to the CASS reasons. It was submitted that the details were furnished in response to notice issued u/s. 142(1) of the Act dated 27/06/2016 and after verification the Asst. Commissioner had accepted the explanation given by the assessee, so proper enquiry was made in the limited scrutiny case and therefore, the A.O had applied his mind to the facts of the case and therefore, his order is not erroneous or prejudicial to the interest of the Revenue. Hence, it was submitted that the order of the Commissioner is invalid. 4.1 The learned AR had submitted that in a limited scrutiny assessment, the Assessing Officer has to restrict himself to the issues raised in the limited scrutiny and cannot make any addition on other issues. In support of this submission, the learned AR had relied on the following Tribunal orders:- (i) Nitin Killawala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - order dated 02.06.2017] ITAT Kolkata Benches. (iv) Rakesh Kumar v. CIT [6187/Del/2015 - order dated 20.12.2018] ITAT New Delhi Benches. (v) M/s. R H Property Developer Pvt.Ltd. v. Pr.CIT [1906/Mum/2019 - order dated 30.07.2019] ITAT Mumbai Benches. (vi) Mrs.Sonali Hemant Bhavsar v. Pr.CIT [742/Mum/2019 - order dated 17.05.2019] ITAT Mumbai Benches. 4.5 The learned AR had submitted that in response to the show cause notice u/s 263 of the I.T. Act, when the assessee has filed replies, the PCIT has to give positive finding on merits while setting aside the matter u/s 263 of the I.T. Act on how the assessment order is erroneous and prejudicial to the interest of the revenue. In support of his submission, the learned AR relied on the judgment of the Hon'ble Karnataka High Court in the case of CIT v. Narayana Pai (T) [98 ITR 422]. The Explanation 2(a) to section 263 of the I.T. Act, states that the assessment order shall deem to be erroneous and prejudicial to the interest of the revenue if I.T.A. No.420/Coch/2019 such an order was passed without making inquiry or verification, which should have been made. x x x x x 6. The Ld. DR submitted that in this case, the assessment was tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aided Scrutiny Selection ('CASS') for verification of specific information obtained from third party sources which apparently did not match with the details submitted by the tax payer in the return of income. 2. Therefore, for proper administration of the Income-tax Act, 1961 ('Act'), Central Board of Direct Taxes, by virtue of its powers under section 119 of the Act, in supersession of earlier instructions/ guidelines on this subject, ere by directs that the cases selected for scrutiny during the Financial Year 2014-2015 under CASS, on the basis of either AIR data or CIB information or for non reconciliation with 26AS data, the scope of enquiry should be limited to verification these particular aspects only. Therefore, in such cases, an Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny. 3. The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice u/s 143(2), after generation from AST, is issued to the taxpayer with the remark Selected under Computer Aided Scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also gone through all the case laws cited by the parties. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner is well within his powers to treat an order as erroneous on the ground that the Assessing Officer should have made further inquiries before accepting the wrong claims made by the assessee. The Assessing Officer cannot remain passive in the face of a claim, which calls for further enquiry to know the genuineness of it. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The Assessing Officer was statutorily required to make the assessment under Section 143(3) after I.T.A. No.420/Coch/2019 scrutiny and not in a summary ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adding back the provision for doubtful debts, as necessary examination/verification has not been made during the assessment. 7.4 In this case, the assessment was based on limited scrutiny with reference to AR information and no addition was made by the Assessing Officer on that count. In our opinion, even in a case of limited scrutiny assessment, the Assessing Officer is duty bound to make a prima facie enquiry as to whether there is any other item which requires examination and in the assessment, the potential escapement of income thereof exceeded Rs.10 lakhs. He ought to have sought the permission of CIT/DIT to convert the 'limited scrutiny assessment' into a 'complete scrutiny assessment'. If there is no escapement of income, which would have been more than Rs.10 lakhs, the Pr. CIT could not exercise jurisdiction u/s. 263 of the I.T. Act. In the present case, the assessee itself agreed that the Pr. CIT is justified in giving direction to rework MAT