MEASAGE PARADISE RUBBER INDUSTRIES, JALANDHAR V. PRINCIPAL COMMISSIONER OF INCOME TAX -1, JALANDHAR

ITA 115/ASR/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5126 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 28-05-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order
• Section: 263; 143(3); 40(b); 143(2); 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL AMRITSAR BENCH: AMRITSAR BEFORE SHRI LALIET KUMAR, JUDICIAL MEMBER AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER I.T.A NO. 115/ASR/2020 (ASSESSMENT YEAR: 2015-16) PARADISE RUBBER INDUSTRIES BASTI BAWA KHEL, JALANDHAR [PAN:AABFP 3051F] (ASSESSEE) VS. PR. COMMISSIONER OF INCOME TAX-1, CENTRAL REVENUE BUILDING, JALANDHAR (REVENUE) ASSESSEE BY SH. SANDEEP VIJH, C.A. REVENUE BY SH. SANJAY DHARIWAL, CIT-DR DATE OF HEARING 17.09.2021 DATE OF PRONOUNCEMENT 24.09.2021 ORDER PER LALIET KUMAR, JM: THE PRESENT APPEAL FILED BY THE ASSESSEE FEELING AG GRIEVED BY THE ORDER OF LD. PR. CIT-1, JALANDHAR DATED 20.02.2020 FOR A.Y. 2015-16. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: I.T.A NO. 115/ASR/2020 2 1. THE LEARNED PR. COMMISSIONER OF INCOME TAX-1, J ALANDHAR, HAS ERRED IN HOLDING THAT THE ASSESSMENT ORDER U/S 143(3) DATED 11/12/2017 IS ERRONEOUS IN SO FAR AS IT IS PR EJUDICIAL TO THE INTEREST OF REVENUE AND THEREBY SETTING ASIDE THE O RDER BY INVOKING THE REVISIONARY POWER U/S 263. THE FACTS A S WELL AS THE LEGAL POSITION HAVE NOT BEEN PROPERLY APPRECIATED. BRIEF FACTS 1. FACTS OF THE CASE ARE THAT THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2015-16 WAS FILED ON 22/9/2015. THE REAFTER NOTICE U/S 143(2) DATED 29/7/2016 WAS ISSUED SELECT ING THE CASE FOR SCRUTINY FOR LIMITED PURPOSES. COPY OF THE NOTICE RECEIVED U/S 143(2) IS ENCLOSED AT PAGE NO. 1. 2. A PERUSAL OF THE NOTICE U/S 143(2) WILL SHOW THA T THE CASE WAS SELECTED FOR SCRUTINY FOR LIMITED PURPOSES FOR FOUR SPECIFIC REASONS WHICH STAND MENTIONED IN THE NOTICE ITSELF IN THE FOLLOWING MANNER ;- A) CUSTOM DUTY PAYMENT MISMATCH B) PAYMENT TO RELATED PERSONS MISMATCH C) UNSECURED LOANS D) DUTY DRAWBACK RECEIVED/RECEIVABLE 3. THEREAFTER ASSESSMENT WAS COMPLETED U/S 143(3) T HROUGH ORDER DATED 11/12/2017. 4. NOTICE U/S 263 DATED 18/1/2019 READS AS UNDER :- I.T.A NO. 115/ASR/2020 3 'ON PERUSAL OF THE ORDER U/S 143(3) OF THE INCOME T AX ACT, 1961 DATED 11.12.2017, IN YOUR CASE AND ON THE EXAMINATI ON OF RECORD FOR THE ASSESSMENT YEAR 2015-16, THE FOLLOWI NG DISCREPANCIES WERE NOTICED. (I) PERUSAL OF THE PARTNERSHIP DEED FILED DURING TH E COURSE OF ASSESSMENT PROCEEDINGS SHOWS THAT IN PARA 9 OF THE DEED, IT HAS BEEN MENTIONED THAT THE REMUNERATION PAYABLE TO THE WORKING PARTNERS SHALL BE EQUAL TO THE LIMITS LAID DOWN IN EXPLANATION 3 TO SECTION 40(B) OF THE INCOME TAX AC T, 1961 I.E. 90% OF THE BOOK PROFITS UPTO RS.3 LACS AND 60% OF T HE BALANCE BOOK PROFITS WITH A MINIMUM OF RS.1.50 LACS. SINCE, THE REMUNERATION/SALARY TO THE PARTNERS HAS NOT BEEN QU ANTIFIED IN THE DEED AS REQUIRED U/S 40(B)(II), THE ASSESSING O FFICER, WHILE FRAMING ASSESSMENT, WAS REQUIRED TO DISALLOW THE SALARY/REMUNERATION AMOUNTING TO RS.24,00,000/- DEB