A. V. Cam Corporation Ltd., Ahmedabad V. The Pr.CIT- Ahmedabad-1, Ahmedabad

ITA 377/AHD/2023

AI Insights

The case involves A.V. Cam Corporation Ltd., which appealed against the order of the Principal Commissioner of Income-tax-1, Ahmedabad, under Section 263 of the Income-tax Act, 1961. The PCIT had revised the assessment order for AY 2018-19, claiming it was erroneous and prejudicial to the Revenue because the Assessing Officer failed to disallow EPF contributions and address discrepancies in accounts during a limited scrutiny assessment focused on 'exports/imports'. The Tribunal found that the PCIT improperly expanded the scope of scrutiny beyond the selected issues, leading to the reversal of the PCIT's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134487 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-10-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 15-05-2023
• Other Referred Cases: Checkmate Services Pvt. Ltd. vs. Income Tax, 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, Aakash Ganga Promoters & Developers v. Pr. CIT, Sonali Hemant Bhavsar v. Pr. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Principle of natural justice; Earning of tax free income; Assessment record; Set aside
• Section: 263; 14A

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ायपी ‘डी’ अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No. 377/Ahd/2023 िनधा रणवष /Assessment Year: 2018-19 A.V. Cam Corporation Ltd. 55/C, Tribhuvan Indl.Estate Nr.Kathwada GIDC Ahmedabad 380 430 PAN : AAPCA 0560 K Vs. Principal Commissioner of Income- tax-1, Ahmedabad / (Appellant) / (Respondent) Assessee by : Shri S. N. Divatia & Shri Samir Vora, Advocates Revenue by : Dr. Darsi Suman Ratnam, CIT-DR सुनव ई क त र ख/D a t e o f H e a r i n g : 2 5 / 1 0 / 2 0 2 3 घोषण क त र ख /D a t e o f P r o n o u n c e m e n t : 3 1 / 1 0 / 2 0 2 3 आदेश/O R D E R PER SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER: This appeal filed by the Assessee is directed against the order passed by the learned Principal Commissioner of Income-Tax-1, Ahmedabad [hereinafter referred to as “PCIT”] dated 29/03/2023, in exercise of his revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year 2018-19. 2. The assessee has taken the following Grounds of Appeal:- “1. The order U/s.263 passed on 29.03.2023 by Pr.CIT-1, A’bad holding that the order of assessment passed u/s.143(3) on 02.09.2020 was erroneous and prejudicial to the interest of the revenue to the extent of issue relating to disallowance of EPF contribution and discrepancy in account of Shiv Enterprise without making adequate inquiry is wholly illegal, unlawful and against the principles of natural justice. 1.2. The order passed by U/s.263 on 29.03.2023 by Pr.CIT-1 Abad holding the order of assessment passed u/s.143(3) on 02.09.2020 as erroneous and prejudicial to the Revenue is illegal and unlawful. The ld.Pr.CIT has erred in 2 ITA No. 377/Ahd/2023 AV Cam Corporation Ltd. vs. Pr.CIT AY :2018-19 law and or on facts in invoking the powers of revision u/s.263 of the Act, since the condition precedent were not satisfied. 2.1 The ld.Pr.CIT has grievously erred in law and or on facts in holding the order of assessment passed u/s.143(3) on 02.09.2020 by AO to the extent of failure to disallow EPF contribution and make addition towards discrepancy in account of Shiv Enterprise was erroneous and prejudicial to the interests of the Revenue for want of adequate inquiry and on merits held to be inadmissible. 2.2. That the in the facts and circumstances of the ld.Pr.CIT ought not to have held that the order of assessment passed u/s.143(3) on 02.09.2020 by AO to the extent of failure to disallow EPF contribution and make addition towards discrepancy in account of Shiv Enterprise was erroneous and prejudicial to the interests of the Revenue for want to proper inquiry and on merits held to be inadmissible. 5. It is, therefore, prayed that the order passed by Pr.CIT u/s.263 as well as directions to disallow EPF contribution and make addition towards discrepancy in account of Shiv Enterprise should be quashed.” 