ITO, WARD1(2), PUNE V. CARCANET INFRA PROJECTS PRIVATE LIMITED, PUNE

ITA 64/PUN/2020

AI Insights

The case involves Carcanet Infra Projects Pvt. Ltd., which filed an appeal against the order of the Commissioner of Income Tax (Appeals)-1, Pune, concerning the assessment year 2014-15. The Revenue challenged the CIT(A)'s decision, which had granted relief to the assessee by declaring the assessment order void ab-initio for exceeding the scope of limited scrutiny. The Tribunal examined whether the Assessing Officer (AO) had indeed exceeded his mandate by making additions related to suppression of sales and genuineness of sundry creditors without proper approval for a shift from limited to complete scrutiny. The Tribunal concluded that the AO acted within his rights under the limited scrutiny provisions, leading to the partial allowance of the Revenue's appeal and remanding the case for a decision on the merits of the additions made.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 134135 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 31-08-2022
• Assessment Year: misc
• Appeal Filed On: 16-01-2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Assessment record
• Section: 142(1); 250; 143(2)

Judgement Text

आयकर अपीलीय अिधकरण “ए” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “A” :: PUNE BEFORE PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपीलसं. / ITA No.64/PUN/2020 िनधाᭅरण वषᭅ / Assessment Year : 2014-15 The Income Tax Officer, Ward-1(2), Pune. Vs Carcanet Infra Projects Private Limited, 502/B, City Tower, Boat Club Road, Bund Garden, Pune – 411001. PAN: AAECC 5337 M Appellant / Revenue Respondent / Assessee Assessee by None. Revenue by Shri M M Chate – DR Date of hearing 01/09/2022 Date of pronouncement 29/11/2022 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Revenue is directed against the order of ld.Commissioner of Income Tax(Appeals)-1, Pune, dated 26.09.2019 for the A.Y. 2014-15 under section 250 of the Act. The Revenue has raised the following grounds of appeal: “1) The order of the Ld. CIT(A) is contrary to law and to the facts and circumstances of the case. 2) The Ld. Commissioner of Income-tax(Appeal) has erred on the facts and circumstances of the case in giving relief to the assessee company on the issue of addition of Rs.6,09,50,650/- on account of suppression of receipts without considering and rebutting the comments of the AO in the his remand report dated 21.08.2019. 3) The Ld. Commissioner of Income-tax(Appeal) has erred on the facts and circumstances of the case in giving relief to the ITA No.64/PUN/2020 for A.Y. 2014-15 M/s.Carcanet Infra Projects Pvt. Ltd., [R] 2 assessee company on the issue of addition of sundry creditors of Rs.3,32,91,977/- not being genuine despite the fact that the issue was squarely covered by the reasons of limited scrutiny. 4. The appellant craves to add, amend, alter or delete any of the above ground of appeal during the course of appellate proceedings before the Hon’ble Tribunal.” 2. None appeared on behalf of the assessee. We heard ld.Departmental Representative(ld.DR) for the Revenue. On 30.06.2022 i.e. last hearing the case was adjourned because no one appeared on behalf of the assessee. 3. The ld.DR read out order of the Assessing Officer(AO) and Assessing Officer’s letter dated 21.08.2019 addressed to the ld.CIT(A). 4. Brief facts of the case : In this case the assessee Carcanet Infra Project Pvt. Ltd., filed e-return of income for A.Y.2014-15 on 05.02.2015 declaring total income of Rs.13,85,561/-. The case was selected for scrutiny under CASS. The AO issued various notices and after hearing the ld.Authorised Representative(ld.AR) of the assessee; completed the scrutiny. The assessee is a Private Limited Company in the business of Infrastructure Development Construction. As per the assessment order, the case was selected for limited scrutiny for verification of large amount of sundry creditors and large increase in sundry creditors with respect to turnover as compared to preceding year. ITA No.64/PUN/2020 for A.Y. 2014-15 M/s.Carcanet Infra Projects Pvt. Ltd., [R] 3 5. During the scrutiny proceedings, the AO observed that turnover shown in the audited accounts was Rs.1,54,54,687/-. However, as per statement, the turnover was Rs.7,64,05,337/-. The ld.AR was asked to explain. The ld.AR was also asked to submit list of sundry creditors. Since the assessee could not submit a proper reply, the AO added the difference of turnover i.e. Rs.7,64,05,337/- (-) Rs.1,54,54,687/- which is equal to Rs.6,09,50,650/-. The AO also added sundry creditors of Rs.3,32,91,977/- as assessee could not prove the genuineness of the transaction. 6. Aggrieved by the same, the assessee filed appeal before the ld.CIT(A). The assessee also raised additional ground before the ld.CIT(A) that the AO has travelled beyond the scope of limited scrutiny. The ld.CIT(A) held that AO had travelled beyond the scope of limited scrutiny, hence assessment order was ab-initio-void. The ld.CIT(A) has not discussed the additions as assessee’s legal ground was allowed by the ld.CIT(A). The relevant part of the ld.CIT(A) order is reproduced as under: “According to the Ld AO, the mandate of the AO was both to ‘limited scrutiny”. However, according to the Ld AR, the Ld AO had to confine the examination of sundry creditors over the previous years with respect to turnover and had no jurisdiction to go into the suppression of sales/turnover, without obtaining permission from the concerned Pr Commissioner of income tax under the existing Instructions No 20/2015 dated 29/12/2015 ITA No.64/PUN/2020 for A.Y. 