ITED BY THE ASSESSEE FIRM IN ITS P&L ACCOUNT BUT THE ASSESS ING OFFICER FAILED TO DO SO. 2. ACCORDINGLY, IN VIEW OF ABOVE DISCREPANCIES, I P ROPOSE TO HOLD THE SAID ORDER TO BE ERRONEOUS, IN SO FAR AS I T IS PREJUDICIAL TO THE INTEREST OF REVENUE AND TAKE SUITABLE REMEDI AL ACTION, AS PER SECTION 263 OF THE INCOME TAX ACT, 1961. YOUR REPLY/OBJECTIONS, IF ANY, TO THE PROPOSED ACTION CA N BE FILED BEFORE THE UNDERSIGNED BY 28.01.2019 ON WHICH DATE YOUR CASE I.T.A NO. 115/ASR/2020 4 STANDS FIXED FOR HEARING AT 11.30 P. M. IN THE OFFI CE OF THE UNDERSIGNED.' 5. ON THE BASIS OF THIS ISSUE, ORDER U/S 263 WAS PA SSED SETTING ASIDE ASSESSMENT ORDER TO THE FILE OF THE ASSESSING OFFIC ER HOLDING THE ASSESSMENT ORDER PASSED ON 11/12/2017 WAS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. 6. FEELING AGGRIEVED BY THE ORDER PASSED BY THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US ON THE GROUND MENTIONED HEREINABOV E. 7. AT THE OUTSET THE LD.AR HAD SUBMITTED THAT THE A SSESSMENT WAS FRAMED BY THE ASSESSING OFFICER FOR A LIMITED SCRUTINY AND THE PRINCIPAL CIT HAD INVOKE THE REVISIONARY POWER UNDER SECTION 263, FOU R AND ISSUE WHICH WAS NOT PART OF THE REASONS FOR WHICH THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT. IT WAS THE CONTENTION OF THE LD.AR THAT THE ORDER OF THE ASSESSING OFFICER CANNOT BE SAID TO PREJUDICIAL AND ERRONEOUS TO THE INTEREST OF THE REVENUE AS IT WAS NOT NECESSARY FOR THE ASSESSING OFFICER TO EXAMINE THE ISSUE BEYOND THE SCOPE OF LIMITED SC RUTINY FOR WHICH THE MATTER WAS SELECTED. IN SUPPORT OF THIS CONTENTION ATTENTION IS DRAWN TO THE FOLLOWING DECISIONS: A) SU-RAJ DIAMOND DEALERS PVT. LTD. VS. PR CIT REPORTE D AT 203 TTJ 137 (ITAT MUMBAI): IT WAS HELD THE ASSESSING OFFICER HAVING CONFINED HIMSELF TO THE ISSUES FOR WHICH THE CASE O F THE ASSESSEE WAS SELECTED FOR LIMITED SCRUTINY, THEREFORE, NO IN FIRMITY CAN BE ATTRIBUTED TO HIS ORDER, FOR THE REASON, THAT HE HA D FAILED TO DWELL I.T.A NO. 115/ASR/2020 5 UPON CERTAIN OTHER ISSUES WHICH DID NOT FORM PART O F THE REASONS FOR WHICH THE CASE WAS SELECTED FOR LIMITED SCRUTIN Y UNDER CASS. THE ORDER U/S 263 WAS CONSEQUENTLY QUASHED. COPY OF THE ORDER IS ENCLOSED AT PAGE NO. 6 TO 11 [PLEASE SEE PARA NO. 8 AT PAGE NO. 11]. B) SONALI HEMANT BHAVSAR VS. PR. CIT (ITAT MUMBAI): IT WAS HELD THAT A LIMITED SCRUTINY CASE CANNOT BE EXPANDED UNL ESS THE AO CONVERTED INTO COMPLETE SCRUTINY WITH THE APPROVAL OF THE PR. CIT AND IF THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DOES NOT COME TO THE CONCLUSION OF POTENTIAL ESCAPE MENT THE LD. PR. CANNOT HOLD THE ORDER TO BE ERRONEOUS ON THE GR OUND THAT AO OUGHT TO HAVE REACHED TO SUCH CONCLUSION. THE ORDER U/S 263 WAS ACCORDINGLY QUASHED. COPY OF THE ORDER IS ENCLOSED AT PAGE NO. 12 TO 25 [PLEASE SEE PARA NO. 6 AND PARA NO. 7 AT PAGE NO. 18 TO 25]. C) STOREWELL CONSTRUCTION & ENGINEERS VS. PR. CIT [ITA T PUNE]: IN THIS CASE THE REVISIONARY JURISDICTION HAD BEEN INV OKED BY THE PR. CIT TO LOOK INTO THE ISSUES WHICH WERE NOT WITHIN T HE PURVIEW OF LIMITED SCRUTINY. IN VIEW OF THE CIRCULAR ISSUED BY CBDT AND JUDICIAL DECISIONS, THE ORDER U/S 263 