3. The brief facts of the case are that the assessee is engaged in the business of manufacturing of lift parts. For AY 2018-19, the assessee filed return of income on 30/10/2018 declaring total income at Rs.NIL and income under MAT at Rs.13,93,149/-. The said return was selected for “limited scrutiny” on the issue of “exports/imports”. During the course of assessment proceedings, the Assessing Officer issued notices of hearing u/s.142(1) of the Act, from time to time, which also included the inquiry relating to the impugned addition. The Assessing Officer completed regular assessment u/s.143(3) of the Act on 08/10/2020 accepting the returned income after examining the aforesaid issue. The Ld. PCIT on examination of case records noticed that the Tax Audit item No.20(b) showed that assessee had not deposited contribution to EPF within due dates and the balance-sheet showed that advance expenses had increased from Rs.35,849/- to Rs.25,00,000/- and therefore both the above items were liable to be disallowed during the course of scrutiny assessment, which the Assessing Officer failed to disallow and, therefore, the assessment order passed by the AO was erroneous and prejudicial to the interests of the Revenue. During the course of 263 proceedings, the assessee furnished reply dated 14/03/2023 3 ITA No. 377/Ahd/2023 AV Cam Corporation Ltd. vs. Pr.CIT AY :2018-19 objecting to the proposed revision. However, the PCIT held that belated payment of employees’ contribution to EPF was disallowable in view of the decision of Checkmate Services Pvt. Ltd 143 taxmann.com 178 (SC). Further, the PCIT held that there was mismatch between the opening and closing balance of Shiv Enterprise in as much as the contra-ledger account from M/s.Shiv Traders showed closing balance of Rs.25,00,000/- as against the ledger account in books of the assessee at Rs.35,849/-. Accordingly, the Ld.PCIT set aside the assessment order as being erroneous and prejudicial to the interests of Revenue. 4. The assessee is in appeal before us against the aforesaid order passed by the Ld.PCIT setting aside the assessment order as being erroneous and prejudicial to the interests of the Revenue. 5. Before us, at the outset, the ld.counsel for the assessee submitted that the case of the assessee was selected for limited scrutiny assessment under the E- Assessment Scheme, 2019 to examine the issue of “exports/imports”. During the course of assessment proceedings, the Assessing Officer had called for the requisite records to examine the case of the assessee with respect to the issue of “imports/exports”. Accordingly, it was submitted that it is not the case of the Revenue that on the issue on which the case of the assessee was opened for limited scrutiny, there was any apparent lack of enquiry or non-application of mind by the Ld. Assessing Officer. It was submitted that the ld. PCIT is seeking to expand the scope of limited scrutiny assessment by taking recourse to 263 proceedings. The ld. counsel for the assessee submitted that various Courts and Tribunals have consistently taken a view that it is not open to the Ld. PCIT while exercising power u/s. 263 of the Act, to expand the scope of limited scrutiny assessment when the Assessing Officer could not have possibly examined such issue during the course of such limited scrutiny assessment. 4 ITA No. 377/Ahd/2023 AV Cam Corporation Ltd. vs. Pr.CIT AY :2018-19 6. In response, the ld. DR submitted that on perusal of assessment records and the Tax Audit Report submitted by the assessee, it was evident that there was delay in payment of employees’ contribution to towards EPF. Accordingly, since this delay in deposit of Employees’ PF is so evident from the face of the record, the Assessing Officer ought to have disallowed the aforesaid amounts in view of the decision of Checkmate Services Pvt. Ltd.(supra). Accordingly, looking to the instant facts of the case, it was submitted that the assessment order is erroneous and prejudicial to the interests of the Revenue. 7. We have heard the rival contentions and perused the material available on record. In the instant case, we observe that apart from the issue of the late deposit of EPF, the ld.PCIT also set aside the assessment order on account of mismatch between the opening and closing balance of M/s.Shiv Enterprise wherein the contra-ledger account from M/s.Shiv Enterprise showed closing balance of Rs.25,00,000/- as against the ledger account in the books of accounts of the assessee of Rs.35,849/-. Accordingly, apparently, this issue required detailed analysis and was beyond the scope of limited scrutiny assessment proceedings. Further, with respect to late deposit of EPF contribution, even in the proceedings u/s.143(1) of the Act, no prima-facie adjustment was made by the CPC even though there as a prima-facie mismatch between the details as highlighted by the Auditors in their Tax Audit Report and return of income filed by the assessee, with respect to late deposit of employee’s PF. In our view, such mistake should have been covered within the scope of prima-facie adjustment u/s.143(1) of the Act itself. 8. Without prejudice to the above, we note that the case was selected under “LIMITED CASS” to examine the issue of “Exports/ Imports” during the year under consideration. It is not the contention of the Revenue that the aforesaid issue was not duly examined by the Ld. Assessing Officer during the course of assessment proceedings. Accordingly, the AO being satisfied with the 5 ITA No. 377/Ahd/2023 AV Cam Corporation Ltd. vs. Pr.CIT AY :2018-19 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 opening the assessment under limited scrutiny scheme. Therefore, there was no occasion for the Ld. AO to examine this issue for payment to contractors. It is a well settled law 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 Circulars 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 u/s 263 of the Act and also erred in holding that assessment order is erroneous and prejudicial to the interest of 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 6 ITA No. 377/Ahd/2023 AV Cam Corporation Ltd. vs. Pr.CIT AY :2018-19 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 this aspect, the Pune Tribunal in the case of Deccan Paper Mills Co. Ltd. v. CIT [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." In the case of R&H Property Developer (P.) Ltd. v. Pr. CIT [IT Appeal No. 1906 (Mum.) of 2019, dated 30-7-2019, the Mumbai ITAT made the following observations in this regard: 7 ITA No. 377/Ahd/2023 AV Cam Corporation Ltd. vs. Pr.CIT AY :2018-19 '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 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." Similar view has been 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) (vii) Sanjeev Kr. Khemka v. Pr.CIT [1361/Kol/2016 - order dated 02.06.2017] ITAT Kolkata Benches.” 8 ITA No. 377/Ahd/2023 AV Cam Corporation Ltd. vs. Pr.CIT AY :2018-19 Accordingly, looking to the facts of the case and the judicial proceedings dealing with the issue of whether proceedings u/s 263 of the Act can be invoked to expand the scope “limited scrutiny assessment”, we are of the considered view that the ld. PCIT has erred in facts and law in holding that the assessment order is erroneous and the prejudicial to the interests of the Revenue. It is well settled law that it is not open to the PCIT, while exercising power u/s.263 of the Act to find fault with the assessment order on the ground of it being erroneous with respect to an issue not covered within the scope of “limited scrutiny assessment”, since the Assessing Officer could not have possibly examined such issue under the scope of “limited scrutiny assessment”. 8. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 31/10/2023 at Ahmedabad. Sd/- Sd/- Sd/- Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER Ahmedabad; Dated 31/10/2023 TC Nair, Sr.PS आदेश क त &े षत/Copy of the Order forwarded to : 1. / The Appellant 2. ' / The Respondent. 3. संबं धत आ कर आ ु) / Concerned CIT 4. आ कर आ ु)) (/ The Pr.CIT(A)-1, Ahmedabad 5. वभ ग त न ध ,आ कर धकरण/DR,ITAT, Ahmedabad, 6. ग , फ ई /Guard file. आदेश नुस र/ BY ORDER, //True Copy// TRUE COPY सह क ंज क र (Asstt. Registrar) आ कर धकरण ITAT, Ahmedabad 9 ITA No. 377/Ahd/2023 AV Cam Corporation Ltd. vs. Pr.CIT AY :2018-19 1. Date of dictation ...27.10.2023 (dictation pad 11- pages attached). Date on which the typed draft is placed before the Dictating Member :...............27.10.’23/30.10.23 1. Other Member........................ 2. Date on which the approved draft comes to the Sr.P.S./P.S......................... 3. Date on which the fair order is placed before the Dictating Member for pronouncement....... 4. Date on which the fair order comes back to the Sr.P.S./P.S...................31.10.23 5. Date on which the file goes to the Bench Clerk................ 31.10.23 6. Date on which the file goes to the Head Clerk... 7. The date on which the file goes to the Assistant Registrar for signature on the order............ 8. Date of Despatch of the Order..................