SANT KUMAR SURI,NURPUR V. PRINCIPAL COMMISSIONER OF INCOME TAX-1, CHANDIGARH

ITA 336/CHANDI/2024

AI Insights

The case involves an appeal by Sant Kumar Suri against the order of the Pr. CIT, Chandigarh-1, which pertained to the assessment year 2015-16. The Pr. CIT had set aside the original assessment order under section 263, claiming it was erroneous and prejudicial to the interests of the revenue due to inadequate inquiries regarding an unexplained increase in capital and a mismatch in opening stock. The ITAT, however, found that the Assessing Officer (AO) had conducted sufficient inquiries during the assessment proceedings and that the issues raised by the Pr. CIT were not part of the limited scrutiny for which the case was selected.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 107685 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Other Referred Cases: PCIT vs. Rakesh Kumar, PCIT vs. Shark Mines and Minerals, Aggarwal Promoters vs. PCIT, Rakesh Kumar vs. CIT, Sahita Construction Company vs. Pr. CIT, Malabar Industrial Co. Ltd. vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL
• Assessee Lawyers: PARIKSHIT AGGARWAL; C.A
• Keywords: Set aside; Opportunity of being heard; Revenue expenditure; Income from undisclosed sources; Gift; Earning of tax free income; Assessment record; Revision of order; Prejudicial to interest
• Section: 143(3); 142(1); 263; 68; 44AD; 144C; 2(A)

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “बी” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: HYBRID MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी क ृणवȶ सहाय, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM & SHRI. KRINWANT SAHAY, AM आयकर अपील सं./ ITA No. 336/Chd/2024 िनधाŊरण वषŊ / Assessment Year : 2015-16 Sant Kumar Suri, Pro S.K. Suri Goldsmit, Main Bazar Nurpur बनाम The Pr. CIT-1 Chandigahr ˕ायी लेखा सं./PAN NO: ALNPS9363E अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Parikshit Aggarwal, C.A राजˢ की ओर से/ Revenue by : Smt. Kusum Bansal, CIT, DR सुनवाई की तारीख/Date of Hearing : 06/03/2025 उदघोषणा की तारीख/Date of Pronouncement : 13/03/2025 आदेश/Order PER LALIET KUMAR, J.M: This is an appeal filed by the Assessee against the order of the Ld. PCIT, Chandigarh-1 dt. 18/03/2024 pertaining to Assessment 2015-16. 2. In the present appeal Assessee has raised the following grounds: 1. That on law, facts & circumstances of the case, the Worthy Pr. CIT has grossly erred in assuming jurisdiction u/s 263 even when: 1.1. The original assessment order passed u/s 143(3) did not satisfy the twin conditions of being an 'erroneous order' and 'prejudicial to the interest of revenue'. 1.2. The original assessment order passed u/s 143(3) was a case of Limited scrutiny and the Worthy Pr. CIT in order u/s 263 has gone beyond the mandate of Limited scrutiny. 1.3. The Worthy Pr. CIT has erred in setting aside the assessment order and in directing the AO to make assessment afresh on the ground that AO had not conducted worthwhile enquiries during the assessment proceeding even when the AO had conducted thorough enquiries and also most importantly the Pr. CIT failed to carry our any enquiry himself and also failed to demonstrate which most necessary enquiry the Ld. AO failed to carry out. 1.4. The Worthy Pr. CIT failed to appreciate that inadequate inquiry does not amount to lack of inquiry so as to assume valid jurisdiction u/s 263. 2 1.5. The Worthy Pr. CIT has erred in setting aside the original assessment on the ground that there has been increase in capital and opening stock difference. 1.6. The Worthy Pr. CIT has conducted the impugned proceedings u/s 263 in extreme haste and without affording reasonable opportunity of being heard to the appellant. 3. Briefly the facts of the case are that the assessee filed its return of income for the Assessment Year 2015-16 on 30/09/2015, declaring an income of Rs. 7,65,700/-. The case was selected for limited scrutiny under Section 143(2) of the Income Tax Act, 1961, to examine the source of increase in the proprietor’s capital account and Mismatch in sales turnover. 3.1 The assessment was completed under Section 143(3) on 26.12.2017, accepting the returned income. Subsequently, the Ld. PCIT initiated revision proceedings under Section 263, stating that the assessment order was erroneous and prejudicial to the interests of revenue. The Pr. CIT set aside the assessment order, directing the Assessing Officer (AO) to re-examine the following issues i.e; Unexplained increase in capital amounting to Rs. 58,86,167/- and Mismatch in opening stock amounting to Rs. 1,40,52,866/-. 