WAS QUASHED. COPY OF T HE ORDER IS ENCLOSED AT PAGE NO. 26 TO 30 [PLEASE SEE PARA NO. 4, 5 & 6 AT PAGE NO. 27 & 28]. D) AKASH GANGA PROMOTORS & DEVELOPERS VS. PR. CIT [ITA T CUTTACK]: IT WAS HELD THAT WHERE THE CASE WAS SELECTED FOR SCRUTINY FOR LIMITED SCRUTINY AND THERE WAS NO ALLE GATION BY THE LD. I.T.A NO. 115/ASR/2020 6 PR. CIT THAT THE AO HAS NOT MADE INQUIRY ON ANY OF THE ISSUES FOR WHICH THE CASE WAS SELECTED FOR LIMITED SCRUTINY, T HE ASSESSMENT CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF REVENUE. COPY OF THE ORDER IS ENCLOSED AT PAGE NO. 31 TO 40 [PLEASE SEE PARA NO. 15 & 17 AT PAGE NO. 37]. E) MAHENDRA SINGH DHANKHAR HUF VS. ACIT REPORTED AT 62 CCH 271 (ITAT JAIPUR): IT WAS HELD THAT THE ASSESSING OFFICER WAS DUTY BOUND TO FOLLOW THE INSTRUCTION AND PROCEDURE FOR C ONVERTING THE LIMITED SCRUTINY INTO COMPLETE SCRUTINY AND WITHOUT FOLLOWING SUCH PROCEDURE AND APPROVAL AN INQUIRY ON THE ISSUE WHIC H IS OUTSIDE THE PURVIEW OF LIMITED SCRUTINY WOULD BE OUTSIDE TH E JURISDICTION OF AO. AS A NECESSARY COROLLARY, THE PR. CIT CANNOT BE PERMITTED TO TRAVEL BEYOND THE JURISDICTION WHICH WAS VESTED WIT H THE ASSESSING OFFICER AS WHAT CANNOT BE DONE DIRECTLY CANNOT BE D ONE INDIRECTLY. CONSEQUENTLY REVISIONAL JURISDICTION CANNOT BE EXER CISED FOR BROADENING THE SCOPE OF JURISDICTION ORIGINALLY VES TED WITH THE AO WHILE MAKING ASSESSMENT. COPY OF THE DECISION IS EN CLOSED AT PAGE NO. 41 TO 51 [PLEASE SEE PARA AT PAGE NO. 42]. 7. IN VIEW OF THE SUBMISSIONS AND DECISIONS CITED A BOVE, IT IS CLEAR THAT THE PRESENT CASE WAS TAKEN UP FOR LIMITED SCRU TINY AND THE ISSUE TAKEN UP IN FOR INVOKING THE JURISDICTION U/S 263 WAS NOT ONE OF THE ISSUES FOR WHICH LIMITED SCRUTINY WAS TA KEN UP. THE ORDER U/S 263 IS THUS BAD IN LAW AND DESERVES TO BE QUASHED ON THIS SCORE ITSELF. I.T.A NO. 115/ASR/2020 7 8. ANOTHER FATAL LEGAL MISTAKE IN THE ORDER U/S 263 DATED 20/2/2020 IS THAT THE ORDER DOES NO BEAR ANY DOCUMENT IDENTIFICATION NUMBER I.E. DIN WHICH WAS MADE MANDATORY BY CIRCULAR NO. 19 OF 2019 ISSUED BY CBDT. COPY OF THE CIRCULAR IS ENCLOSED AT PAGE NO. 52 & 5 3. A PLAIN READING OF PARA NO. 2 OF THE CIRCULAR MAKES IT ABUNDANTLY CLEA R THAT NO COMMUNICATION INCLUDING ORDERS SHALL BE ISSUED BY A NY INCOME TAX AUTHORITY ON OR AFTER 1 ST DAY OF OCTOBER, 2019 UNLESS A COMPUTER GENERATED DOCUMENT IDENTIFICATION NUMBER (DIN) HAD BEEN ALLOTTED AND WAS DULY QUOTED IN THE BODY OF SUCH COMMUNICATION . IN PARA NO. 3 OF THE ABOVE CIRCULAR CERTAIN EXCEPTIONS HAVE BEEN PRO VIDED BUT IT HAS BEEN STATED THAT IN SUCH CASES WHERE COMMUNICATION IS IS SUED WITHOUT A DIN THIS FACT ALONG WITH APPROVAL TAKEN FROM CHIEF COMM ISSIONER / DIRECTOR GENERAL THIS SHALL STAND MENTIONED ON THE COMMUNICA TION ITSELF. IN PARA NO. 4 OF THE ABOVE CIRCULAR IT HAS BEEN STATED THAT ANY COMMUNICATION WHICH IS NOT IN CONFORMITY WITH PARA-2 AND PARA-3 S HALL BE TREATED AS INVALID AND SHALL BE DEEMED TO HAVE NEVER BEEN ISSU ED. IN FACT REALIZING THAT THE ORDER HAD BEEN PASSED WITHOUT DIN, AN INTI MATION LETTER DATED 21/2/2020 WAS ISSUED WHERE IN IT WAS MENTIONED THAT THE ORDER/NOTICE/LETTER DATED 20/2/2020 IS HAVING