Sh. Narender Kumar Sharma, Shimla V. Pr. CIT, Shimla

ITA 429/CHANDI/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6103 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 05-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Revision of order; Set aside
• Section: 147; 263; 143(3); 143(2); 13

Judgement Text

This is an appeal filed by the assessee against the order of the Principal Commissioner of Income Tax, Shimla, passed u/s.263 of the Income Tax Act, 1961, (in short “the Act“) dated 22.03.2018 pertaining to assessment year 2013-14. 2. Briefly, the facts of the case are that the assessee filed his return of income declaring total income of Rs.2,22,43,400/-, which was processed u/s.143(1) of the Act, and thereafter, the case was selected for scrutiny under CASS and notice u/s.143(2) of the Act was issued and thereafter, the assessment was completed u/s 143(3) of the Act, determining net , ‘ब ’ , । IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER सं./ITA No.429/Chd/2018 /Assessment Year: 2013-14 Mr.Narender Kumar Sharma, Prop: M/s.Hydel Engineering Products, Middle Bazar, Rampur Bushehar, District: Shimla. v. The Principal Commissioner- of Income Tax, Shimla. [PAN: ATPPS 6196 M] ( /Appellant) (!" /Respondent) # $ %/ Appellant by : Mr.Tejmohan Singh, Adv. !" # $ % /Respondent by : Mr.Rohit Sharma, CIT, DR ु नव ई # ( )/Date of Hearing : 06.07.2022 घोषण # ( ) /Date of Pronouncement : 18.07.2022 आ द%श / O R D E R PER VIKRAM SINGH YADAV, ACCOUNTANT MEMBER: ITA No.429/Chd/2018 :: 2 :: taxable income of Rs.2,22,88,740/-. Subsequently, the assessment records were pursued by the ld. Pr.CIT and a show cause notice u/s.263 of the Act, dated 25.01.2018, was issued to the assessee. Thereafter, after taking into consideration, the submissions so filed by the assessee, the assessment order passed u/s.143(3) of the Act was set aside and the AO was directed to re-assess or re-compute the income of the assessee by conducting further enquiries as necessitated and after affording reasonable opportunity to the assessee. Against the said order and findings of the ld. Pr.CIT, the assessee is in appeal before us. 3. During the course of hearing, the ld.AR submitted that the case of the assessee was initially selected for limited scrutiny under CASS for verification of introduction of capital during the year under consideration and during the course of assessment proceedings, the AO carried out necessary verification and has given a finding that there was no such introduction of capital during the year under consideration. In this regard, our reference was drawn to the office note forming part of the assessment order passed u/s 143(3) of the Act, dated 28.10.2015, which was placed at Page No.103 of the assessee’s paper book. It was submitted that where the case was selected for limited scrutiny, the ld. Pr.CIT while exercising the jurisdiction u/s.263 of the Act cannot enlarge the scope of assessment proceedings and therefore, the order passed by the ld. Pr.CIT, wherein, he has enlarged the scope of assessment and subject matter of enquiry by the AO, cannot be sustained and the same ITA No.429/Chd/2018 :: 3 :: deserve to be set-aside In support, reliance was placed on the decisions of the Co-ordinate Bench, Chandigarh, in case of Vijay Kumar v. ITO, Patiala, in ITA No.434/Chd/2019 dated 12.09.2019, Co-ordinate Bench, Chennai, in case of Smt. Padmavathi v. ITO, Tirunelveli, in ITA No.1306/Chny/2019 dated 02.12.2019, Co-ordinate Bench, Jaipur, in case of Mahendra Singh Dhankhar (HUF) v. ACIT, Jhunjhunu, in ITA No.265/JP/2020 dated 30.06.2021 and Co-ordinate Bench, Delhi, in case of Balvinder Kumar v. Pr.CIT, New Delhi, in ITA No.485 (Delhi) of 2020 dated 10.12.2020. 4. Per contra, the ld. CIT/DR submitted that it is not in dispute that the case of the assessee was selected for limited scrutiny under CASS to verify the introduction of capital. However, as per instruction of CBDT No.20/2015, where the case is selected for limited scrutiny and if it comes to the notice of the AO that there is a potential escapement of income exceeding Rs.5 lakhs requiring substantial verification, the case should have been taken up for complete scrutiny with the approval of the ld. Pr.CIT. However, in the instant case in spite of facts on record as noted by the ld.Pr.CIT in the impugned order, which vividly indicate rather prove to a large extent the potential escapement of assessment, the AO has failed to either conduct necessary enquiries required as per law or to convert the same for complete scrutiny following the mandatory instruction of the CBDT. It was submitted that as per Explanation 2(c) to Section 263 of the Act, the order passed is clearly erroneous as well as ITA No.429/Chd/2018 :: 4 :: prejudicial to the interest of the Revenue as the assessment order has not been made in accordance with any order/direction/instructions issued by the Board u/s.119 of the Act. It was submitted that in terms of the said Explanation, the orders so passed by the AO shall be deemed to be erroneous in so far as prejudicial to the interest of the Revenue and in this regard, our reference was drawn to the findings of the ld. Pr.CIT which has duly considered the fact that the case of the assessee was selected for limited scrutiny and relying on the CBDT Instruction No.20/2015, he has negated the said contention raised by the assessee during the revision proceedings. 