M/S RESULTS INVESTMENTS PRIVATE LIMITED, CHENNAI V. DCIT CORPORATE WARD 5(3), CHENNAI

ITA 400/CHNY/2022

AI Insights

The case involves M/s. Results Investments Pvt. Ltd., which appealed against the revisionary order issued by the Principal Commissioner of Income Tax, Chennai-4, for the Assessment Year 2017-18. The revision was based on the grounds that the original assessment was erroneous and prejudicial to the interest of the revenue, particularly concerning the treatment of interest income and the disallowance of related expenditures. The Tribunal examined whether the issues raised by the Principal Commissioner were within the scope of the limited scrutiny under which the case was selected. The Tribunal concluded that the revisionary order was beyond the permissible scope of limited scrutiny and lacked credible material to justify an expansion of the inquiry.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133984 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-03-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 23-05-2022
• Other Referred Cases: Subbunadar Chandra Sekar vs. ITO, Mr. Yuvaraj vs. ITO, Binod Kumar Mahato vs. Pr. CIT, M/s Sahayamatha Salterns Pvt. Ltd. vs. DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Earning of tax free income; Capital Gains
• Section: 263; 154; 143(3); 142(1); 14A; 115JB

Judgement Text

आयकर अपीलीय अिधकरण ‘बी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI माननीय +ी वी. द ु गा1 राव, ाियक सद3 एवं माननीय +ी मनोज कु मार अ8वाल ,लेखा सद3 के सम:। BEFORE HON’BLE SHRI V. DURGA RAO, JUDICIAL MEMBER AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.400/Chny/2022 (िनधा1रण वष1 / Assessment Year: 2017-18) M/s. Results Investments Pvt. Ltd. 480, Khivraj Complex, Second Floor, Anna Salai, Nandanam, Chennai – 600 035. बनाम/ V s. DCIT Corporate Ward-5(3), Chennai. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAC C R -8 0 2 9 - F (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Shri K. Ramakrishnan (C.A)-Ld. AR थ की ओरसे/Respondent by : Shri S. Senthil Kumaran (CIT) – Ld. DR सुनवाई की तारीख/Date of Hearing : 28-03-2023 घोषणा की तारीख /Date of Pronouncement : 13-04-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this appeal, the assessee challenges the validity of revisional jurisdiction u/s. 263 as exercised by Ld. Principal Commissioner of Income Tax, Chennai-4 (Pr.CIT) for Assessment Year 2017-18 vide order dated 30-03-2022. The grounds raised by the assessee read as under: - 1. The order of The Commissioner of Income tax is contrary to law, facts and circumstances of the case. 2 The Commissioner of Income tax erred in setting aside the assessment order on the ground that the original order passed by the Assessing officer is erroneous and prejudicial to the interest of the revenue. ITA No.400/Chny/2022 - 2 - 3. The Commissioner of Income Tax erred in concluding that the interest income should be treated as income from other sources and hence no expenses would be adjusted against that income. 4. The Commissioner of income tax erred in disallowing the entire expenditure incurred by the company including that of employee cost and other statutory expenses like audit fees, ROC filing fees etc., 5. The Commissioner of Income tax erred in ignoring the facts submitted before him with regard to treatment of interest income as business income on the ground that the appellant company is a finance company engaged in the business of investments. 2. The Ld. AR advanced arguments and assailed the validity of revisionary order on the ground that the issues flagged therein could not have been examined by Ld. AO as held by this Tribunal in the case law of Subbunadar Chandra Sekar vs. ITO (ITA No.612/Chny/2021 dated 06-12-2022). The Ld. AR also raised plea of consistency and submitted that the interest income earned by the assessee has been accepted as business income in all the other years. The Ld. CIT-DR, on the other hand, controverted the arguments of Ld. AR and justified the revision of the order on the ground that the issue of head of income was never examined by Ld. AO. Having heard rival submissions, our adjudication would be as under. 