SHRI GAGANDEEP GARG. PROP, BATHINDA V. PRINCIPAL COMMISSIONER OF INCOME TAX -1, AMRITSAR

ITA 39/ASR/2021

AI Insights

The case involves Sh. Gagandeep Garg, the proprietor of M/s Rama Traders, who appealed against the order of the Principal Commissioner of Income Tax-1, Amritsar, which was issued under section 263 of the Income Tax Act. The PCIT had revised the assessment order for the Assessment Year 2015-16, claiming it was erroneous and prejudicial to the interest of the revenue due to unexamined speculative transactions and adjustments of losses against non-speculative business income. The Tribunal found that the PCIT exceeded his jurisdiction by expanding the scope of limited scrutiny without proper approval, leading to the quashing of the PCIT's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114604 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-05-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 30-05-2021
• Other Referred Cases: BALVINDER KUMAR v. PCIT, Naveen Bajaj Jal v. Pr. CIT-1, Jalandhar, Paradise Rubber Industries, Baljeet Yadav v. The Pr.CIT, Jaipur
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Business income; Revision of order; Speculative transactions; Set aside
• Section: 263; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 39/Asr/2021 Assessment Year: 2015-16 Sh. Gagandeep Garg, Prop. M/s Rama Traders, #176-Homeland Enclave, Goniana Road, Bathinda [PAN: AIEPG 6909J] (Appellant) V. Pr. Commissioner of Income Tax-1, Amritsar (Respondent) Appellant by Sh. Sudhir Sehgal Respondent by Sh. Girish Bali, CIT- DR Date of Hearing : 16.05.2023 Date of Pronouncement : 07.06.2023 ORDER Per Dr. M. L. Meena, AM: This appeal has been filed by the assessee against the order of the Ld. Pr. Commissioner of Income Tax-1, Amritsar (In short “the PCIT”) dated 31.03.2021 in respect of Assessment Year 2015-16. I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 2 2. The assessee has raised the following ground of appeal: “1. The Principal Commissioner of Income Tax-1, Amritsar has erred in law and facts and circumstances of the case by proceeding on the issues not covered by the grounds of Limited Scrutiny and thus expanded the scope of limited scrutiny. 2. The Principal Commissioner of Income Tax-1, Amritsar has erred in law and facts and circumstances of the case by setting aside original order inspite the fact that he has not controverted the submissions of the assessee that high sea sales is not speculative transaction and therefore there can be no disallowance of loss arising therefrom against the non speculative business income. 3. The Principal Commissioner of Income Tax-1, Amritsar has erred in law and facts and circumstances of the case without controverting/negating any of the grounds of detailed reply submitted in response to show cause notice u/s 263. 4. The Principal Commissioner of Income Tax-1, Amritsar has erred in law and facts and circumstances of the case by passing an order based on whims and fancies and without laying down what is "uncanny adjustment of loss from High sea trading results" 3. Briefly the facts as per the records are that the Pr. CIT has raised quarries vide show cause notice issued to the assessee that the assessment in your case was completed by the AO at an assessed income of Rs. 10,08,830/- after making an addition of Rs. 3,70,000/- on account of disallowance and low GP/NP. The Pr. CIT observed that the appellant was involved in the transaction of high sea sales wherein the transactions of purchases and sales were being carried out without taking actual delivery or handling of actual delivery. The gross loss of such trading has been I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 3 shown from speculative transactions at Rs. 1,48,17,503/- out of total sales of Rs. 59,33,12,560/- against the purchase of Crude Oil at Rs. 60,81,30,063/-. During the year under consideration, he had debited other expenses against interest income. Total interest income has been shown at Rs. 2,16,31,598/- out of which net profit has been shown at Rs. 2,51,849/-. Thus, he was involved in speculative transactions and loss thereof has been adjusted against interest income. Hence, there has been understatement of income to the extent of Rs. 2,13,46,749/-. Accordingly, the Ld. PCIT was of the belief that the assessment order dated 31.03.2015 passed by the ITO, Ward-1(1), Bathinda in present case for the A.Y. 2015- 16 was erroneous and prejudicial to the interest of revenue. He, therefore, called upon to explain as to why the said assessment order may not be revised u/s 263 of the Act. The Ld. PCIT being not satisfied with the explanation furnished by the appellant assessee held the assessment order dated 31.03.2015 passed by the ITO, Ward-1(1), Bathinda in present case for the A.Y. 2015- 16 as erroneous and prejudicial to the interest of revenue u/s 263 of the Act. 4. The Ld. AR for the appellant submitted that the PCIT had erred in law and facts, and circumstances of the case by proceeding on the issues which were not covered under Limited Scrutiny and thus, he has expanded I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 4 the scope of limited scrutiny; to set aside original order in spite of the fact that he has not controverted the submissions of the assessee that high sea sales is not speculative transaction and therefore there can be no disallowance of loss arising therefrom against the non speculative business income; that he has not controverted/negated any of the contention of the assessee as per detailed reply submitted in response to show cause notice u/s 263. The Ld. AR argued that the Ld. PCIT has erred in law and facts of the case by passing an order based on whims and fancies, without laying down what is "uncanny adjustment of loss from High sea trading results". In support of its contention, a brief synopsis is filed which reads as under: “1. The appellant is a partnership firm engaged in the business of trading of Crude Palm Oil and money lending. The copy of Audit Report in form 3CD and Balance Sheet and Profit Et Loss Account is forming part of paper book at Pg 1- 18. 