TMI Blog2004 (12) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... 26-12-2002 and a refund of Rs. 31,840 was granted to the assessee. It was noticed by the Assessing Officer that the following deductions were claimed by the assessee insofar as they were debited in the Profit Loss Account - ---------------------------------------------------------- (i) Interest and penalty on sales tax Rs. 22,287 (ii) Firm's income-tax Rs. 1,70,000 ------------- Total Rs. 1,92,287 ---------------------------------------------------------- The Assessing Officer was of the view that these deductions were not legally admissible. The Assessing Officer, therefore, has taken up the case for scrutiny on these two limited issues and for that matter a notice under section 143(2)(i) was issued on 5-2-2003 requiring the assessee to produce or cause to be produced the evidence or particulars in support of assessee's claim of deduction of the aforesaid two amounts. The assessee having received the notice issued by the Assessing Officer under section 143(2)(i) intimated in writing on 24-2-2003 that these deductions were wrongly claimed, and on realizing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81 -------------- Total : Rs. 14,82,981 ---------------------------------------------------------- Assessee's accounts indicate that the cost of production increased this year by [Rs. 79,31,330 - less Rs. 63,23,696] equal Rs. 16,07,634. The sale of finished goods increased by [Rs. 66,91,103/- less Rs. 53,72,503] equal Rs. 13,18,600. The aggregate increase in your output works out to Rs. 16,07,634 plus Rs. 13,18,600 equal Rs. 29,26,234. The increase in expenditure of Rs. 14,82,981 is apparently incongruent with the increase of assessee's output. The Assessing Officer failed to examine the increased expenditure vis-a-vis its relevance. (d) Schedule 'F' to the Profit Loss Account shows a new item of expenditure of Rs. 2,22,094 representing payment of Commission. This was the first such claim made by the assessee. It needs be mentioned here that even this aspect of assessee's case was not examined by the Assessing Officer while framing the assessment. The justification for such expenditure was thus not examined and scrutinized. 5. In view of the above alleged glaring patent omission on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interests of revenue but also perverse in nature. The learned CIT, therefore, cancelled the Assessing Officer's assessment order passed on 28-2-2003 under section 143(3)(i) of the Act vide his impugned order made under section 263 on 24-5-2004, and directed the Assessing Officer to complete the same de novo and to reassess the income in the light of the directions given by him. Being aggrieved with the learned CIT's order made under section 263 cancelling the Assessing Officer's assessment order passed on 28-2-2003 under section 143(3)(i) of the Act, the assessee has preferred this appeal before the Tribunal. 7. The learned Counsel for the assessee has contended that the order passed by the Assessing Officer under section 143(3)(i) was not erroneous and prejudicial to the interests of the revenue, and as such assuming the jurisdiction under section 263 of the Act by the learned CIT and then cancelling the assessment order made under section 143(3)(i) by the Assessing Officer is bad and not sustainable in the eyes of law. He further submitted that the assessee's case was selected for limited scrutiny as provided under section 143(2)(i) on the point of deduction of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive, it is necessary to refer the provisions of section 143 of the Act as were applicable to the year under consideration at the relevant point of time. The Assessing Officer's power to make the certain prima facie adjustment in the income or loss declared in the return of income as provided earlier under the provisions of subsection (1) of section 143 prior to 1-6-1999 has been done away by the Finance Act, 1999 with effect from 1-6-1999. On and from 1-6-1999, the sub-section (1) of section 143 provides that where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly, and if any refund is due on the basis of such return, it shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable by the assessee on the basis of such assessment. (ii) issued under clause (ii) of sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may be required on specified points, and after taking into relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment." 12. Prior to the amendment in section 143(2) and 143(3) of the Act made by the Finance Act, 2002 with effect from 1-6-2002, under procedure of assessment laid down in then existing section 143, the Assessing Officer if he considers it necessary or expedient, issues a notice under section 143(2), requiring the assessee to produce any evidence which he may rely on in support of the return. Then section 143(3) provides that after hearing such evidence and after taking into account all relevant material which he has gathered, the Assessing Officer shall pass an order of assessment determining the total income or loss, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessive loss or has not under-paid the tax in any manner, the Assessing Officer is free to issue notice under section 143(2)(ii) initiating comprehensive scrutiny of the return and then to complete the assessment under section 143(3)(ii) of the Act as would be clearly evident from the reading of the provisions of sub-section (2) sub-section (3) of section 143 as effective from 1st June, 2002. It is provided in section 143(2)(ii) that notwithstanding the fact that a case has been selected for limited scrutiny and notice under clause (i) of sub-section (2) of section 143 has been issued, if the Assessing Officer considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, he is free to issue and serve on assessee, a notice under clause (ii) of sub-section (2) of section 143 of the Act requiring him, on a date specified in the said notice, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return and then, as provided in sub-clause (ii) of sub-section (3) of section 143, on the day specified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s where a notice under section 143(2)(i) has already been issued or an assessment has been made under section 143(3)(i) provided the same is served within the period specified in the proviso to sub-section (2) of section 143 of the Act. It is provided in section 143(2)(ii) that notwithstanding anything contained in clause (i) of sub-section (2) of section 143, notice under section 143(2)(ii) can be issued for comprehensive scrutiny and assessment under section 143(3)(ii) can be made accordingly. 14. In the present case before us, no notice under section 143(2)(ii) was ever issued by the Assessing Officer to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, and as such no question of making comprehensive scrutiny as contemplated by clause (ii) of sub-section (2) of section 143 and then completing the assessment under section 143(3)(ii) did or could arise. The case before us is a case where notice under section 143(2)(i) was only issued to examine and verify the assessee's claim of deduction on account of interest and penalty on sales tax and firm's income-tax, and then to allow or reject the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a limited purpose to examine and verify the assessee's claim of deduction on account of interest and penalty on sale tax and firm's income-tax and then to allow or reject the same and then determine the total income or loss accordingly as provided under section 143(3)(i) of the Act. No other item or matter other than the items specified in the notice issued under section 143(2)(i) could be dealt with or examined or verified or adjudicated upon by the Assessing Officer while passing the order under section 143(3)(i) of the Act. In the present case, the Assessing Officer's power to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner as contemplated under clause (ii) of sub-section (2) of section 143 was never assumed and exercised by the Assessing Officer, and as such any question to look into the matters covered under a comprehensive scrutiny contemplated under clause (ii) of sub-section (2) of section 143 did or could not arise while passing the assessment order under section 143(3)(i) of the Act. The learned CIT by his impugned order under section 263 of the Act has directed the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der clause (i) of sub-section (2) of section 143 was not examined by the Assessing Officer or was not decided properly while passing the order under section 143(3)(i) of the Act. If, however, it were found that the assessment completed by the Assessing Officer under section 143(3)(i) was not in accordance with the provisions contained in section 143(3)(i), it would be an erroneous order in law and could be set aside by the CIT by exercising the revisionary jurisdiction under section 263 of the Act. That is not the case here. The items specified by the learned CIT in his notice under section 263 of the Act are not covered by the clause (i) of sub-section (2) of section 143 of the Act but are of such a nature that can only be examined or enquired into in the course of making comprehensive scrutiny as contemplated under clause (ii) of sub-section (2) of section 143 and then in making assessment under clause (ii) of sub-section (3) of section 143 of the Act after issuing notice under section 143(2)(ii) of the Act. The grounds on which the assessment made by the Assessing Officer under section 143(3)(i) has been set aside by the learned CIT are in our considered opinion, not permitted o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after issuing notice under section 143(2)(ii) within the specified time. In other words, the time limit to assume jurisdiction by the Assessing Officer under section 143(2)(ii), which had already expired on 29-2-2004, has been indirectly extended by the ld. CIT in the garb of his direction given in the impugned order made under section 263 of the Act on 24-5-2004, which in our considered opinion is not the intent and purpose of exercising jurisdiction conferred upon CIT under section 263 of the Act. The Assessing Officer's decision not to initiate the comprehensive scrutiny of the return furnished by the assessee by issuing a notice under section 143 (2)(ii) of the Act cannot be a basis or reason to render the assessment order made by the Assessing Officer under section 143(3)(i) as erroneous and in so far prejudicial to the interest of revenue. Non-initiation of comprehensive scrutiny by issuing notice under section 143(2)(ii) by the Assessing Officer cannot be a subject-matter of revisional power of the CIT under section 263 in the matter of an assessment completed by the Assessing Officer under section 143(3)(i) on limited issues as envisaged under section 143(2)(i). 16. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 143(2)(ii) of the Act. The Assessing Officer is not expected to go beyond the guidelines or norms set up by the C.B.D.T. in selecting the cases for scrutiny. Thus, initiating assessment proceedings under section 143(2)(ii) and then making the assessment under section 143(3)(ii) accordingly by the Assessing Officer is dependent upon the guidelines of the C.B.D.T. issued and in force at the relevant point of time. The C.B.D.T. has itself limited the scope of scrutiny to utilize its resources for scrutiny of few cases that are to be selected as per its guidelines. The guidelines given by the C.B.D.T. for selecting the cases for scrutiny are to be followed by all the concerned Department personnels either for obtaining or giving the approval for scrutiny. Thus Assessing Officer's decision not to select the present case for comprehensive scrutiny in the light of guidelines given by the C.B.D.T. is otherwise also Officer has selected the present case only for limited scrutiny under section 143(2)(i) and not under section 143(2)(ii), to examine or verify the assessee's claim of deduction of payment of interest and penalty on sales tax and firm's income-tax, and has recorded the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 143(2)(i) or the items he had set out in his notice issued under section 143(2)(i) to verify, and thus his order made under section 143(3)(i) cannot be termed as erroneous and prejudicial to the interests of the revenue. 18. Before parting with the case, it may be stated that in support of the assessee's contention that the learned CIT has no jurisdiction to set aside the assessment completed under section 143(1) of the Act putting reliance by the learned Counsel for the assessee on the Circular issued by the Directorate of Inspection (I.T. and Audit), New Delhi, F.No. RAI/86-87/IT dated 26-8-1987 is out of context inasmuch as the assessment order made by the Assessing Officer is not under then section 143(1) but is under the new scheme of limited scrutiny assessment provided under section 143(3)(i) as introduced by the Finance Act, 2002 with effect from 1-6-2002, which was in force at the time when the impugned assessment order was made by the Assessing Officer on 28-2-2003. We have already stated herein before that if it is found that the limited scrutiny assessment completed by the Assessing Officer under section 143(3)(i) is not in accordance with the provisions contain ..... 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