5. We have heard the rival contentions and perused the material available on record. It is an undisputed fact that the case of the assessee was selected for limited scrutiny to verify the introduction of capital during the year under consideration and the AO has taken due note of the same and has given a specific finding after verification of record that since there is no fresh capital introduced during the year, the issue for which the matter was selected for limited scrutiny does not exists and no adverse view can be taken, therefore, taking into consideration the submissions of the assessee, the assessment proceedings were completed. 6. Further, in the show cause notice issued by the ld. Pr.CIT, it is noted that he has raised issues relating to non-reporting of contract receipts from M/s.SGVN Ltd. and secondly, regarding discrepancy in the ITA No.429/Chd/2018 :: 5 :: sundry creditors accounts as shown in the balance sheet dated 31.03.2013, the sundry creditors shown in the preceding assessment year and the purchases made during the year under consideration. Further, besides these two issues, the ld. Pr.CIT has noticed certain discrepancies/shortcomings in the assessment order, which find mention in Point No.13 of the impugned order and basis the same, it was held that the assessment order passed by the AO is not only erroneous but also prejudicial to the interest of the Revenue. We therefore find that two issues on which show cause notice has been issued as well as the other issues as contained in Para 13 of the impugned order, are not subject matter of limited scrutiny and therefore, it is a case where these issues have been raised for the first time by the ld. Pr.CIT by enlarging the scope of the assessment. 7. It is a consistent stand across various Benches of the Tribunal that where the case of the assessee has been selected for limited scrutiny, the ld. Pr.CIT cannot enlarge the scope of the said assessment. In this regard, we refer to the decision of the Jaipur Benches in case of Mahendra Singh Dhankhar (HUF) v. ACIT, Jhunjhunu (supra), where speaking through one of us, we have elaborately discussed the said matter in light of the CBDT instructions issued in the context of the limited scrutiny and the enlargement of limited scrutiny and have held that the Pr. CIT u/s.263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment as what cannot be done ITA No.429/Chd/2018 :: 6 :: directly cannot be done indirectly. Therefore, where the matter was selected for limited scrutiny, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was originally vested with the A.O while framing the assessment and the relevant findings are as under: “16. We have heard the rival contentions and perused the material available on record. There is no dispute that the case of the assessee was selected for limited scrutiny under CASS on account of mismatch of sales turnover as reported in audit report, ITR, AIR and CIB data. The A.O. issued notice u/s 143(2) of the Act and enquired about the issues under consideration and in response, the assessee submitted copies of the sale deeds executed during the year under consideration and also submitted reconciliation of sales turnover with financials, ITR, AIR and CIB data which is also placed on record before us. Being satisfied, the AO completed the assessment u/s 143(3) without any adverse finding regarding the issues for which the matter was selected for limited scrutiny. 17. There is no dispute that scope of enquiry in case of limited scrutiny is only to the extent of the issues for which case was selected for scrutiny under CASS. The CBDT has issued instructions from time to time in this respect and has specifically instructed the taxing authorities that scope of enquiry should be limited to verification of all the particulars for which limited scrutiny was taken up under CASS. However, in case during the assessment proceeding if the AO is of the view that substantial verification of other issue is also required then the case may be taken up for comprehensive scrutiny with the approval of the Pr.CIT/DIT concerned. It is also instructed that such an approval shall be accorded by the Pr.CIT/DIT in writing after being satisfied about the merits of the issue(s) necessitating wider and detailed scrutiny in the case. In the latest Instruction No. 5/ 2016 dated 14-07-2016, CBDT has again instructed the taxing authorities in para 2 to 4 as under:- “2. In order to ensure that maximum objectivity is maintained in converting a case falling under ‘Limited Scrutiny’ into a ‘Complete Scrutiny’ case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up ‘Complete Scrutiny’ in a case which was originally earmarked for ‘Limited Scrutiny’, the Assessing Officer (‘AO’) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under ‘Complete Scrutiny’. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr.DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view; ITA No.429/Chd/2018 :: 7 :: b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view. 4. It is further clarified that in cases under ‘Limited Scrutiny’, the scrutiny assessment proceedings would initially be confined only to issues under ‘Limited Scrutiny’ and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to ‘Complete Scrutiny’ after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in ‘Limited Scrutiny’. The AO shall also expeditiously concerned regarding conducting ‘Complete Scrutiny’ in such cases.” 18. Thus the AO is duty bound to follow the instructions in case limited scrutiny assessment proceeding are proposed to be converted into complete scrutiny and without following said procedure and necessary approval of the competent authority conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO. As a necessary corollary, the Pr. CIT u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment as what cannot be done directly cannot be done indirectly. Therefore, where the matter was selected for limited scrutiny, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was originally vested with the A.O while framing the assessment as also held consistently by various Benches of the Tribunal as referred supra. 19. A contention which has been raised by the ld CIT/DR is that where there is a potential escapement of income, the AO is required to convert the limited scrutiny case into a comprehensive scrutiny case after taking the prior approval of ld. PCIT and if the AO does not get the limited scrutiny case converted to comprehensive scrutiny case even though there are material on record, the assessment order becomes erroneous as it is prejudicial to the interest of Revenue and provisions of section 263 of the Act are applicable. For the purposes of converting limited scrutiny to complete scrutiny, what is relevant is that there must be some credible material or information on face of the record and basis review thereof during the assessment proceedings, the AO is required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under ‘Complete Scrutiny’ and after seeking approval from the competent authority, the case can be converted into complete scrutiny and that too, during the currency of assessment proceedings. Therefore, what is essential is the existence of credible material and basis examination thereof and formation of belief by the AO at first place during the course of assessment proceedings that there is a case of under assessment or escapement of income which is similar to provisions of section 147 of the Act. In the instant case, we find that the assessee, being in business of real estate development has followed percentage completion method of accounting and has accounted for actual costs incurred though after the end of the financial year as the project was substantially completed and revenues have been recognized. Therefore, we find that there is no infirmity in assessee following the accepted method of accounting and basis thereof, determination of income which is offered to tax and thus, we find that there was no tangible material or information available during the course of assessment proceedings basis which reasonable belief can be formed of escapement or under assessment of income and which could have led the AO to seek permission to convert limited scrutiny into complete scrutiny. Therefore, the AO not seeking permission to convert limited scrutiny to complete scrutiny is not ITA No.429/Chd/2018 :: 8 :: borne out of facts on record. Even for sake of arguments, if we were to assume that there is material on record pointing towards potential escapement of income and which has escaped the attention of the AO during limited scrutiny assessment proceedings and no action has been taken by him, it is not that the Revenue doesn’t have any recourse and correct course of action would have been for AO to record his satisfaction though after completion of current assessment proceedings and invoke jurisdiction u/s 147 of the Act subject of course to satisfaction of conditions specified therein rather than the ld. PCIT invoking jurisdiction u/s 263 of the Act. As we have discussed earlier, the revisional jurisdiction u/s 263 cannot be exercised for broadening the scope of jurisdiction that was originally vested with the A.O for limited scrutiny while framing the assessment and enlarging his scope of limited enquiry.” 