2014-15 M/s.Carcanet Infra Projects Pvt. Ltd., [R] 4 (emphasis placed). Perusal of the assessment records and remand report received from the AO, on factual aspect, corroborates the contentions of the appellant that no such approval was obtained and therefore the limited issue is whether the AO, on factual aspect, corroborates the remand report received from the AO, on factual aspect, corroborates the contentions of the appellant that no such approval was obtained and therefore the limited issue is whether the AO had mandate to make additions on suppression of sales under the factual matrix of the case. In may considered opinion, the sundry creditors always relate to “purchases” having been affected and no way gives jurisdiction to the Assessing Officer to examine the “debtors”/ “sales”, which in this case, has been done by the Ld Assessing Officer. There has been complete failure on the part of the AO to understand the accounting standard/principles. All that was needed, in case, he had to examine the sales, he should have obtained permission from the Pr CIT to convert the case from limited scrutiny to complete scrutiny as per the Board’s Instructions laid down in this regard. In this regard, I have examined the case of the appellant in backdrop of instruction dated 30 th Nov, 2017, and I find that the order of the AO is in violation of such instruction. ..................Perusal of the above order clearly highlight the fact that the AO didn’t adhere to the Board’s circular for converting the limited scrutiny to complete scrutiny with the approval of Pr. Commissioner of Income Tax concern and therefore, the Assessment Order passed by the Ld. AO is without jurisdiction and void ab-initio.” 7. We have heard ld.DR for the Revenue and perused the records. It is observed that the case was selected for scrutiny for following reasons “1. Large amount of sundry creditors, 2. Large increase in ITA No.64/PUN/2020 for A.Y. 2014-15 M/s.Carcanet Infra Projects Pvt. Ltd., [R] 5 sundry creditors with respect to turnover as compared to preceding year”. The notice under section 143(2) was issued in this case on 18.09.2015, thus, the said scrutiny will be covered by CBDT Instruction No.20 of 2015 dated 29.12.2015. The relevant portion of instruction is reproduced as under: “3. As far as the returns selected for scrutiny through CASS- 2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-- one is 'Limited Scrutiny' and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under: a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues. c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in 'Limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken ITA No.64/PUN/2020 for A.Y. 2014-15 M/s.Carcanet Infra Projects Pvt. Ltd., [R] 6 up for 'Complete Scrutiny' with the approval of the ProCIT/CIT concerned. However, such an approval shall be accorded by the by the ProCIT/CIT in writing after being satisfied about merits of the issue(s) necessitating 'Complete Scrutiny' in that particular case. Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad) 4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances , the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice 'duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the showcause notice.” 8. Thus, as per the said instruction, cases have been classified into two categories, limited scrutiny and complete scrutiny. As per para 3(d) of the instruction, if it comes to the notice of the AO that there is potential escapement of income exceeding Rs.5 lakhs, requiring substantial verification on any other issue, then the case may be taken up for complete scrutiny with the approval of Pr.CIT. Thus, as per the sub-para d of para 3, requirement of approval of Pr.CIT was ITA No.64/PUN/2020 for A.Y. 2014-15 M/s.Carcanet Infra Projects Pvt. Ltd., [R] 7 essential only if verification of any other issue having potential escapement was observed. The word used in the instruction is “any other issues”. We have to understand the word “any other issues” in the context of reasons identified in the limited scrutiny. In the case under consideration, we have already reproduced the reasons for which the case was selected for limited scrutiny. One of the reasons is large increase of sundry creditors with respect to turnover as compared to previous year. Thus, the AO was required to verify turnover and compare it with sundry creditors. In this case, it is observed that AO noticed that there was difference in the turnover reported in the Audit Report. The AO has added only that difference after giving opportunity to the assessee. Since assessee failed to validly explain the difference in the turnover, AO has added difference in the turnover. Thus, we are of the opinion that AO has not travelled beyond the reasons for which the case was selected for scrutiny. Therefore, we are of the opinion that ld.CIT(A) has erred in holding that the assessment order was ab-initio-void. 9. It is observed from the order of ld.CIT(A) that ld.CIT(A) has not discussed the merits of the addition. Therefore, we set-aside the case to ld.CIT(A) for deciding the issue on merits with respect to the additions made. Accordingly, grounds of appeal by the Revenue are partly allowed. ITA No.64/PUN/2020 for A.Y. 2014-15 M/s.Carcanet Infra Projects Pvt. Ltd., [R] 8 10. In the result, appeal of the Revenue is Partly Allowed. Order pronounced in the open Court on 29 th November, 2022. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 29 th November, 2022/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “ए” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.