DIN: ITBA/COM/M/17/2019- 20/1025539552(1). COPY OF THE INTIMATION LETTER IS ENCLOSED AT PAGE NO. 54. IN THE IMPUGNED ORDER U/S 263 NEITHER DIN HAS B EEN MENTIONED NOR HAS THE FACT THAT THE COMMUNICATION WAS BEING ISSUE D WITHOUT A DIN AFTER TAKING APPROVAL OF APPROPRIATE AUTHORITY BEEN MENTI ONED. THE ORDER U/S 263 HAS THUS TO BE TREATED AS INVALID AND NEVER TO HAVE BEEN ISSUED. NECESSARY RELIEF MAY PLEASE BE ALLOWED AS THE IMPUG NED ORDER IS BEING TREATED AS THE BASIS OF FRAMING FRESH ASSESSMENT. I.T.A NO. 115/ASR/2020 8 9. AS FAR AS MERITS OF ALLOWABILITY OF SALARY/ REMU NERATION TO PARTNERS IS CONCERNED, IT IS SUBMITTED THAT THE RELEVANT CLAUSE IN THE PARTNERSHIP DEED WHICH WAS FILED WITH THE ASSESSING OFFICER HAS BEEN INCORPORATED IN PARA NO. 8.2 AT PAGE NO. 11 OF THE IMPUGNED ORDER. A PERUSAL OF THIS CLAUSE WILL SHOW THAT THE SAID CLAU SE NOT ONLY REFERS TO SECTION 40(B) OF THE INCOME TAX ACT BUT ALSO MENTIO NS THE EXACT FORMULA FOR QUANTIFYING THE REMUNERATION I.E. 90 % UP TO BO OK PROFITS UP TO RS. 300,000 AND 60 % OF THE BALANCE BOOK PROFITS WITH A MINIMUM OF RS. 1.50 LACS. IT HAS ALSO BEEN PROVIDED THAT THE REMUN ERATION SHALL BE CREDITED TO THE WORKING PARTNERS IN EQUAL RATIO. 10. THE REASON FOR INVOKING JURISDICTION U/S 263 IS EVIDENT FROM THE NOTICE ITSELF WHICH HAS BEEN INCORPORATED AT POINT NO. (I) AT PAGE NO. 1 OF THE IMPUGNED ORDER. IT HAS BEEN MENTIONED IN THE NOTICE U/S 263 DATED 18/1/2019 THAT: ' . . . SINCE THE REMUNERATION/ SALARY TO PARTNER S HAS NOT BEEN QUANTIFIED AS REQUIRED U/S 40(B)(II), THE ASSESSING OFFICER WAS REQUIRED TO DISALLOW THE SALARY/REMUNERATION AMOUNT ING TO RS. 24,00,000 DEBITED BY THE ASSESSEE FIRM IN ITS P&L A CCOUNT BUT THE ASSESSING OFFICER FAILED TO DO SO.' 11. IN RESPONSE TO THE ABOVE NOTICE, A DETAILED REP LY DATED 11/2/2019 WAS FILED ON 12/2/2019 WHICH HAS BEEN INCORPORATED AT P ARA NO. 2 OF THE ORDER U/S 263 WHEREIN ATTENTION OF THE LD. PR. CIT WAS AL SO DRAWN TO CIRCULAR NO. 739 DATED 25/3/1996 ISSUED BY CBDT WHEREIN IT HAD B EEN CLARIFIED IN PARA NO. 4 THAT FOR ALL THE ASSESSMENT YEARS SUBSEQ UENT TO THE I.T.A NO. 115/ASR/2020 9 ASSESSMENT YEAR 1996-97 ONWARDS, NO DEDUCTION U/S 4 0(B)(V) WOULD BE ADMISSIBLE UNLESS THE PARTNERSHIP DEED EITHER SP ECIFIES THE AMOUNT OF REMUNERATION PAYABLE TO EACH WORKING PART NER OR LAYS DOWN THE MANNER OF QUANTIFYING SUCH REMUNERATION [PLEASE SEE 2 ND PARA AT PAGE NO. 3 OF THE ORDER U/S 263].COPY OF TH E CIRCULAR NO. 739 IS ENCLOSED AT PAGE NO. 55. SINCE IN THE PRESENT CASE, THE METHOD OF QUANTIFICATION OF REMUNERATION HAD BEEN PROVIDED IN THE RELEVANT CLAUSE OF THE PARTNERSHIP DEED, NO ADVERSE INFERENCE WAS C ALLED FOR AS FAR AS ALLOWABILITY OF REMUNERATION WAS CONCERNED. CERTAIN JUDICIAL DECISIONS ON THE ISSUE WERE ALSO CITED BEFORE THE LD. PR. CIT [4 TH & 5 TH PARA AT PAGE NO. 4 OF THE IMPUGNED ORDER AND 5 TH & 6 TH PARA AT PAGE NO. 7 OF THE IMPUGNED ORDER]. THESE DECISIONS ARE DISCUSSED BELOW: A) CIT VS. ANIL HARDWARE STORE REPORTED AT 233 CTR 595 (HIMACHAL HIGH COURT): IN THIS CASE IT WAS HELD THAT WHERE THE METHOD OF COMPUTATION OF REMUNERATION WAS LAID DOWN BY THE PARTNERSHIP