8. Similarly, in case of Balvinder Kumar v. Pr.CIT, New Delhi (supra), the Co-ordinate Delhi Benches have taken a similar view and the relevant findings are contained at Para Nos.9 -11 which read as under: “9. The above CBDT instructions and the letter clearly establish that it’s not open for the learned Assessing Officer to travel beyond the reason for selection of the matter for limited scrutiny and on that aspect the assessment order in this case is in accordance with the instructions governing the field. In such circumstances it has to be seen whether the Ld. PCIT is justified in holding the assessment order to be erroneous insofar as it is prejudicial to the interest of the Revenue for the learned Assessing Officer not considering the aspects which are beyond the purview of limited scrutiny. 10. In the Deccan Paper Mills Co. Ltd. vs. CIT in ITA 1013 AND 1635/PUN/2015, Pune Bench of the Tribunal held, that, “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 M/s R.H. Property vs. PCIT, ITA No. 1906/Mum/2019 it was held that,- “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, ITA No.429/Chd/2018 :: 9 :: 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 there in adjudicating the contentions advanced by the Id. A. Ron the merits of the case, which thus are left open.” 11. Similarly, is the view taken consistently by the benches of this Tribunal in the other two cases also, relied upon by the assessee. In the circumstances, in view of the consistent view taken in similar matters we are of the considered opinion that when the assessing officer is bound to follow the CBDT instructions and while following such instructions and after verification of the material furnished by the assessee on the aspect covered by the limited scrutiny, is not open for the Ld. PCIT to say that not adverting to the other aspects of the competition would render the assessment order erroneous and prejudicial to the interest of the Revenue. With this view of the matter we find that the impugned order cannot be sustained and, therefore, the same is liable to be quashed. We accordingly quash the same.” 9. Similarly, the Co-ordinate Chennai Benches, in case of Smt. Padmavathi v. ITO, Tirunelveli (supra) has held as under: “....7. We heard the rival submissions and perused the material on record. The only issue in the present appeal relates to the validity of the revision order passed by the ld. PCIT, u/s.263 of the Act. Admittedly, the assessment was taken up under limited scrutiny in order to verify the source for purchase of property to the tune of ₹77,19,000/-. After considering the materials placed before him, the Assessing Officer had completed the assessment after making addition of ₹3,00,000/- treating the gift received from his brother as unexplained cash credit. But it appears that the Assessing Officer had looked into issue of source only to the extent of ₹41,50,000/- which is apparent consideration paid for the purchase of property. The value adopted for stamp duty purpose is taken as deemed consideration u/s.56(2)(vii) (b) of the Act and this is only deemed provision and there is no occasion for the assessee to explain the source for deemed consideration paid. It is settled position of law that while completing the assessment under limited scrutiny, the Assessing Officer cannot look beyond the issue for which the case was selected for scrutiny. It is beyond the power of the Assessing Officer to look into any other issue which has come to his notice during the course of assessment proceedings. Then the issue that comes up for our consideration is whether the ld. PCIT could exercise the power of revision to look into any other issue which the Assessing Officer himself could not look. In our considered opinion, the answer is an emphatic ‘’No’’. In the circumstances, the impugned order passed by the ld. PCIT cannot be sustained in the eyes of law....” . 10. In light of aforesaid discussions and following consistent stand taken by the various Benches of the Tribunal, the impugned order passed by the ITA No.429/Chd/2018 :: 10 :: ld. Pr.CIT, which travel beyond the subject matter of limited scrutiny cannot be sustained in the eyes of law and the same is hereby set aside and the order passed by the AO is sustained. 11. In light of above, the other contentions raised by the ld. AR including lack of initial show-cause and lack of opportunity granted by the ld. Pr.CIT, in the context of the issues as noted in para 13 of the impugned order and which are not subject matter of initial show-cause, are left open and have not been adjudicated upon. 12. In the result, the appeal filed by the assessee is allowed. Order pronounced on the 18 th day of July, 2022, in Chandigarh. Sd/- (DIVA SINGH) द. /JUDICIAL MEMBER Sd/- (VIKRAM SINGH YADAV) %) द. /ACCOUNTANT MEMBER /Chandigarh, /दन /Dated: 18 th July, 2022. TLN, Sr.PS आ द%श # ! (0 1 2%1ष(/Copy of the order forwarded to: 1. / The Appellant 2. !" / The Respondent 3. आ आ ु 3(/ CIT 4. आ आ ु 3( ( )/ The CIT(A) 5. 1व4 ! ( न , आ आ ण, / DR, ITAT, Chandigarh 6. 5 ई / Guard File आदेशान ु सार/ By Order सहायक पंजीकार/ Assistant Registrar