4. Against the order of the Ld. Pr. CIT the assessee went in appeal before the ITAT and the Coordinate Bench vide its order dated 05.07.2023, set aside the revision proceedings and remanded the matter back to the file of Ld. Pr. CIT for adjudication. 5. In compliance of the direction of the Coordinate Bench the Ld. Pr. CIT had issued the show cause notice to the ass on the following two aspects: 2.1 2.2 of the PCIT 6. The assessee had filed the written submission before the Ld. Pr. CIT and raised many objections. The Ld. Pr. CIT, in his order at page 10 has observed as under: The submissions of the assessee have carefully been considered with reference to the facts of the case from the relevant assessment records. On the first issue of an unexplained change (increase) in capital from its closing balance as on 31.03.2015 to its opening balance as on 01.04.2015, which amounted to a quantum of Rs. 58,86,167/-, the assessee’s AR has stated that 3 for the immediately 3 preceding A.Ys. 2012-13, 2013-14 and 2014-15, the assessee had been filing his Returns of Income u/s 44AD of the Act. This being on presumptive basis, there was no occasion for the assessee to report and file Audited Balance Sheet alongside the corresponding Returns of Income. Therefore, what represented the above increase was in fact the difference between the closing stock on 31.03.2012 and 01.04.2015 and NOT between the respective values on 31.03.2015 and 01.04.2015. The figures that interspersed between the 2 correct amounts as above constituted the net impact of the transactions that occurred during the 3 sandwiched A.Ys. 2012- 13, 2013-14 and 2014-15 between 31.03.2012 and 01.04.2015, which figures were not reported in the Returns of Income for these 3 sandwiched Assessment Years owing to them being filed u/s 44AD of the Act. An analogous position as above was argued in respect of the apparent change in closing/opening stock of Rs. 1,40,52,866/-. The above reasoning appears to be acceptable but needs to be computationally verified and/or examined. It is also true that the Returns of Income, filed for the 3 sandwiched A.Ys. 2012-13, 2013-14 and 2014-15 have been accepted by the department at this time and any possibility of reopening/resolving the same in the interests of computational correctness/reconciliation is to be examined by the Jurisdictional Assessing officer. It needs to be added at this juncture that the Department accepting the Returns filed for these sandwiched assessment years 2012-13 to 2013-14 cannot be held to an automatic acceptance, approval and certification of the correctness of the statements of accounts supporting such Returns of Income and the amounts reported/reflected therein inter alia and particularly, the closing and opening balances of Capital and Stock as discussed aforesaid. This is because; (i) The assessee has not submitted any statements of accounts duly audited by a competent professional since the Returns of Income for the aforesaid 3 Assessment Years were filed u/s 44AD of the Act on a presumptive basis;. (ii) The assessments for the 3 aforesaid Assessment Years for the reasons of presumptive filing by the assessee as above and/or for other reasons have not been audited by the Department and examined for correctness, through formal scrutiny assessment proceedings u/s 143 of the Act. The above actions/events have created a situation wherein, the genesis of the opening balances of Capital and Stock as on 01.04.2015 being the corresponding closing balances of Capital and Stock on 31.03.2015 have remained unexamined by the Department because the Department has been denied the necessary opportunity for such examination. The Jurisdictional Assessing officer may also examine whether any increase in opening balance, of capital and stock, as above can be assessed u/s 68 or any other provisions of the Act, since all of the material activities/transactions leading to the said opening balance have taken place in other, viz., the earlier sandwiched A.Ys. 2012-13, 2013-14 and 2014-15 and not during the instant A.Y. 2015-16. 7. Despite noticing above, the Ld. PCIT had passed the order under section 263 thereby holding in para 6 & 7as under: 4 6. In view of the discussion above, the assessment order passed u/s 143(3) of the Act dated 26.12.2017 is prima-facie erroneous as well as prejudicial to the interests of revenue, as the order has been passed without making the requisite full and satisfactory inquiries, which should have been done. There is, thus, appears to be a failure on the part of the Assessing Officer which has resulted in the error being the incomplete, unsatisfactory and improper, and therefore legally untenable. 