DEED, DEDUCTION OF REMUNERATION WAS ALL OWABLE U/S 40(B). COPY OF THE ORDER IS ENCLOSED AT PAGE NO. 56 TO 60. B) DURGA DASSDEVKI NANDAN VS. CIT REPORTED AT 342 ITR 17 (HIMACHAL HIGH COURT): THE VIEW EXPRESSED IN THE CASE OF ANIL HARDWARE STORE WAS REITERATED AND SALARY HELD TO BE ALLOWABLE EVEN THOUGH NOT FIXED IN THE PARTNERSHIP DEED. COPY OF THE DECISION IS ENCLOSED AT PAGE NO. 61 TO 65. C) RUBBER WINGS VS. ITO (ITAT AMRITSAR): IT WAS HELD THAT THE CLAIM OF SALARY WAS ALLOWABLE IF THE MANNER OF QUAN TIFICATION OF I.T.A NO. 115/ASR/2020 10 SALARY WAS SPECIFIED. COPY OF THE DECISION IS ENCLO SED AT PAGE NO. 66 TO 70 [PLEASE SEE PARA NO. 6 AT PAGE NO. 69 & 70]. THIS DECISION WHICH WAS IN FAVOUR OF THE ASSESSEE WAS DE LIVERED AFTER CONSIDERING THE DECISION OF THE PUNJAB & HARY ANA HIGH COURT IN THE CASE OF SOOD BHANDARI & CO. VS. CBDT R EPORTED AT 246 CTR 90 WHICH WAS BEEN WRONGLY RELIED UPON BY TH E LD. PR. CIT TO DECIDE THE ISSUE AGAINST THE ASSESSEE. D) CIT VS. ASIAN MARKETING REPORTED AT 254 CTR 453 (RAJASTHAN HIGH COURT): IT WAS HELD THAT EVEN WHERE IT WAS PROVIDED THAT WHERE THE RELEVANT CLAUSE OF THE PART NERSHIP DEED PROVIDED FOR SALARY AS PER THE STANDARD AND NORMS F IXED BY THE RELEVANT PROVISIONS OF THE INCOME TAX ACT, THE SAME WAS ALLOWABLE. COPY OF THE DECISION IS ENCLOSED AT PAGE NO. 71 TO 73. E) ACIT VS. RAVI BROS REPORTED AT 3 SOT 533 (ITAT GAU HATI): IT WAS HELD THAT WERE THE PARTNERSHIP DEED CONTAINED T HE FORMULA FOR COMPUTING THE SALARY, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. COPY OF THE DECISION IS ENCLOSED AT PAGE NO. 74 TO 76 [PLEASE SEE PARA NO. 5 AT PAGE NO. 75 & 76]. F) ITO VS. PULIMOOTTIL SILK HOUSE REPORTED AT 19 SOT 4 (ITAT COCHIN): IT WAS HELD THAT EVEN WHERE THE SALARY WAS NOT QUANTIFIED IN THE PARTNERSHIP DEED AND THE DEED PRO VIDED FOR PAYMENT OF SALARY AS PER THE PROVISION OF INCOME TA X ACT, THE I.T.A NO. 115/ASR/2020 11 SAME WAS ALLOWABLE. COPY OF THE DECISION IS ENCLOSE D AT PAGE NO. 77 TO 83 [PLEASE SEE PAGE NO. 78]. G) ACIT VS. DCS INTERNATIONAL TRADING REPORTED AT 37 C CH 312 (ITAT DELHI): IT WAS HELD THAT WHERE THE SALARY TO PARTNERS WAS PROVIDED IN THE PARTNERSHIP DEED TO BE ALLOWED AS P ER THE PROVISION OF SECTION 40(B) OF THE INCOME TAX ACT, T HE SAME WAS ALLOWABLE. THE RELEVANT CLAUSE OF SALARY IS INCORPO RATED BELOW PARA NO. 3.1 AT PAGE NO. 86. THE DECISION OF DELHI HIGH COURT IN THE CASE OF SOOD BRIJ & ASSOCIATES RELIED UPON BY T HE LD. PR CIT WAS DISTINGUISHED [PARA NO. 5.3 AT PAGE NO. 88]. TH IS CASE LAW HAS BEEN RELIED UPON BY THE PR. CIT IN THE IMPUGNED ORDER TO DECIDE AGAINST THE ASSESSEE. COPY OF THE DECISION I S ENCLOSED AT PAGE NO. 84 TO 89. H) UNITEC MARKETING SERVICES VS. ACIT REPORTED AT 175 ITD 90 (ITAT MUMBAI): IT WAS HELD THAT WHERE THE CLAUSE IN THE PARTNERSHIP DEED STATED THAT SALARY WAS TO BE COMPU TED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40(B) AND DISTRIBUTED IN PROFIT SHARING RATIO THE SAME WAS ALLOWABLE. THE RELEVANT CLAUSE OF SALARY IS INCORPORATED BELOW PARA NO. 8 A T PAGE NO. 109. COPY OF THE DECISION IS ENCLOSED AT PAGE NO. 9 0 TO 95. 