2. It had filed its Return of Income on 25.09.2015 at an income of Rs. 6,38,830/-. 3. The case was selected for LIMITED SCRUTINY under CASS on the following issues: a) Unsecured loans from persons who have not filed their return of income b) Large increase in unsecured loans during the year c) Large squared up loans during the year (Notice attached at Pg 19 of PB). 4. Thereafter, order u/s 143(3) of the Act was passed on 29.09.2017and an ad-hoc basis addition of Rs. 3,70,000/- for low GP/NP was made on to the returned income of the assessee. I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 5 5. Thereafter, the assessee received a notice u/s 263 of the Act dated 23.03.2020 wherein, the assessment framed by the AO has been treated as erroneous and prejudicial to the revenue on the issue that the loss of speculative business has been adjusted out of the interest income from money lending business and other expenses related to speculation business have also been adjusted out of interest income, (notice attached at Pg 29-30 of PB) 6. It is submitted that the case of the assessee has been selected for limited scrutiny only and the issue raised vide notice u/s 263 of the Act was never the part of scrutiny assessment, however, as per CIT, there has been understatement of income to the extent of Rs. 2,13,6,749/- and assessment has been completed without application of mind by the AO. Therefore, worthy CIT was of the view that order passed by the AO was erroneous as well prejudicial to the interest of the revenue and accordingly, he reopened the case and passed the order u/s 263 of the Act. OUR SUBMISSIONS: 1. At the outset, it is submitted that reopening of case u/s 263 of the Act and the order passed by the CIT is bad in (aw on the following issues: i. The case of the assessee was selected for LIMITED SCRUTINY on the following issues: • Unsecured loans from persons who have not filed their return of income • Large increase in unsecured loans during the year • Large squared up loans during the year Accordingly, the assessment was framed u/s 143(3) of the Act on the limited issues for which the case of the assessee was selected. ii. It is submitted that during the course of assessment proceedings, replies to all the queries raised by the AO were filed and there was no lack of providing information at the end of the assessee. The Ld. AO was fully satisfied with the replies filed by the assessee and having a thorough discussion of the case, an ad-hoc addition/disallowance was made by the AO tot eh tune of Rs. 3,70,000/-.The copies of replies filed by assessee before the AO during the course of assessment proceedings are forming part of paper book at P g 2 1 -2 3 . I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 6 iii. Further, notice u/s 263 of the Act has been issued on the basis that the loss of speculative business has been adjusted out of the interest income from money lending business and other expenses related to speculation business have also been adjusted out of interest income and the said issue has not been looked into by the AO and accordingly, the order passed by the AO is erroneous as well as prejudicial to the revenue. In this respect, it is submitted that such issue was never the subject matter of the limited scrutiny (as mentioned in Para 3 above) and therefore, the said issue was not looked into by the AO during assessment proceedings. The AO was never bound to enquire into such issues, therefore, it cannot be said that the assessment in the case of assessee is erroneous and prejudicial to the interest of revenue as mentioned by your goodself in notice issued u/s 263 of the Act. iv. Further, in para 4(b) of the order passed u/s 263 of the Act, the Ld. PCIT has mentioned that the scope of limited scrutiny has been expanded to complete scrutiny. In this respect, it is submitted that during the course of assessment proceedings, the assessee was never informed about the fact that the scope of limited scrutiny has been expanded. However, during the course of 263 proceedings, vide reply dated 24.03.2021, the assessee specifically stated before the Ld. Pr. CIT to provide administrative approval obtained by the AO from PR. CIT/CIT/Pr. DIT to expand the scope of limited scrutiny to complete scrutiny which has not been provided to the assessee. In the absence of such approval, it can never be assumed and proved that the scope of the limited scrutiny was ever expanded by the AO. The copy of such reply is forming part of paper book at Pg 31 to Pg 41. v. In view of the above stated