7. In consequence having considered the facts and circumstances of the instant case, I am, at this time of the considered opinion that the assessment order u/s 143(3) of the Act dated 26.12.2017 passed by the Assessing Officer is erroneous as well as prejudicial to the interests of revenue in accordance with the Explanation 2(a) below section 263(1) of the Act. This is because the order has been passed without making proper and requisite inquiries or verifications which should have been made, thus making the assessment order passed not only erroneous but also prejudicial to the interests of revenue inter alia, in the matter of proper, detailed, satisfactory and complete inquiries into the matters of increases in capital and stock. Accordingly, the impugned assessment order is set aside for re-verification by the Jurisdictional Assessing Officer(JAO) on the issue of re-examination and re- inquiry into the facts/details of increases in Capital and Stock in the manners detailed earlier in this order. If the JAO is able to prima facie conclude on the basis of such re-verifications that the matters involved stand reconciled in favour of the assessee in a tax compliant basis, he may drop the proceedings initiated u/s 263 of the Act. In the event of any ambiguity or dissatisfaction, he may process the case for formal assessment on the 2 matters in reference so that the errors and prejudice to the interests of revenue are recovered. The assessee is at liberty to adduce the facts as deemed relevant before the Assessing Officer at the time of the assessment proceedings in consequence to this order. The Assessing Officer shall allow the assessee adequate opportunity of being heard and to make relevant submissions. It may be ensured that the fresh assessment order is passed within the prescribed time as stipulated under section 153(3) of the Act. 8. Feeling aggrieved by the order passed by the Ld. Pr. CIT, the assessee is in appeal before us on the grounds stated hereinabove. 9. During the course of hearing the Ld. Counsel for the Assessee submitted that the issue raised in the SCN u/s 263 is beyond the scope of the limited scrutiny notice u/s 143(2). The assessment was taken up for limited scrutiny only to examine the increase in proprietor's capital account and sales turnover mismatch, as evidenced by the assessment order dated 26.12.2017. However, the Pr. CIT raised two issues in the revision proceedings:  Increase in capital account and opening stock difference.  The sales turnover mismatch 5 9.1 The Ld. AR has submitted that the Ld. Pr. CIT u/s 263 cannot revise assessments for Increase in capital account and opening stock difference as this issue was already examined by the AO and detailed show cause notices were issued by him. Further it was submitted that on account of sales turnover mismatch, the Ld. Prt. CIT cannot examined as this issue was not part of the limited scrutiny assessment. 9.2 The Ld. AR relied upon the following decision:  PCIT vs. Rakesh Kumar (P&H High Court, 22.03.2023): The High Court held that the AO was not required to make enquiry regarding cash purchases under Section 40A(3), since the case was selected for limited scrutiny to verify cash deposits. o PCIT vs. Shark Mines and Minerals (Orissa High Court, 02.03.2023). o Aggarwal Promoters vs. PCIT (ITA No. 1708/Chd/2017) dt. 16/04/2019 (ITAT Chandigarh) o Rakesh Kumar vs. CIT (ITA No. 6187/Del/2015) (ITAT Delhi) o Sahita Construction Company vs. Pr. CIT (ITA No. 119/Ind/2021)(ITAT Indore). 9.3 The Assessee filed its reply on merits of issues raised in SCN under section 263 which read as under: 2. Reply on merits of issues raised in SCN u/s 263 : 2.1 Arguments on why increase in capital is not unexplained a. In the subject Show cause notice (SCN), your goodself has raised an issue regarding substantial increase in opening capital for the subject assessment year. Your goodself has contended that as on 31.13.2012, capital was shown at Rs. 24,41,116/- and profits for AY 2013-14 and 2014-15 having been declared on presumptive basis at Rs. 6,85,580/- and Rs. 6,81,440/- respectively and therefore, the opening capital as on 01.04.2014 at most could have been Rs. 38,08,136/only whereas opening capital in the ITR filed for the year in question has been taken at Rs. 96,94,333/-. Therefore, this difference of Rs. 