9911796707
TMI Blog2023 (4) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... as processed, and a refund of Rs.6,92,550/- was generated. The return was selected for scrutiny under Computer Aided Scrutiny Selection (CASS) on (i) significant interest expenses relatable to exempt income (under Section 14A) and (ii) substantial interest paid which is not commensurate with the loans raised and that the assessee has returned less turnover. Such scrutiny in the present scenario is known as limited scrutiny. On 25.11.2016, a pre-assessment notice was issued, and for our purpose, it is unnecessary to refer to all averments made by the assessee and the Revenue. On 16.12.2016, the assessment was completed under Section 143(3) of the Act determining the total income of Rs.14,97,304/-. The Principal Commissioner of Income Tax Thrissur issued a notice under Section 263 of the Act for the following reasons: "During the previous year the Company had issued 30,00,000 lakh optionally convertible cumulative preference shares of Rs.10/- each, fully paid up amounting to Rs.3,00,00,000/- along with securities premium of Rs.57,00,00,000/- to Sri M P Ramachandran, one of the Directors of the Company. This issue is not seen to have been examined by the Assessing Officer. The secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. The Commissioner, having recorded the above reasons, found that the assessment order, in his opinion, under Section 263 of the Act is erroneous and prejudicial to the interest of the Revenue. Hence, set aside the assessment order dated 16.12.2006 and directed the Assessing Officer to obtain relevant details and examine the valuation of optionally convertible cumulative preference shares following Rule 11UA for determining the net value of the shares and to verify the applicability of provisions of Section 56(2)(viib) read with Section 68 and re-do the assessment, after allowing the assessee an opportunity of hearing. 5. The assessee, aggrieved by order of reopening dated 29.03.2019, filed ITA No.439/Coch/2019 before the Tribunal. The Tribunal, by the impugned order, dismissed the appeal filed by the assessee. Hence, the second appeal before this Court on the following substantial questions of law: "1. "Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that even in case of limited scrutiny assessment, the AO is duty bound to make prima facie inquiry as to whether there is any other items (that is items which are not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questionnaire and subsequent enquiry or verification only to the specific point(s) based on which the particular return has been selected for scrutiny. Hence, on the strength of Circulars, the question commended for our consideration is whether the non-consideration of any issue or an issue arising under Section 56(2)(viib) read with Section 68 by the Assessing Officer would make the assessment order erroneous. While undertaking the limited scrutiny, the Assessing Officer must confine to the points on which CASS has enabled the scrutiny. The learned Senior Counsel elaborating arguments states that, in a given case, the Assessing Officer comes across information in such limited scrutiny, then the option available to the Assessing Officer is to take permission from the Principal Commissioner and expand the contours of scrutiny. In the case on hand, the Assessing Officer obeyed the Circular instructions, and such action or act of the Assessing Officer cannot be termed as erroneous. Therefore, the omission to examine an issue arising under Section 56(2)(viib) is not an error or could be considered erroneous for invoking the power under Section 263 of the Act. Once it is not erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thus passed will contain the grounds for holding the order of the ITO to be erroneous, as contemplated under Section 263(1) of the Act. Feeling aggrieved therefrom, the assessee may file an appeal against the same, as provided under Section 253(1)(c) of the Act. In the memorandum of appeal, the assessee is supposed to attack the order of the Commissioner and to challenge the grounds for decision given by him in his order. At the time of the hearing, if the assessee can satisfy the Tribunal that the grounds for decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the ground available to the Commissioner to pass an order under Section 263(1) of the Act, then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner, which is not warranted under the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guidelines of the CBDT. According to the learned Senior Counsel, the stages of verification, under Section 143, 147 or 146 on the one hand and on the other hand, under Section 263, are firstly two-tier verification, one by the Assessing Officer and another by the Commissioner in charge of the respective territorial jurisdictions. Once an order is made in a proceeding, the Commissioner may call for and examine the record or any proceeding under the Act. The Commissioner considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue, may, by following the procedure, order reassessment. The learned Senior Counsel argues that once the Assessing Officer has finalised the assessment, the matter becomes an issue for verification by the Commissioner. In this background, the Commissioner has called for subject ITMR, perused the record and found a serious error under Section 56(2)(viib) which deals with the treatment of consideration for the issue of shares as per the requirement of the said section. The learned counsel argues that extending the application of Circulars to the jurisdiction of the Commissioner under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined properly. Such instances primarily occurred in cases selected for scrutiny under Computer 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 taxpayer 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, hereby 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 re-conciliation with 26AS data, the scope of enquiry should be limited to verification of 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." 8.1 On a reading of the Circular, it is discernible that the Circular is applicable during the scrutiny assessment taken up by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered according to the course and practice of the Court, but contrary to law, upon a mistaken view of law, or erroneous application of legal principles. Error', here, should be an error in approach, error in computation, error in applying the relevant law or facts, or error in selecting a principle which would not govern the fact situation; arbitrary exercise of quasi-judicial power certainly would fall within the scope of section 263. By resorting to a different method, a larger tax can be levied and collected cannot be the sole consideration to attract section 263, as prejudicial to the interest of the Revenue, unless the said method is the only mode legally applicable [S.S. Muddanna v. State of Karnataka, (1993) 89 STC 90, 95 (Karn)]. 8.4 For the limited purpose of examining whether the assessment order has looked at the computation obligated under Section 56(2)(viib), it is more than clear that the effect of these entries is not at the first instance captured in CASS and prevented by Circulars while taking up scrutiny assessment. It is an error going by the literal meaning excerpted above. 9. The supervisory power, which is axiomatic given the precedents on the point, woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder CASS. For the above reasons, questions 1 to 3 are answered in favour of the Revenue and against the assessee. 10. The answer to the above questions takes us to the next aspect, whether, on the facts and circumstances of the case, the order is erroneous insofar as it is prejudicial to the interest of the revenue. 11. Mr Joseph Markos invites our attention to the consideration of these grounds by the Tribunal. He argues that the Tribunal has not examined the reasons recorded by the Commissioner on the order of assessment being erroneous and prejudicial to the interest of Revenue but has supplemented additional reasons for sustaining an order made under Section 263 of the Act. Our attention is specifically drawn to the following passage in paragraph 8.9 of the Tribunal's order: "As mentioned earlier, in this case the assessment order was passed without making inquiry / verification as regards the potential escapement of income mentioned in the Board Instructions for the relevant period. Therefore, even in case of limited scrutiny assessment, the A.O. is duty bound to make a prima facie inquiry as to whether there is any other items which requires examination and in the event, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