facts, it is conclusive that the notice issued and order passed by the CIT u/s 263 of the Act is void-ab-initio and bad in law since the case of the Assessee was selected for limited scrutiny and the queries raised by the CIT vide the above mentioned show cause notice are not within the scope/reason of limited scrutiny and jurisdictional authority and therefore, the proceedings initiated as well as order passed by the CIT u/s 263 of the Act are invalid. Reliance in this regard is placed on the following judgments: BALVINDER KUMAR v. PCIT in [2021] 125 taxmann.com 83 (Delhi - Trib.) I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 7 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.” The Hon’ble ITAT Amritsar Bench in the case of Naveen Bajaj Jal v. Pr. CIT-1, Jalandhar in ITA No. 114/Asr/2020 dated 14 th October, 2021 [2021](10) TMI 743. “11. We have considered the rival contention of both the parties and perused the material available on record, including the judgments cited at bar during the hearing. The Ld.AR had focused his submission on the first ground alone, and contended that if the first ground is decided in favour of the assessee then other grounds would be academic in view of the order of PCIT may be quashed. However, in case the bench comes to the conclusion that the matter is required to be heard, then the written submissions reproduced hereinabove can be considered for the purpose of deciding the issues on merit. 12. Recently, the coordinate bench, Amritsar in the case of Paradise Rubber Industries in ITA no. I.T.A No. 115/ASR/2020, ASSESSMENT YEAR: 2015-16 on similar facts held that revisionary jurisdiction shall not be invoked by the Pr. CIT to look into the issues which were not within the purview of limited scrutiny by observing vide para20 and 21 as under: “20. In the light of the above, we have considered ground No. 1. Admittedly the present case before us is a case of Limited scrutiny selected for particular points reproduced hereinabove confined to 4 issues. The issue for which the PCIT issued the show cause notice was entirely different than the four issues examined under limited scrutiny by the assessing officer. The Board in its circular mentioned the procedure for converting the limited scrutiny case into full-fledged scrutiny. The said circular was reproduced by the PCIT in the impugned order before us. From the perusal of the above said circular, it is abundantly clear that the conditions, which are sine qua non were nonexistence. Therefore, the assessing officer did not have to convert or make a request for a limited scrutiny case to full-fledged scrutiny. 21. Since the assessing officer was only required to decide the issues specifically selected under Limited scrutiny and was not required to examine or sufficiently enquire the matters which are not referred to him as alleged by the PCIT. Once the I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 8 assessing officer was required to apply his mind to the specific issues, which were duly dealt by the assessing officer in the order passed by him, it cannot be said that the order passed by the assessing officer was erroneous or prejudicial to the interest of the revenue. The revenue in its wisdom has directed the assessing Officer to decide the specific issues and laid down the condition of deviation from the specific issues after fulfilling the requirement of the circular issued by 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 passed 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 made by the assessee before us. We respectfully rely upon the decision referred hereinabove by the AR of the assessee and did not find the judgments referred by the Ld. PCIT in order in support of order are applicable.” 13. In the above view and following our decision in the case of Paradise Rubber Industries (Supra), the i: ze a \ filed by the assessee is allowed on legal ground. We have not discussed any other grounds r-erred by the Ld.AR in the written submission on merits.” The Hon’ble ITAT, Jaipur Bench-A, Jaipur in the case of Baljeet Yadav v. The Pr.CIT, Jaipur in ITA No. 120/JP/2022 order dated 07.06.2022 relied para 6.3 is as under: “6.2. It is evident from the assessment order and impugned order that the assessee's case was selected for scrutiny under CASS for examination of cash deposits made in the bank during the demonetarization period. It is prima facie not clear whether it was a limited scrutiny case or a detailed scrutiny case with the approval of the competent authority. To our understanding, it was a limited scrutiny case being selected under CASS for examination of cash deposits made in the bank during demonetarization period and, therefore, the authorities below ought to have restricted their examination and enquiries limited for the purpose of cash deposits made by the appellant during the period of demonetarization only. By expanding the scope of scrutiny beyond the issue of cash deposits during demonetarization period, amounts to exceeding the jurisdiction by the Id. PCIT without following the prescribed procedure and the administrative guidelines under the law. After considering the documentary evidences filed by the assessee in compliance to the enquiries caused by the AO and scrutiny of the documents in respect of the cash deposits, the AO has accepted the cash deposits in the bank during the period of demonetarization made by the appellant as duly explained. Thus, the I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 9 AO to his satisfaction accepted the cash deposits in the bank account of the assessee during the period of demonetarization as explained money in accepting the returned income of the assessee under section 143(3) of the IT Act. In our view, the Id. PCIT was not justified in adversely commenting on the said cash deposits of the assessee and adopting a divergent view where two views are possible that too on the issues of agricultural income and unsecured loans, which were not even parameters of selection of the case for scrutiny under CASS. The case laws relied upon by the Id. 