58,86,197/- is income from undisclosed sources which the Ld. AO has failed to examine. b. In this regard, it is most respectfully submitted that this issue of increase in capital by making identical kind of calculation was raised by the Ld. AO during the assessment proceedings also. Thereupon the assessee duly submitted explanation to this issue. Copies of relevant replies filed during assessment 6 proceedings are enclosed at page no.3-26. In the reply dtd. 10.10.2017, it was submitted regarding opening capital as under: \"1. It is most humbly and respectfully submitted that the present case has been selected for examination under \"Limited Scrutiny Guidelines\". In terms of this, one of the reason under Limited scrutiny was source of increase in capital\". During the course of previous hearing and as part of our earlier submissions, we had filed copy of our Audited Balance sheet for the year in question wherein the opening balance of capital for the year was Rs. 96,94,333/- and closing balance was Rs. 1,04,60,033/-. The increase in capital this year is Rs. 7,65,700/- and this is only the Profit of the proprietorship concern of the assessee for the. year under reference. This profit has been offered to tax in the Return of Income. All this information has already been filed before your goodself. 2. In your goodself's letter dated 03.10.2017, even when above facts were apprised to your goodself, now you have sought information regarding increase in capital from FY 2011-12 till the year in question. In this regard, your goodself's kind attention is invited to procedure of finalizing assessments to be framed under limited scrutiny guidelines. We are of the opinion that one no adverse information has been found for the year in question, asking for information for prior years is beyond such guidelines. Therefore, we are seeking the guidance from Hon'ble CBDT in this regard.\" Further, in another reply dtd. 14.11.2017, it is was submitted regarding opening capital as under: \"Regarding the addition to the capital of assessee, there is no addition to the capital of assessee during the year. Copy of Audited Financial Statements are already provided to your goodself. Further, copy of opening balance sheet as on 01.04.2014 substantiating the claim of assessee is enclosed herewith. Regarding the calculation vide Para no. 4.1 and 4.2 of your notice, the method adopted by your goodself to arrive at the value of capital is not a recognized accounting method. For arriving at the opening capital, not only the profits, but also other factors for addition in capital in previous years like receipt of gift, earning of exempt income, loans raised in personal capacity etc. are also other items which can increase such capital in preceding years. There has been no such earning in the year in question. Whatever is the opening balance could be the result of above items in the preceding years. We request that such enquiry may not please be made in the assessment for the year in question as there is no such increase/raising of capital during the year in question.\" c. On the basis of above explanation, it is clear that the journey from capital balance as on 31.03.2012 to 01.04.2014 had its genus and calculations in figures of earlier years and there were various factors and not just profit earned during intervening periods which could have led to capital balance as on 01.04.2014. And these factors existed in the earlier years for which examination can not be made by revisiting the assessment for the year in question. Therefore, the issue raised by your goodself, on merits, do not pertain to the year in question and hence, it deserves to be dropped. Further, it was also explained during the assessment proceedings and is being submitted now again that increase in capital amount pertains to opening balances in capital account a/c for the year in question and examination of the same can not be made in assessment for the year in question. It is a settled proposition of law by number of decisions including in ITO Vs. Ch. Atchaiah (218 ITR 239 (SC) that AO must tax right income in the right year. This is without prejudice to the fact that addition on this issue can not even be made in the earlier year(s).+ d. Therefore, it is prayed that this issue may please be dropped in these proceedings. 2.2 Arguments on why mismatch in opening stock is not unexplained. 