12. IT WAS FURTHER CONTENDED BY THE LD.AR THAT IN PARA NO. 6 OF THE ORDER PASSED BY THE CIT(A) IT HAS BEEN STATED THAT WITH R EGARD TO THE DIFFERENCE IN THE OPINION BETWEEN THE ASSESSING OFFICER AND TH E COMMISSIONER OF INCOME TAX, THE POSITION STANDS SUBSTANTIALLY ALTER ED WITH THE INSERTION OF I.T.A NO. 115/ASR/2020 12 EXPLANAITION-2 IN SECTION 263, BY FINANCE ACT, 2015 . SINCE THE DEEMING PROVISION HAS BEEN INVOKED, THE DECISION RELIED UPO N BY THE ASSESSEE PERTAINING TO THE PRE-AMENDED PROVISIONS OF SECTION 263 WOULD NOT HOLD GOOD. FOR THE SAKE OF CONVENIENCE IN REFERENCE EXPL ANATION-2 TO SECTION 263 IS REPRODUCED BELOW: 'EXPLANATION-2.- FOR THE PURPOSE OF THIS SECTION, I T IS HEREBY DECLARED THAT AN ORDER PASSED BY THE ASSESSING OFFI CER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICI AL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WITH ANY DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON.' I.T.A NO. 115/ASR/2020 13 13. THE LD PR. CIT HAS NOT MENTIONED WHICH SPECIFIC CLAUSE OF EXPLANATION-2 IS DEEMED TO HAVE BEEN INVOKED IN THIS CASE. ASSUMI NG THAT CLAUSE (A) OR (B) HAVE BEEN INVOKED, IT IS SUBMITTED THAT THIS WA S A CASE WHERE CASE WAS TAKEN UP FOR LIMITED SCRUTINY AND THE SCOPE OF THE ASSESSMENT WAS THUS CONFINED TO THE LIMITED ISSUES. THE ASSESSING OFFICER WAS NOT EXPECTED TO GO BEYOND THESE ISSUES AS CLEARLY MENTI ONED IN INSTRUCTION NO. 20 OF 2015 DATED 29/12/2015 [MENTION IN THE CAS E LAW CITED - PLEASE SEE PAGE NO. 9]. SINCE REMUNERATION TO PARTNERS WAS NOT ONE OF THE REASONS FOR WHICH THE CASE WAS SELECTED FOR LIMITED SCRUTINY, NEITHER CLAUSE (A) NOR CLAUSE (B) OF EXPLANATION-2 TO SECTI ON 263 COULD BE INVOKED. THE LD. PR. CIT HAS NOT APPRECIATED THE CO NCEPT OF LIMITED SCRUTINY WHILE EXPRESSING HER VIEW IN PARA NO. 6 OF THE IMPUGNED ORDER. THE CASE LAWS CITED ABOVE DEALING WITH REVISION WHE RE THE CASE IS SELECTED FOR LIMITED SCRUTINY MAY PLEASE BE CONSIDE RED HERE. 14. IN PARA NO. 7 THE LD. PR. CIT HAS STATED THAT E VEN THOUGH THE CASE WAS SELECTED FOR LIMITED SCRUTINY UNDER CASS ON FOUR RE ASONS, IT SHOULD HAVE BEEN CONVERTED INTO FULL SCRUTINY. SHE HAS ALSO REF ERRED TO INSTRUCTIONS OF CBDT. NO. 20 OF 2015 DATED 29/12/2015 AND NO. 5 OF 2016 DATED 14/7/2016 AND INCORPORATED PARA 3D OF INSTRUCTION N O. 20 OF 2015. IN THIS REGARD IT IS SUBMITTED THAT THIS REASONING CANNOT B E USED FOR INVOKING THE PROVISIONS OF SECTION 263. ATTENTION IS AGAIN DRAWN TO THE VARIOUS SIX DECISIONS OF VARIOUS TRIBUNALS ON THIS ISSUE MENTIO NED AT PAGE NO. 3 & 4 OF THIS SUBMISSION WHEREIN THE ABOVE INSTRUCTIONS H AVE BEEN DISCUSSED [PLEASE SEE PAGE NO. 9, 34 & 48] AND THEREAFTER THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE. IN ANY CASE, THE SPECIFI C CLAUSE RELATING TO REMUNERATION OF PARTNERS IN THE PARTNERSHIP DEED CO NTAINED A FORMULA TO I.T.A NO. 115/ASR/2020 14 QUANTIFY THE SALARY AND FOR THAT REASON ALSO, THE A SSESSING OFFICER COULD NOT HAVE DISALLOWED REMUNERATION TO PARTNERS EVEN I F THE CASE HAD BEEN SELECTED FOR COMPLETE SCRUTINY. CASE LAWS IN THIS R EGARD HAVE BEEN MENTIONED AT PAGE NO. 6 TO 8 OF THIS SUBMISSION. MO REOVER EVEN IF IT IS ACCEPTED FOR THE SAKE OF ARGUMENT