'PCIT are distinguishable on the peculiar facts of the case.” 5. Per contra, the Ld DR supported the impugned order, however, he has not filed any rebuttal to the arguments/contention of the counsel before us. 6. We have heard rival contentions, perused the material on record, impugned order, written submission and case law cited before us. Admittedly, the present case was selected for Limited scrutiny on the points reproduced hereunder: 1. Unsecured loans from persons who have not filed their return of income. 2. Large increase in unsecured loans during the year. 3. Large squared up loans during the year 7. From the above, it is evident that the issue for which the PCIT issued the show cause notice was entirely different than the issues of selection of the case under limited scrutiny by the assessing officer. The Board in its circular mentioned the procedure for converting the limited scrutiny case I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 10 into full-fledged scrutiny. From the perusal of the above said circular, it is abundantly clear that the conditions, which are sine qua non were non – existence, the assessing officer did not have to make a request to convert a limited scrutiny case into full-fledged scrutiny. 8. On similar facts, the coordinate bench, Amritsar in the case of Paradise Rubber Industries in ITA no. I.T.A No. 115/ASR/2020, ASSESSMENT YEAR: 2015-16 has held that revisionary jurisdiction shall not be invoked by the Pr. CIT to look into the issues which were not within the purview of limited scrutiny by observing vide para20 and 21 as under: “20. In the light of the above, we have considered ground No. 1. Admittedly the present case before us is a case of Limited scrutiny selected for particular points reproduced hereinabove confined to 4 issues. The issue for which the PCIT issued the show cause notice was entirely different than the four issues examined under limited scrutiny by the assessing officer. The Board in its circular mentioned the procedure for converting the limited scrutiny case into full-fledged scrutiny. The said circular was reproduced by the PCIT in the impugned order before us. From the perusal of the above said circular, it is abundantly clear that the conditions, which are sine qua non were nonexistence. Therefore, the assessing officer did not have to convert or make a request for a limited scrutiny case to full-fledged scrutiny. 21. Since the assessing officer was only required to decide the issues specifically selected under Limited scrutiny and was not required to examine or sufficiently enquire the matters which are not referred to him as alleged by the PCIT. Once the assessing officer was required to apply his mind to the specific issues, which were duly dealt by the assessing officer in the order passed by him, it cannot be said that the order passed by the assessing officer was erroneous or prejudicial to the interest of the revenue. The revenue in its wisdom has directed the assessing Officer to decide the specific issues and laid down the condition of deviation from the specific issues after fulfilling the requirement of the circular issued by 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 passed by the assessing officer was erroneous and prejudicial to the interests of the revenue. In light of the above, we fully agree with the I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 11 submission made by the assessee before us. We respectfully rely upon the decision referred hereinabove by the AR of the assessee and did not find the judgments referred by the Ld. PCIT in order in support of order are applicable.” 9. Again, The ITAT Amritsar Bench in the case of “Naveen Bajaj Jal v. Pr. CIT-1, Jalandhar”, (Supra) on parity of facts, following its decision in the case of “Paradise Rubber Industries”, (Supra), allowed the assessee of the assessee on legal ground. 10. Following our decision in the case of Paradise Rubber Industries (Supra), we hold that the Assessing Officer cannot go beyond reasons for of limited scrutiny and thus, it would not be open to the PCIT to pass revisionary order under section 263 on other aspects and remit matter to Assessing Officer for fresh assessment. Accordingly, we hold the impugned order passed u/s 263 of the PCIT is bad in law and as such same is quashed. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 07 .06.2023 Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr./P.S.* Copy of the order forwarded to: (1)The Appellant I.T.A. No. 39/Asr/2021 Gagandeep Garg v. ITO 12 (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order