7 a. In the subject notice, your goodself has contended that opening stock in the relevant columns of ITR for the year in question was taken at Rs. 1,40,52,866/- whereas the closing stock in the relevant columns of ITR filed for the immediately preceding year was filed as nil and due to said mismatch, it should have been added by Ld. AO as an unexplained income. b. In this regard, it is most respectfully submitted that opening stock for the year in question was factually Rs. 1,40,52,866/- only. ITR for preceding assessment year was filed on presumptive basis u/s 44AD wherein mandatory requirement was to show correct turnover and profit on presumptive basis. It is due to such ignorance that while filing ITR on presumptive basis u/s 44AD for the immediately preceding year, the assessee did not fill the figure of closing stock. The schema of ITR filing accepted the ITR even with non-filling of column of closing stock. It is because of this reason closing stock in ITR for AY 2014-15 was shown as nil. Further, even if an error has occurred in disclosing the value of closing stock in ITR for preceding assessment year, the same do not give power to make addition in the subject assessment year. But the ITR for the year in question was filed on the basis of audited financial statements and not u/s 44AD and therein the proper figure of opening stock of Rs. 1,40,52,866/- was taken. In fact, to examine this very issue of opening stock as well as the earlier issue of proprietor's capital, the Ld. AO raised query and the assessee filed the Balance sheet as on 01.04.2014 on the basis of which balance were taken up in the books for preparation of auditable financial statements. It is only after appreciating this opening balance sheet as on 01.04.2014 and comparing it with the figures in the ITR as opening balances that the Ld. AO got satisfied and accepted the fact that there is no anomaly in the ITR for the year in question and if there be any, it can only be examined in any of the earlier year. The same arguments are being made here also. We are submitting herewith the Balance sheet as on 01.04.2014 which was taken up in the auditable books for the year in question. This Balance sheet as on 01.04.2014 is duly tallying, opening proprietor's capital as well as opening stock is the same as has been taken in the ITR. Therefore, even on issue of opening stock as on 01.04.2014, no addition on merits could have been made by the Ld. AO and hence the present proceedings u/s 263 on this issue deserves to be dropped. 2.3 It is further submitted that your goodself is proposing to make addition on account of increase in opening capital on one hand and addition on account of opening stock on the other hand. One of these items is on liabilities side and other is on assets side of the balance sheet. Increase in one figure will lead to increase in the other. Making addition for both capital and stock will lead to double taxation. It is on this score also that the subject issues deserves to be dropped. 9.4 Ld. Counsel for the Assessee also submitted his legal arguments before us which read as under: 3. Legal Arguments 3.1 Firstly, the contention raised in the SCN u/s 263, that these issues were not examined by the Ld. AO, is factually incorrect. The scrutiny proceedings were initiated on these very issues and following replies were submitted during the assessment. In our earlier portion of this reply, we have clearly demonstrated that these issues were raised during assessment proceedings and proper replies were furnished. It is only after appreciating these replies that the Ld. AO chose not to make any addition. 8 3.2 Further, as regards examination of the issue regarding the mismatch in the value of stock, it is submitted that when the opening balance sheet as well as the closing balance sheet for the subject assessment was submitted during the assessment proceedings after it being called for by the Ld. AO and the Ld. AO duly examined them which included the value of stock also, it cannot be said that the issue regarding stock was not examined. The entire balance sheet of the assessee was not only examined but nothing adverse was found. 