THAT ANOTHER VIEW WAS ALSO POSSIBLE, THE ASSESSING OFFICER HAVING TAKEN ONE OF THE POSSI BLE VIEWS WHICH HAS LEGAL BACKING ALSO, THE ISSUE WOULD BE OUTSIDE THE PURVIEW OF SECTION 263 AS HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. MALABAR INDUSTRIAL CO REPORTED AT 159 CTR 1 AND CIT VS. MUNJAL CASTING REPORTED AT 303 ITR 23 (PUNJAB & HARYANA HIGH COURT) AS DISCUSSED A BOVE. 15. IN PARA NO. 8 THE LD. PR. CIT HAS AGAIN STATED THAT THE ASSESSING OFFICER SHOULD HAVE MOVED PROPOSAL TO CONVERT THE CASE INTO A COMPLETE SCRUTINY AS PER INSTRUCTIONS OF CBDT. NO. 20 OF 2015 DATED 2 9/12/2015 AND NO. 5 OF 2016 DATED 14/7/2016. THIS ASPECT HAS ALREADY BE EN DISCUSSED ABOVE. FURTHER CIRCULAR NO. 739 HAS ALSO BEEN REFER RED AND SECTION 40 WHICH HAS BEEN INCORPORATED AT PAGE NO. 9 & 10 OF T HE IMPUGNED ORDER. SHE CONCLUDED BY STATING THAT SECTION 40(B) RELATES TO FIRM AND THE CLAUSES (I) TO (V) ARE INTERCONNECTED AND HAVE TO B E READ HARMONIOUSLY. AS PER THESE CLAUSES, ONE OF THE PRESCRIBED CONDITI ON IS THAT PAYMENT OF REMUNERATION SHOULD BE AUTHORIZED BY AND IN ACCORDA NCE WITH THE TERMS OF THE PARTNERSHIP DEED AND SALARY SHOULD RELATE TO A PERIOD FALLING AFTER THE DATE OF SUCH PARTNERSHIP DEED. IN THIS REGARD I T IS SUBMITTED THAT THE CLAUSE IN THE PARTNERSHIP DEED DEALING WITH REMUNER ATION TO PARTNERS IS IN ACCORDANCE WITH LAW AND ALSO SUPPORTED BY THE CIRCU LAR NO. 739 AND WELL AS VARIOUS JUDICIAL DECISIONS. 16. IN PARA NO. 8.1 OF THE IMPUGNED ORDER THE LD. P R. CIT HAD DRAWN SUPPORT FROM TWO HIGH COURT DECISIONS AND THESE ARE DISCUSS ED BELOW: I.T.A NO. 115/ASR/2020 15 A) SOOD BHANDARI & CO. VS. CBDT REPORTED AT 246 CTR 89 (PUNJAB & HARYANA HIGH COURT): THIS IS A CASE DEALS WITH ENTIRELY DIFFERENT FACTS AND IS NOT APPLICABLE TO T HE PRESENT APPEAL. COPY OF THE DECISION IS ENCLOSED AT PAGE NO. 106 TO 111. THE SALARY CLAUSE IN THIS CASE WHICH WAS UNDER ADJUDICA TION IS REPRODUCED BELOW [PARA NO. 9 AT PAGE NO. 110]: THAT ALL THE PARTNERS OF THE FIRM ATTENDING TO THE BUSINESS OF THE FIRM SHALL BE ENTITLED TO SALARY FROM TIME TO TIME AT THE RATE MUTUALLY DECIDED BY ALL THE PARTIES IN THIS AGREEME NT. B) SOOD BRIJ & ASSOCIATES VS. CIT REPORTED AT 203 TAXM AN 188 (DELHI HIGH COURT) : THIS WAS A CASE WHERE NEITHER THE SALARY HAD BEEN QUANTIFIED NOR THE METHOD OF QUANTIFICATION HA D BEEN PROVIDED IN THE PARTNERSHIP DEED. COPY OF THE DECIS ION IS ENCLOSED AT PAGE NO. 112 TO 117 [PLEASE SEE PARA NO. 8 AT PA GE NO. 120 AND PARA NO. 14 AT PAGE NO. 117]. THE FACTS OF THIS CAS E ARE DIFFERENT FROM THE PRESENT ONE AND THUS THIS CASE IS NOT RELE VANT TO THE ISSUE AT HAND. AS STATED ABOVE, THIS DECISION HAS A LSO BEEN DISTINGUISHED BY THE ITAT DELHI BENCH IN THE CASE O F DCS INTERNATIONAL TRADING (SUPRA) WHILE ALLOWING RELIEF TO THE ASSESSEE. 17. ON THE BASIS OF THE ABOVE CONTENTION IT WAS SUBMITTED THAT THE ORDER PASSED BY BY THE PCIT, IS VOID AND IS REQUIRED TO B E QUASHED. I.T.A NO. 115/ASR/2020 16 18. PER CONTRA DR FOR THE REVENUE HAD VEHEMENTLY RE LIED UPON THE ORDER PASSED BY THE ASSESSING OFFICER AS WELL AS BY THE C IT (A). 19. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD, INCLUDING THE JUD GMENTS CITED AT BAR DURING THE HEARING BY BOTH PARTIES. DURING THE ARGU MENT, THE LD.AR HAD ONLY RESTRICTED HIS SUBMISSION ON THE FIRST GRO UND ALONE, AS IT WAS THE SUBMISSION OF THE LD. AR THAT IF THE FIRST GROU ND IS DECIDED IN FAVOUR OF THE ASSESSEE THEN REMAINING GROUNDS BECAM E ACADEMIC AND THE ORDER OF PCIT CAN BE QUASHED SOLELY. HOWEVE R, IN CASE THE BENCH COMES TO THE CONCLUSION THAT THE MATTER IS RE QUIRED TO BE HEARD THEN THE WRITTEN SUBMISSIONS REPRODUCED HEREINABOVE CAN BE CONSIDERED FOR THE PURPOSE OF DECIDING THE ISSUES O N MERIT. 20. IN THE LIGHT OF THE ABOVE, WE HAVE CONSIDERED G ROUND NO. 1. ADMITTEDLY THE PRESENT CASE BEFORE US IS A CASE OF LIMITED SCRUTINY SELECTED FOR PARTICULAR POINTS REPRODUCED HEREINABO VE CONFINED TO 4 ISSUES. THE ISSUE FOR WHICH THE PCIT ISSUED THE SHO W CAUSE NOTICE WAS ENTIRELY DIFFERENT THAN THE FOUR ISSUES EXAMINE D UNDER LIMITED SCRUTINY BY THE ASSESSING OFFICER. THE BOARD IN ITS CIRCULAR MENTIONED THE PROCEDURE FOR CONVERTING THE LIMITED SCRUTINY C ASE INTO FULL-FLEDGED SCRUTINY. THE SAID CIRCULAR WAS REPRODUCED BY THE P CIT IN THE I.T.A NO. 115/ASR/2020 17 IMPUGNED ORDER BEFORE US. FROM THE PERUSAL OF THE A BOVE SAID CIRCULAR, IT IS ABUNDANTLY CLEAR THAT THE CONDITION S, WHICH ARE SINE QUA NON WERE NON-EXISTENCE. THEREFORE, THE ASSESSING OF FICER DID NOT HAVE TO CONVERT OR MAKE A REQUEST FOR A LIMITED SCR UTINY CASE TO FULL- FLEDGED SCRUTINY. 21. SINCE THE ASSESSING OFFICER WAS ONLY REQUIRED T O DECIDE THE ISSUES SPECIFICALLY SELECTED UNDER LIMITED SCRUTINY AND WA S NOT REQUIRED TO EXAMINE OR SUFFICIENTLY ENQUIRE THE MATTERS WHICH A RE NOT REFERRED TO HIM AS ALLEGED BY THE PCIT. ONCE THE ASSESSING OFFI CER WAS REQUIRED TO APPLY HIS MIND TO THE SPECIFIC ISSUES, WHICH WER E DULY DEALT BY THE ASSESSING OFFICER IN THE ORDER PASSED BY HIM, IT CA NNOT BE SAID THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRON EOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE REV ENUE IN ITS WISDOM HAS DIRECTED THE ASSESSING OFFICER TO DECIDE THE SP ECIFIC ISSUES AND LAID DOWN THE CONDITION OF DEVIATION FROM THE SPECI FIC ISSUES AFTER FULFILLING THE REQUIREMENT OF THE CIRCULAR ISSUED B Y THE BOARD IN THIS REGARD. ONCE THE AO HAD SCRUPULOUSLY DISCHARGED THE DUTY ASSIGNED TO HIM, IT CANNOT BE SAID BY PCIT THAT THE ORDER PA SSED BY THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN LIGHT OF THE ABOVE, WE FULLY AGREE WITH THE SUBMISSION I.T.A NO. 115/ASR/2020 18 MADE BY THE ASSESSEE BEFORE US. WE RESPECTFULLY REL Y UPON THE DECISION REFERRED HEREINABOVE BY THE AR OF THE ASSE SSEE AND DID NOT FIND THE JUDGMENTS REFERRED BY THE LD. PCIT IN ORDE R IN SUPPORT OF ORDER ARE APPLICABLE. 22. AS A RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED ON GROUND NO. 1 ALONE. WE HAVE NOT DISCUSSED ANY OTHER GROUNDS RE FERRED BY THE LD.AR IN THE WRITTEN SUBMISSION. 23. AS A RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/09/2021. SD/- SD/- (DR. M.L. MEENA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDIC IALMEMBER DATED 24/09/2021 *GP/SR. P.S.* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY BY ORDER