3. From the case records, it emerges that the assessee is engaged in the business of making investment. The assessee earned interest income from fixed deposits kept with Bank and offered the same as business income. The case was selected for ‘Limited Scrutiny’ (Computer Aided Scrutiny Selection) for the limited purpose of examining the expenses incurred for earning exempt income. During the course of assessment proceedings, notices were issued u/s 142(1) calling for various details from the assessee which include brief note on nature of business, details of deposits, computation of book profits u/s ITA No.400/Chny/2022 - 3 - 115JB and break-up of expenses incurred by the assessee. The assessee was specifically required to furnish the details of exempt income earned along with note on applicability of Sec.14A. The assessee filed the requisite details and the returned income was accepted by Ld. AO in an assessment framed u/s 143(3) on 28-11- 2019. The head of income i.e., ‘business income’ was not disturbed since the same was not the subject matter of limited scrutiny. This order was rectified u/s 154 on 04-12-2019 making disallowance u/s 14A for Rs.17.76 Lacs. 4. Subsequently, upon perusal of case records, Ld. Pr. CIT held an opinion that the assessment framed on 28-11-2019 was erroneous and prejudicial to the interest of the revenue and issued a show-cause notice to the assessee to raise objection against the proposed revision. In the notice, it was, inter alia, stated that interest income was to be treated as income from other sources and no expenses were to be allowed as deduction. The entire interest income was to be assessed as income from other sources without deduction of any expenditure. 5. The assessee, vide reply dated 18-03-2022, submitted that it was having investment as its main objects and accordingly, it placed the funds in the bank fixed deposits. The investment so made constitute primary objects of the assessee and therefore, offered as business income. The only source of income is interest income and dividend income. The same has been accepted as such since incorporation of the assessee. Therefore, the twin condition that the order should be erroneous as well as prejudicial to the interest of Revenue was not fulfilled in the present case and therefore, revision was not valid in law. ITA No.400/Chny/2022 - 4 - 6. However, rejecting assessee’ submissions, Ld. Pr. CIT held that the expenditure had no nexus with the interest income. The assessment order was erroneous and prejudicial to the interest of the revenue and accordingly, the assessment order was set-aside with a direction to Ld. AO to allow only expenditure incurred exclusively to earn the taxable income and pass fresh assessment order after affording opportunity of hearing to the assessee. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 7. From the stated facts, it emerges that the case was selected for limited scrutiny ‘to examine expenses incurred for earning exempt income’ only. The scope of assessment proceedings was limited to examine that aspect only and nothing more. Nevertheless, Ld. AO called for various details including nature of assessee’s business, details of deposits, computation of book profits u/s 115JB and break-up of expenses incurred by the assessee etc. After having satisfied with assessee’ submissions, the returned income was accepted vide assessment order dated 28-11-2019. The assessment was rectified u/s 154 and disallowance u/s 14A was made. Thus, the purpose for which the case was selected for scrutiny was duly served and no further action was required on the part of Ld. AO, in this regard. The examination of head of interest income was beyond the scope of limited scrutiny assessment proceedings. In such a case, the assessment order could not be branded as erroneous and prejudicial to the interest of the revenue simply to enlarge the scope of limited scrutiny assessment proceedings. To consider other aspect, Ld. AO ITA No.400/Chny/2022 - 5 - was bound by CBDT Instruction No. F.No.225/402.2018/ITA.II dated 28-11-2018 as held by this Tribunal in cited case as under: - Our findings and Adjudication 6. The undisputed facts that emerge are that the issues which have been flagged by Ld. Pr. CIT to seek revision could not have been, otherwise, examined by Ld. AO since the case was selected under ‘limited scrutiny’ to verify the genuineness of capital gains / losses. The issues lagged for ‘limited scrutiny’ was duly examined and verified by Ld. AO. To examine other issues, Ld. AO was bound by CBDT Instruction No. F.No.225/402/2018/ITA.II dated 28.11.2018 which, inter-alia, provide as under: - Under CASS cycles 2017 and 2018, some of the cases were selected for scrutiny as a 'Limited Scrutiny' case. In limited Scrutiny' cases, Assessing Officer cannot travel beyond the issue(s) for which the case was selected. The idea behind such a stipulation is to enforce checks and balances upon powers of an Assessing Officer to do fishing and roving enquiries in cases under 'Limited Scrutiny'. 