3.3 All the above replies and explanations goes to show that the issues raised in the various notices had been adequately enquired by the Ld. AO and all these issues are neither erroneous nor prejudicial to the revenue so as to assume valid jurisdiction u/s 263 of the Act. It is a settled proposition of law that jurisdiction u/s 263 cannot be assumed if adequate enquiry had been conducted by Ld. AO. For this proposition, we rely upon the ratio of following judgments: PCIT vs. Brahma Centre Development Pvt. Ltd. 437ITR 285 \"Revision-Order erroneous and prejudicial to interest of revenue Assessment orders were passed under Section 143(3) read with Section 144C although, in opening sheet of assessment order concerning AY 2013-2014, there is only a reference to Section 143(3) PCIT has interfered with assessment orders passed by AO concerning respondent/assessee Reason why PCIT had interfered with original assessment orders was on account of a view held by him that interest earned by assessee against fixed deposits was adjusted, ie., deducted from value of inventory and not credited to Profit and Loss Account-Record also shows that, after PCIT had passed order AO as directed, passed a fresh order by conducting \"proper enquines-Tribunal has in turn set aside two separate but similar orders passed by PCIT in exercise of his powers under Section 263-Held, having regard to documents, it cannot be said that enquiry or verification was not carried out by AO-A perusal of impugned orders passed by Tribunal would show that findings of fact concerning enquiry made by AO have been recorded-Fact that AO has not given reasons in assessment order is not indicative, always, of whether or not he has applied his mind-Therefore, scrutiny of record, is necessary and while scrutinising record Court has to keep in mind difference between lack of enquiry and perceived inadequacy in enquiry- Inadequacy in conduct of enquiry cannot be reason based on which powers under Section 263 can be invoked to interdict an assessment order-AO, having received a response to his query about adjustment of interest, in concerned AYs, against inventory, concluded that, there was a nexus between receipt of funds from investors located abroad and real estate project, which upon being invested generated interest-Thus, it cannot be said that conclusion arrived by AO, that such adjustment was permissible in law, was erroneous- Since Tribunal has returned a finding of fact that there was indeed an enquiry carried out by AO as to nexus between funds invested in fixed deposits (on which interest was earned) and real estate project undertaken by assessee, no interference is called for by Court-Revenue's appeal dismissed.\" ITO vs. DG Housing Projects Ltd. 343 ITR 329 (Del) Power of Commissioner under s. 263 Scope Held, the Commissioner cannot remit the matter for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order of Assessing Officer is erroneous - Such finding that the order is erroneous is a condition precedent for exercise of jurisdiction under s. 263. CIT vs. Sunbeam Auto Ltd. 332 ITR 167 (Del) 9 Revision-Erroneous and prejudicial order-Lack of proper enquiry There is a distinction between \"lack of enquiry\" and \"inadequate enquiry\"-lf there is an enquiry, even inadequate, that would not by itself give occasion to the CIT to pass order under s. 263, merely because he has a different opinion in the matter-Such a course of action is open only in cases of \"lack of enquiry- Contention of the Revenue that the AO did not consider as to whether the expenditure in question was capital or revenue expenditure cannot be accepted-Although apparently the assessment does not give any reasons for allowing the entire expenditure as revenue expenditure, that by itself would not be indicative of the fact that the AO has not applied his mind to the issue-AO is not required to give detailed reason in respect of each and every item of deduction in the assessment order AO had called for explanation regarding this very item and the assessee had furnished its explanation This fact has been noticed by the CIT himself in his order Thus, it cannot be said that it is a case of lack of enquiry-Further, even the CIT was not clear as to whether the said expenditure is to be treated as capital or revenue expenditure-Dyes used by the assessee, a manufacturer of car parts, are the components of the machines and need constant replacement as their life span is not more than a year-With the replacement of such tools and dyes, no new asset comes into existence, nor there is benefit of enduring nature-It does not enhance the life of the existing machine or increase its production capacity-Therefore, the view taken by the AO was one of the possible views and the assessment order passed by the AO could not be held to be prejudicial to the Revenue. Further, the replies submitted during the assessment proceedings above also goes to show that the issued raised by your goodself do not satisfy the twin conditions of erroneous as well as prejudicial to the interest of revenue and therefore, jurisdiction u/s 263 cannot be assumed as held in under mentioned judgments: ■ Malabar Industrial Co. Ltd. vs CIT [2000] 243ITR 83 (SC) Revision-Erroneous and prejudicial order-Conditions precedent-CIT can invoke s. 263 if the order of AO is erroneous and it is also prejudicial to interests of the Revenue-Both conditions must coexist-Phrase 'prejudicial to the interests of the Revenue' is of wide import and is not confined to loss oftax-lfdue to an erroneous order of the AO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue-However, every loss of revenue as a consequence, of an order of AO cannot be treated as prejudicial to the interests of Revenue There was no material to support the claim of assessee that the amount received from purchaser of rubber estate for delayed payment represented compensation for loss of agricultural income-AO accepted the claim of assessee without making any enquiiy Order of AO was erroneous-Exercise of jurisdiction by CIT under s. 263(1) justified. 4. In view of the above submissions and arguments, it is most humbly prayed that the proceedings u/s 263 may please be dropped. We shall be highly obliged \" 9.5 The Ld. Counsel made the prayer that the proceeding under section 263 may please be dropped and order of the Ld. Pr CIT(A) be dismissed. 10. Per contra, the Ld. DR relied on the order of the Ld. Pr. CIT and also submitted that the AO failed to conduct necessary enquiries regarding unexplained increase in capital and opening stock. It was submitted by the 10 Ld DR that the assessment order was erroneous and prejudicial to the interest of the Revenue, therefore the Ld. Pr. CIT was justified in setting aside the assessment order. 11. We have heard the rival contention and perused the material available on the record. For the purposes of invoking the jurisdiction under section 263 of the Act, the Ld. Pr. CIT is required to ascertain the twin condition namely that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue. In the present case as noted down by the ld. Pr. CIT that the AO was assigned the job of making the assessment on the limited 2 issues i.e; a. Mismatch in Sales turnover and ; b. Increase in capital during the year. 11.1. The AO had issued the notice under section 142(1) on 05/07/2017 calling upon various information from the assessee. Thereafter the assessee had filed his reply on 18/07/2017 and furnished various information. At part ‘C’ of his reply of the even date, the ass has provided the copy of capital account of the assessee for the A.Y. 2014-15. 11.2 thereafter the AO further called upon by letter dt. 16/08/2017 to provide the particulars for increase in capital. In response thereto, the assesssee vide letter dt. 27/09/2017 has responded as under: “ During the year in question, increase in capita is of Rs. 7,65,700/-. The increase of Rs. 7,65,700/- was duly offered to tax in Income Tax Return of the assessee . The Income Tax Return substantiate claim of assessee.” 11.3 The AO again issued the notice on 28/09/2017 and sought further information from the assessee, the assessee has provided the requisite information vide communication dt. 29/09/2017. The AO, had further called upon to provide the following information vide letter dt. 10/10/2017 “ 2. In this regard, you are requested to furnish a copy of your Income Tax Reutrns for 11 the A.Y. 2012-13, 2013-14 & 2014-15 alongwith their computation of income, Trading Account, P&L Account and Balance Sheet alnongwith Auditi Report in respect of each such assessment year”. 11.4 The assessee replied to the above noted letter on 10/10/2017 and 12/10/2017. However the AO was not satisfied with the reply thereafter another notice dt. 20/10/2017 was issued to the assessee whereby the following issues were raised by the AO. 12 11.5 The assessee provided the information to the AO vide letter 14/11/2017 and at page 2 of his reply (at page 36 of the PB) it was submitted that there was no increase in capital as projected by the AO, however there was an increase of capital is of Rs. 7,65,700/-. which was duly offered in the return of income. 11.6 Having satisfied with the replies and the document submitted by the assessee the AO passed the order on 26/12/2017 thereby accepting the 13 contention of the assessee. No addition were made on account of increase in capital by the AO in the assessment order. 