income after adding back the provision for doubtful debts. Now, the argument of the Ld. AR that in case of limited scrutiny assessment, the Pr. CIT could not exercise jurisdiction u/s. 263 of the Act, is devoid of meri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.5/2016 dated 14.7.2016 regarding scope of enquiry in cases under Limited Scrutiny selected through CASS 2015 and 2016 but in the same instruction/circular, in paras 2 to 6, it has also been provided that in a case which was originally earmarked for Limited scrutiny , the AO shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under Complete scrutiny and the case may be converted from limited scrutiny to complete scrutiny, which requires administrative approval from pr. CIT/CIT/Pr. DIT/DIT, as prescribed in para 3(d) of earlier instruction dated 29.12.2015. 30. From a careful reading of the impugned order passed u/s.263 of the Act, we clearly observe that the assessee company had shown gross turnover /revenue from operation of Rs.63,97,71,157/- for financial year 2013-14 but as per statement in 26AS, the assessee had shown Rs.16,91,82,966/- from works contract bit it had disclosed its gross receipts in the profit and loss account only Rs.15,69,31,397/- resulting that the gross receipts is understated by Rs.1,22,51,569/- which should have been verified by the AO during scrutiny proceedings. The AO by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee an opportunity of being heard and after making or causing to be made such enquiry, he deems necessary, pass such order thereon, as the circumstances of the case justify, which includes an order of enhancement or modification assessment or cancelling the assessment with a direction to pass fresh assessment order. Since both the issues were not considered by the AO in the original assessment order, Ld. Pr. CIT consider it necessary to direct the AO to enquiry the matter and reframe the assessment accordingly. 33. In the case of Gee Vee Enterprises vs. Addl. CIT [99 ITR 375], the Hon ble Delhi High Court held as under :- It is not necessary for the Commissioner to make further inquiries before canceling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Incometax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be erroneous and any decision in favour of the assessee without considering these aspects would be prejudicial to the interests of the Revenue. The order passed by the Commissioner of Income-tax and the order passed by the Tribunal sustaining the same as a whole were valid. 36. In the case of Addl. CIT vs. Mukur Corporation [111 ITR 312], Hon ble Gujarat High Court held as under :- that the words prejudicial to the interests of the revenue in section 263 have not been defined but they must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. In the present case, it was obvious that the Income-tax Officer had committed an error in not making enquiry into the details as regards both the deductions and also that want of such enquiry had resulted in prejudice to the interests of the revenue. To this extent, the initiation of action under section 263 by the Commissioner was quite proper. 37. In the case of CIT vs. South India Shipping Corpn. Ltd. [233 ITR 546], Hon ble Madras High Court held as under :- Even assuming that the Income-tax Officer had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee because in this case the AO has made sufficient, adequate and proper enquiry and thereafter took both the issues to a logical conclusion by way of adjudication and deliberation in the assessment order and he was satisfied that there was no escapement of revenue, therefore, there was no room for further enquiry by the Pr.CIT. For the sake of convenience, we would like to reproduce the relevant observations of the Tribunal in this regard, are as under :- 15. On careful consideration of rival submissions, first of all, we may point out that undisputedly, the case of the assessee for the assessment year 2015-16 was selected for limited scrutiny on two points i.e. (i) real estimate business with high closing stock (verify whether assessee has adopted percentage completion method) and (ii) mismatch in sales turnover reported in audit report and ITR. 16. It is also not in dispute that during the course of assessment proceedings, the AO issued notice u/s.143(2) and 142(1) of the Act alongwith questionnaire to the assessee both on 1.8.2016, which were duly served and complied by the assessee by way of filing replies on 19.8.2016, 30.11.2016, 19.1.2017 and 20.3.2017. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessment order u/s.143(3) of the Act on 21.3.2017 and assessment proceedings terminated on the said date. From the order sheet of the Assessing Officer placed at page 52 of paper book vide dated 14.1.2019, we observe that subsequently, the AO. i.e. JCIT, Ragne-2, Sambalpur vide letter dated 5.7.2018 send a proposal to ACIT, Sambalpur for initiation of proceedings u/s.263 of the Act. From the second para of said order sheet, we note that the ACIT, Sambalpur mentioned that on analysis of the facts of the case, it is seen that the assessee has shown profit @ 3.24% on total turnover which is too low. Ld ACIT further noted that the AO asked the assessee to produce the documentary evidences related to the business of the assessee like bills vouchers and details documents of sale of flats etc but the assessee failed to submit the same before the AO during the scrutiny assessment. The ACIT further stated that as the reason for CASS is real estate business with high closing stock, the information about estimated cost of construction of the project, estimated sale value of the project, selling price of individual flats, period of construction etc should have been examined before completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such enquiry, he deems necessary, pass such order thereon, as the circumstances of the case justify, which includes an order of enhancement or modification assessment or cancelling the assessment with a direction to pass fresh assessment order. In the present case, from the order sheet dated 14.1.2019, it is vivid that the JCIT, Range-2, Sambalpur sent a proposal for initiation of revisional proceedings u/s.263 of the Act to ACIT, Sambalpur and ld ACIT, Sambalpur after making observation regarding requirement of examination of certain issues forwarded the proposal to Ld. PCIT alongwith draft notice u/s.263 which was approved by ld PCIT in a manner in which administrative actions are proved. Hence, we are compelled to hold that the initiation of revisional proceedings, issue of notice has been done on the proposal of JCIT, Range-2, Sambalpur through ACIT, Sambalpur and mandate of procedure as provided in section 263 of the Act has not been followed and on this count, the impugned order u/s.263 of the Act also become unsustainable. While taking this view, we respectfully follow the order of ITAT Kolkata in the case of Manish Chirania order of Pune Bench of ITAT in the case of Span O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nga Promoters and Developers (supra) had been considered and distinguished. It was the submission that it was a later decision which should apply. It was the submission that in the event that this Bench is unwilling to follow the decision in the case of Sri Sushant Kuamr Choudhury (supra), then the matter should be referred to the a Large Bench in view of the decision of ITAT Cochin Third Member in the case of ACIT vs Chandragiri Construction Co(2021) 21 taxmann.com 167 (Coch.) (TM). It was the prayer that the order of the Pr. CIT be upheld or the matter be referred to a Larger Bench. 10. We have considered the rival submissions. The crux of the issue in the present case is whether the Pr. CIT could use his revisionary powers to direct to make the addition by holding the assessment order erroneous and prejudicial to the interest of the Revenue on issues which are not connected issues to the issues which have been raised in the limited scrutiny in an assessment proceedings. Here one must clearly understand that the fetters have been placed on the assessing authority in respect of limited scrutiny by various circulars issued by CBDT in Instruction No.7/14 dated 26.9.2014 and Instruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that the order of the AO is erroneous insofar as he did not ask for permission for complete scrutiny and to that extent, the assessment order was erroneous and prejudicial to the interest of the Revenue. In the present case, there is no such averment by the pr. CIT. Even assuming such averment is there, the order of revision would be unsustainable insofar as the issue raised by Pr. CIT is in no way connected to the issues that have been raised in the limited scrutiny assessment. Thus, the decision in the case of Sri Sushanta Kumar Choudhury (supra) is clearly distinguishable. Therefore, the prayer of the ld CIT DR that the matter be referred to Larger Bench also does not survive insofar as the facts of the present case and in the said decision in the case of Sri Sushanta Kumar Choudhury (supra) is fully distinguishable. 13. This view of ours in respect of revision u/s.263 vis- -vis limited scrutiny is also supported by the decision of the Co-ordinate Bench of ITAT Chennai in the case of Smt. Padmavathi referred to (supra) which has been approved by Hon ble Madras High Court as also the decision in the case of Balvinder Kumar and Rajani Venkata Naga Annavarapu Narayana (supra) b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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