2. In this regard, several representations have been received in the Board from the field authorities that in several cases under 'Limited Scrutiny', information pointing out specific tax-evasion for the relevant year, given by any law-enforcement/intelligence/regulatory authority or agency is available with the concerned Assessing Officer, however, in view of the restrictive nature of enquiry/investigation which can be made in 'Limited Scrutiny' cases, the same presently cannot be acted upon. 3. The matter has been considered by the Board. In order to enable proper enquiry/investigation in pending 'Limited Scrutiny' cases which were selected through CASS cycles of 2017 and 2018, where credible material or information has been/is provided by any law- enforcement/intelligence/regulatory authority or agency regarding tax- evasion by an assessee, it has been decided by the Board that issues arising from such information can also be examined during the course of conduct of assessment proceedings in such 'Limited Scrutiny' cases with prior administrative approval of the concerned Pr. CIT/CIT. 4. It is pertinent to mention that unlike CASS 2015 and 2016 cycles, where consideration of any additional issue lead to the conversion of case to 'Complete Scrutiny' as laid down in Instruction No. 5/2016 dated 14.07.16, the pending 'Limited Scrutiny' cases of CASS 2017 and 2018 cycles would not be taken up for 'Complete Scrutiny' as the present directive is only to facilitate consideration of those issues wherein specific information of tax- evasion has been furnished by any law-enforcement/intelligence/regulatory authority or agency. Therefore, in such 'Limited Scrutiny' cases, Assessing Officer shall not expand the scope of enquiry/investigation beyond the issue(s) on which the case was flagged for 'Limited Scrutiny' & issue arising from nature of information mentioned in para 2 and 3, above. 5. The following procedure shall be adopted while examining the additional issue: i. The Assessing Officer shall duly record the reasons for expanding the scope of 'Limited Scrutiny' to the extent mentioned in para 2 and 3, above; ITA No.400/Chny/2022 - 6 - ii. The same shall be placed before the Pr. CIT/CIT concerned and upon his approval, further issue can be considered during the assessment proceeding; iii. The Assessing Officer shall issue an intimation to the assessee concerned that additional issue would also be considered during the course of pending assessment proceeding; iv. To ensure proper monitoring in these cases, provisions of section 144A of the Income-tax Act, 1961 may be invoked in suitable cases. Further, to prevent fishing and roving enquiries in these cases, it is desirable that these cases are invariably picked up for Review/Inspection by the administrative authorities. 6. The above directive shall be applicable from the date of its issue and shall apply to the pending 'Limited Scrutiny' cases which were selected under the CASS 2017 and 2018 cycles. It is reiterated that the grounds mentioned in para 3 above are the only grounds on which a 'Limited Scrutiny' case of CASS 2017 and 2018 cycles can be expanded in its scope and that too only to the extent of the issues referred to by the law- enforcement/intelligence/regulatory authority or agency . 7. It may be brought to the notice of all for necessary compliance. Upon perusal of para-3 of above instructions, it could be seen that the scope of limited scrutiny for CASS cycles 2017 and 2018 could be widened only upon receipt of credible material or information from any law enforcement / intelligence / regulatory authority or agency regarding tax-evasion by an assessee. In such a case, the issues arising from such information could also be examined during the course of conduct of assessment proceedings in such 'limited scrutiny' cases with prior administrative approval of the concerned Pr. CIT/CIT. However, in the present case, we find that there is no such credible material or information which would justify widening the scope of limited scrutiny. Therefore, Ld. Pr. CIT, in our considered opinion, could not term the assessment order as erroneous or prejudicial to the revenue since the flagged issues, could otherwise be not examined by Ld. AO during the course of regular assessment proceedings. 7. Our view is duly supported by the recent decision of this Tribunal in Mr. Yuvaraj vs. ITO (ITA No.1722/Chny/2019 order dated 07.03.2022) wherein the bench held as under: - 6. We have heard both the parties, perused material available on record and gone through orders of the authorities below. We find that the assessment for the impugned assessment year has been taken up for limited scrutiny to verify large cash deposits into savings bank account and the Assessing Officer has completed assessment after verifying cash deposits in savings bank account and has made additions, when the assessee was unable to explain source for part of cash deposits. It is an admitted position of law that in limited scrutiny assessments, scope of verification is limited to the issues mentioned in the notice issued under CASS system. The Assessing Officer cannot travel beyond the issues on which assessment has been taken up for scrutiny. Therefore, once the Assessing Officer does not have power to go beyond the issues on which he has taken up case for scrutiny, then obviously, the learned PCIT cannot term the assessment order passed by the Assessing Officer as erroneous, ITA No.400/Chny/2022 - 7 - insofar as it is prejudicial to the interests of revenue on issues other than the issue taken up by the Assessing Officer in scrutiny assessment proceedings. In this case, on perusal of materials available on record, we find that the learned PCIT has revised assessment order on the issues other than the issue considered by the Assessing Officer in assessment proceedings. Therefore, we are of the considered view that the learned PCIT has exceeded her jurisdiction in examining issues other than the issues which is subject matter of limited scrutiny assessment proceedings before the Assessing Officer. Hence, we are of the considered view that revision order passed by the learned PCIT u/s.263 of the Act is invalid and not sustainable. Hence, we quash order passed by the learned PCIT u/s.263 of the Act. Similar is the decision of Kolkata Tribunal in Binod Kumar Mahato vs. Pr. CIT (ITA No.2173/Kol.2018 dated 24.02.2021), a copy of which has been placed on record. Similar is the ratio of other decisions of other benches of Tribunal, the copies of which are on record. 8. The decision of Chennai Tribunal in M/s Sahayamatha Salterns Pvt. Ltd. vs. DCIT (ITA No.1498/Chny/2019 dated 11.12.2019), as relied upon by revenue, is factually distinguishable. Upon perusal of para-4 of the order, it could be seen that Ld. AO failed to consider the information passed on to him by other Income Tax Authority regarding on-money consideration and therefore, the revision was held to be justified. The same is not the case here. 9. Therefore, on the facts and circumstances of the case, the revision of the order could not be upheld in the eyes of law. By quashing the same, we allow the appeal of the assessee. 10. The appeal stands allowed in terms of our above order. Therefore, on this point alone, the revision of the order is unsustainable in the eyes of law and the same is, therefore, quashed. We order so. 8. At the same time, we would hold that rule of consistency also favors the case of the assessee. The interest income earned by the assessee has been accepted as business income in AYs 2008-09, 2009-10, 2011-12, 2013-14, 2014-15, 2015-16 u/s 143(1). The case was scrutinized u/s 143(3) for AY 2010-11 wherein also this position was not disturbed. Therefore, the assessment order, on this point, could not be subjected to revision u/s 263. ITA No.400/Chny/2022 - 8 - 9. Considering the stated position, the impugned revisionary order could not be sustained in the eyes of law and we have no hesitation in quashing the same. 10. The appeal stand allowed in terms of our above order. Order pronounced on 13 th April, 2023. Sd/- (V. DURGA RAO) ाियक सद3 /JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद3 / ACCOUNTANT MEMBER चे,ई / Chennai; िदनांक / Dated : 13-04-2023 EDN/- आदेश की Uितिलिप अ 8ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु /CIT 4. िवभागीय ितिनिध/DR 5. गाड फाईल/GF