11.7 From the details of the show cause notices and the reply submitted by the assessee before the AO it is abundantly clear that the AO had made a sufficient inquiry and examined the issues of increase in capital before passing the assessment order. The Ld. Pr. CIT, had also found substance in the submission of the assessee that there was no increase in share capital in the impugned order in A.Y. under consideration and for this reason only he had mentioned at page 10 of his order that “Therefore, what represented the above increase was in fact the difference between the closing stock on 31.03.2012 and 01.04.2015 and NOT between the respective values on 31.03.2015 and 01.04.2015. The figures that interspersed between the 2 correct amounts as above constituted the net impact of the transactions that occurred during the 3 sandwiched A.Ys. 2012¬13, 2013-14 and 2014-15 between 31.03.2012 and 01.04.2015, which figures were not reported in the Returns of Income for these 3 sandwiched Assessment Years owing to them being filed u/s 44AD of the Act.” 11.8 In our view once the Ld. Pr CIT is satisfied that the material activities / transaction leading to increase in the opening balance have taken place in the sandwich years i.e; A.Y. 2012-13 to 2014-15 and not in A.Y. 2015-16 then in our considered opinion it cannot be alleged that there was a failure on the part of AO to examine the increase in opening balance / increase in capital in the A.Y. 2015-16. In our view the reason for increase in capital was relatable to the earlier year i.e; 2012-13 to 2014-15 and not for the A.Y 2015-16 and therefore there was no reason for the AO to make additions for the AY 2015- 16. On account of the above we are of the opinion that no fault can be found in the order passed by the AO. There is yet another reason for not agreeing with the Ld. Pr. CIT as the Ld. Pr. CIT cannot travelled beyond the A.Y 2015-16 and examined the legality of the A.Y 2012-13 to 2014-15. The assessment order passed for these assessment years have attained finality and accepted by the Department. Once the return of income have been accepted by the Department for the A.Y. 2012-13 to 2014-15, the closing 14 balance / closing capital for the A.Y 2014-15 would be the opening capital for A.Y 2015-16 and once the increase in capital was accepted at the end of the A.Y 2014-15 the same cannot be subject matter of scrutiny at the level of Ld. Pr. CIT for the A.Y. 2015-16. The accepted position cannot be disturbed by the ld .Pr. CIT for the earlier years in the garb of exercising the revisionary powers for the A.Y. 2015-16. The scope and ambit of the power of the Ld. Pr. CIT is only confined to examine the facts and record of the A.Y under consideration and should not travelled beyond the impugned A.Y. In view of the above, we are of the considered opinion that the order passed by the Ld. Pr. CIT for increase in capital was incorrect and accordingly we quashed the same. 11.9 With respect to the second issue which was subject matter of 263 proceedings, as noted hereinabove the case was selected for limited scrutiny i.e; “ Sale Turnover Mismatch” and “Increase in Capital”. Admittedly, the issue sought to have been raised by the Ld. Pr. CIT in the show cause notice was not the subject matter of the limited scrutiny. The law is fairly settled that the AO is only duty bound to examine the issues for which the case was selected. Admittedly, the second issue under section 263 proceedings was not subject matter of examination by the AO and therefore, the order passed by the AO cannot be said to be erroneous or prejudicial to the interest of the Revenue. Once the AO is prohibited to examined any issue which is not the subject matter of the limited scrutiny, it is preposterous, to suggest that the AO should have examine the issue. We do not agree with the order passed by the Ld . Pr. CIT as the AO was required to act and decide the issues assigned to him only and should not expand the scope of limited scrutiny to full scrutiny unless he is permitted to do so in accordance with the CBDT Circulars and other notifications. On account of the above, we do not find the exercise of jurisdiction by the Ld. Pr. CIT under section 263 was in accordance with law. We are of the opinion that the decisions relied upon by the assessee in support of his case are applicable to 15 the facts and therefore we rely upon the said decision and quash the order of the Ld. Pr. CIT under section 263 of the Act. 12. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 13/03/2025 Sd/- Sd/- क ृणवȶ सहाय लिलत क ुमार (KRINWANT SAHAY) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟ /JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "