The Karnavati Co.Op. Bank Limited, Ahmedabad V. The PCIT, Ahmedabad-1, Ahmedabad

ITA 364/AHD/2023

AI Insights

The case involves The Karnavati Co. Op. Bank Ltd., which appealed against the order of the Principal Commissioner of Income Tax (PCIT), Ahmedabad, which set aside the original assessment order under Section 143(3) of the Income Tax Act, 1961. The original assessment was conducted under a limited scrutiny scheme focusing on expenses incurred for earning exempt income. The PCIT later invoked Section 263, claiming the assessment was erroneous and prejudicial to the interests of the revenue, specifically concerning the non-disallowance of a portion of the investment depreciation provision. The Tribunal found that the PCIT overstepped by addressing issues outside the limited scrutiny parameters, leading to the quashing of the PCIT's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125387 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-08-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 10-05-2023
• Other Referred Cases: Sahita Construction Company Vs. Pr. CIT, Shark Mines and Minerals (P.) Ltd. vs. CIT, PCIT v. Rakesh Kumar, Naga Dhunseri Group Ltd. vs. CIT, Balvinder Kumar v. Principal CIT, Deccan Paper Mills Co. Ltd. v. CIT, R&H Property Developer (P.) Ltd. v. Pr. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Competent authority; Set aside
• Section: 263; 143(3); 14A; 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . No .3 64 /A h d / 20 23 ( A s se ss m e nt Y e a r : 20 18- 19 ) Th e K a r n a va ti C o.o p. B a n k L td ., 1 0 5, Ra dh a R a m a n C o m p le x , N r . K ho d i ya r N a gar H i gh wa y, B a pu n ag ar , A h m e d a ba d- 38 32 5 0 V s . The P r in c ip al C o m mi s s i on e r of I n co me T ax , Ah me da b ad -1 [ P A N N o. A A B A T4 5 8 8J ] (Appellant) .. (Respondent) Appellant by : Shri Jignesh Parikh, Advocate & Shri Umesh Shah, A.R. Respondent by: Shri Kamlesh Makwana, CIT D.R. D a t e of H ea r i ng 24.08.2023 D a t e of P r o no u n ce me nt 13.09.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax-1, (in short “Ld. PCIT”), Ahmedabad in Order No. ITBA/REV/F/REV5/2022-23/1051772450(1) vide order dated 31.03.2023 passed for Assessment Year 2018-19. 2. The assessee has taken the following grounds of appeal:- “1. The Learned Principal Commissioner of Income Tax, Range 1 Ahmedabad erred in holding that the assessment order passed u/s 143(3) of the Income Tax Act, 1961 pursuant to selection of the case for scrutiny under Limited Scrutiny is erroneous and prejudicial to the interest of the revenue by invoking provisions of section 263 of the Income Tax Act, - 1961. The Assessing Officer has made inquiries on the issues for which the case was selected for Limited Scrutiny. ITA No. 364/Ahd/2023 The Karnavati Co. Op. Bank Ltd. vs. PCIT Asst.Year –2018-19 - 2– 2. The Appellant prays for appropriate relief on above grounds of appeal. 3. The Learned Principal Commissioner of Income Tax, Range-1 Ahmedabad erred in directing the Assessing Officer, to carry out proper inquiries / verification on the issue of deduction claimed on account of investment depreciation provision in the Profit & Loss account. 4. The appellant craves leave to add, alter, amend, substitute or withdraw any of the grounds of appeal stated hereinabove.” 3. The brief facts of the case are that the original assessment order was passed by the Assessing Officer under Section 143(3) of the Act vide order dated 20.01.2021. In the original assessment, the case of the assessee was selected for “limited scrutiny assessment under e-assessment scheme, 2019” to examine the “expenses incurred by the assessee for earning exempt income”. Subsequently, the Principal Commissioner of Income Tax, Ahmedabad -1 initiated 263 proceedings on the ground that during the year, assessee had claimed deduction of Rs.1,83,24,908/- on account of investment depreciation provision in the profit and loss account. On verification of the computation of income, it was noticed that out of Rs.1,83,24,908/-, the assessee had disallowed only Rs.67,95,000/- on account of investment depreciation provision. The Ld. PCIT was of the view that the expenditure claimed by the assessee on account of investment depreciation provision is not an allowable deduction, therefore, the remaining amount of Rs.1,15,29,908/- (Rs.1,83,24,908/- minus Rs.67,95,000/-) ought to have been disallowed by the Assessing Officer while completing the assessment. During the course of 263 proceedings, the assessee submitted that the case of the assessee had been open under “limited scrutiny assessment scheme” to verify the expenses incurred by ITA No. 364/Ahd/2023 The Karnavati Co. Op. Bank Ltd. vs. PCIT Asst.Year –2018-19 - 3– the assessee for earning “exempt income”, and therefore in light of various judicial precedents, the aforesaid issues on the basis of which 263 proceedings have been initiated against the assessee, are unsustainable. However, the PCIT held that in the instant case, there was option available with the Assessing Officer to widen the scope of limited scrutiny with the approval of the competent authority. However, no action was taken by the Assessing Officer in this regard. Therefore, this amounts to an erroneous action on the part of the Assessing Officer, which resulted in loss of revenue, hence the order which was passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue. 4. The assessee is in appeal before us against the aforesaid order passed by the Principal CIT setting aside the assessment order as being erroneous and prejudicial to the interests of the Revenue. Before us, the Counsel for the assessee submitted that the findings of the Principal CIT holding the assessment order as being erroneous on an issue which is beyond the scope of limited scrutiny, is not in accordance with law. The Counsel for the assessee placed reliance on various judicial precedents, which on similar facts have decided the issue in favour of the assessee by holding that it is not open to the Principal CIT while exercising power under Section 263 of the Act to find fault with the assessment order on the ground of it being erroneous on an issue not covered by “limited scrutiny assessment”, when the Assessing Officer could not have possibly examined such issue under the scope of “limited scrutiny assessment”. 5. In response, the Ld. DR placed reliance on the observations made by the Principal CIT in the 263 order. ITA No. 364/Ahd/2023 The Karnavati Co. Op. Bank Ltd. vs. PCIT Asst.Year –2018-19 - 4– 6. We have heard the rival contentions and perused the material on record. At the outset, from the assessment order we note that the case was selected under “Limited Scrutiny” to examine the “expenses earned by the assessee for earning exempt income”. In the assessment order, AO observed that the assessee has submitted its reply on the above issue for which assessment was opened and no addition was made on this issue. Accordingly, the AO being satisfied with the reply/clarification filed by the assessee, accepted the returned income of the assessee and no additions were made in the assessment order. In the recent case of Sahita Construction Company Vs. Pr. CIT (ITAT Indore) in ITA No. 119/Ind/2021, the Tribunal held that when the assessment is taken up for limited scrutiny, Ld. Pr. CIT cannot hold the assessment order as erroneous and prejudicial to the interest of revenue in respect of issue which was not a reason for selection of the case for limited scrutiny. The ITAT observed that perusal of records shows that assessee’s case was selected for limited scrutiny through CASS for verification of “contract receipts/fees mismatch, sales turnover mismatch and tax credit mismatch”. The issue of payment to contractors and tax deducted thereon was never a part of reasons for the limited Therefore, there was no occasion for the Ld. AO to examine this issue for payment to contractors. It is well settled that in case of limited scrutiny matter Ld. AO has to work within the parameters observed by the Central Board of Direct Taxes; instruction dated 29.12.2015 and various other circular issued in this behalf. Since the assessee’s case was selected for limited scrutiny on certain issues and Ld. AO has examined these issues and framed the assessments and the issue of examination of payment to contractors was not a part of the limited scrutiny reasons, in our considered view, Ld. Pr. CIT erred in assuming jurisdiction under Section 263 of the Act and also erred in holding that assessment order is erroneous and prejudicial to the interest of ITA No. 364/Ahd/2023 The Karnavati Co. Op. Bank Ltd. vs. PCIT Asst.Year –2018-19 - 5– revenue. In the case of Shark Mines and Minerals (P.) Ltd. 151 taxmann.com 71 (Orissa), the High Court held that it is not open to Commissioner while exercising power under Section 263 to find fault with assessment order on ground of its being erroneous on an issue not covered by ‘limited scrutiny’ when Assessing Officer could not have possibly examined such issue. In the case of PCIT v. Rakesh Kumar 152 taxmann.com 398 (Punjab & Haryana), the High Court held that where Principal Commissioner invoked revisionary proceedings on ground that assessee made purchases in cash in contravention to Section 40A(3), since assessee's case was selected for limited scrutiny for verification of cash deposited in bank account, AO was not required to make enquiry on issue with respect to cash purchase and thus, order of AO could not be said to erroneous. In the case of Naga Dhunseri Group Ltd. 146 taxmann.com 424 (Calcutta), the High Court held that where Principal Commissioner invoked revisionary proceedings on grounds that disallowance under Section 14A in respect of exempt income was not considered by AO even when assessee's case was selected for limited scrutiny to verify introduction of capital in NBFC/investment companies which was linked to such disallowance, since issue of disallowance under Section 14A was not an issue selected for limited scrutiny, Principal Commissioner could not make a roving enquiry in guise of a limited scrutiny and thus, impugned revisionary order was to be quashed. In the case of Balvinder Kumar v. Principal CIT [2021] 125 taxmann.com 83 (Delhi - Trib.), the ITAT held that in case of limited scrutiny, Assessing Officer could not go beyond reason for which matter was selected for limited scrutiny thus, it would not be open to Principal Commissioner to pass revisionary order under Section 263 on other aspects and remit matter to Assessing Officer for fresh assessment. On the aspect, the Pune Tribunal in the case of Deccan Paper Mills Co. Ltd. v. CIT ITA No. 364/Ahd/2023 The Karnavati Co. Op. Bank Ltd. vs. PCIT Asst.Year –2018-19 - 6– [IT Appeal no. 1013 & 1635 (Pun.) of 2015, made the following observations: “40. Now, coming to the aspect of book profits which was considered by the Commissioner and the order of the Assessing Officer was held to be erroneous and prejudicial to the interest of revenue. In this regard, it may be pointed out that the case of assessee was picked up for scrutiny under CASS for the limited purpose of verifying the Chapter VI-A deduction. Once the case is picked up for specific purpose under CASS, then it is outside the purview of the Assessing Officer to look into any other aspect other than the aspect for which it is picked up. Hence, the Assessing Officer has not formed any opinion in respect of computation of book profits in the hands of assessee. Once, no such opinion has been formed by the Assessing Officer, the Commissioner has erred in holding the order of the Assessing Officer to be erroneous and prejudicial to the interest of revenue in this regard. Accordingly, we reverse the findings of the Commissioner. Accordingly, we hold that the order passed by the Commissioner under Section 263 of the Act is invalid and the same is quashed for both the assessment years.” 7. In the case of R&H Property Developer (P.) Ltd. v. Pr. CIT [IT Appeal No. 1906 (Mum.) of 2019, dated 30.07.2019, the Mumbai ITAT made the following observations in this regard: “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.O had aptly confined himself to ITA No. 364/Ahd/2023 The Karnavati Co. Op. Bank Ltd. vs. PCIT Asst.Year –2018-19 - 7– the issue 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 were clearly beyond the realm of the reason for which the case of the assessee was selected for limited scrutiny as per the AIR information. 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 10-10-2016 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.” 8. Similar view was taken by the ITAT the following decisions as well: (i) Aakash Ganga Promoters & Developers v. Pr. CIT [IT Appeal No. 164 (CTK) of 2019, dated 18-12-2019] (ii) Sonali Hemant Bhavsar v. Pr. CIT [IT Appeal No. 742 (Mum.) of 2019, dated 17-5-2019] (iii) Agrawal Promoters vs. Pr. CIT in ITANo.1708/CHD/2017 (I.T.A.T., Chandigarh) (iv) Mrs. Sonali Bhavsar vs. PCIT ITANo.742/Mum/2019 (I.T.A.T., Mumbai) (v) Rakesh Kumar vs. CIT ITANo.6187/Del/2015 (I.T.A.T., Delhi) (vi) Baby Memorial Hospital vs. ACIT ITANo.420/Coch/2019 (I.T.A.T., Cochin) ITA No. 364/Ahd/2023 The Karnavati Co. Op. Bank Ltd. vs. PCIT Asst.Year –2018-19 - 8– (vii) Sanjeev Kr. Khemka v. Pr.CIT [1361/Kol/2016 - order dated 02.06.2017] ITAT Kolkata Benches. 9. In view of the above judicial precedents cited above, which are of the considered view that Ld. Pr. CIT has erred in assuming revisionary powers under Section 263 of the Act in the instant facts. The impugned order of Ld. Pr. CIT is accordingly quashed. 10. Since, we have decided the case on the issue of jurisdiction to initiate proceedings under Section 263 of the Act, we are not separately discussing the merits of the case. Thus, in our considered view assessment order dated 20.01.2021 under Section 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue and the same is restored. 11. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 13/09/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 13/09/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad