CIT can not assume revisionary powers u/s 263 for issues not forming part of limited scrutiny assessment.
In a recent judgment, the ITAT has held that CIT can not assume revisionary powers u/s 263 for issues not forming part of limited scrutiny assessment.
ABCAUS Case Law Citation:
ABCAUS 3959 (2024) (04) ITAT
Important Case Laws relied upon:
Sahita Construction Company Vs. Pr. CIT
Shark Mines and Minerals (P.) Ltd.151 taxmann.com 71 (Orissa)
PCIT v. Rakesh Kumar 152 taxmann.com 398 (Punjab & Haryana)
Naga Dhunseri Group Ltd 146 taxmann.com 424 (Calcutta)
Balvinder Kumar v. Principal CIT [2021] 125 taxmann.com 83
Deccan Paper Mills Co. Ltd. v. CIT
R&H Property Developer (P.) Ltd. v. Pr. CIT
In the instant case, the assessee had challenged the order passed by the PCIT in assuming revisionary jurisdiction u/s 263 Income Tax Act, 1961 (the Act) and setting aside the assessment order.
The assessee was engaged in the business of civil construction works of Government construction. The assessment under Section 143(3) of the Act was finalized for the relevant assessment Year by accepting the returned income as assessed income.
Subsequently, the PCIT observed that the assessee had debited an amount under the head interest and financial charges. The PCIT further observed that the assessee had given loans and advances on which the assessee has not charged any interest.
Accordingly, the PCIT held that the assessee had diverted interest bearing funds for the purpose of giving interest free loans and advances. Accordingly, the PCIT was of the view that since the Assessing Officer had not examined this issue during the course of assessment proceedings, the order passed under Section 143(3) of the Act was erroneous and prejudicial to the interest of the Revenue. Accordingly, the PCIT using his revisionary jurisdiction u/s 263 of the Act, set-aside the assessment order and directed the Assessing Officer to pass a fresh order after properly verifying the facts in respect of interest free advances.
Before the Tribunal, the assessee submitted that the assessment was initiated under Section 143(3) of the Act as “limited scrutiny assessment”, for examining certain issues and the aforesaid issue of disallowance of interest under Section 36(1)(iii) of the Act was not one of the issues for consideration / examination under the scheme of limited scrutiny assessment. Accordingly, since the Assessing Officer, under the scope of limited scrutiny assessment could not have possibly examined this aspect in the 143(3) proceedings, the assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue on account of non-examination /disallowance of interest under Section 36(1)(iii) of the Act.
The Tribunal noted that the issue of proportionate disallowance of interest under Section 30(1)(iii) of the Act was clearly not part of the limited scrutiny assessment.
The Tribunal observed that the law on this issue is settled. The Tribunal observed a number of judgments of Co-ordinate Benches and Hon’ble High Court on the issue and their mandate as under:
(i) Pr. CIT cannot hold the assessment order as erroneous and prejudicial to the interest of revenue in respect of issue which was not a reason for selection of the case for limited scrutiny.
(ii) It is not open to Commissioner while exercising power under Section 263 to find fault with assessment order on ground of it’s being erroneous on an issue not covered by ‘limited scrutiny’ when Assessing Officer could not have possibly examined such issue.
(iii) Where Principal Commissioner invoked revisionary proceedings on the ground that assessee made purchases in cash in contravention to Section 40A(3), since assessee’s case was selected for limited scrutiny for verification of cash deposited in bank account, AO was not required to make enquiry on the issue with respect to cash purchase and thus, order of AO could not be said to erroneous.
(iv) Since issue of disallowance under Section 14A was not an issue selected for limited scrutiny, Principal Commissioner could not make a roving enquiry in guise of a limited scrutiny and thus, impugned revisionary order was to be quashed.
(v) 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.
(vi) 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.
(vii) As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, as the A.O had aptly confined himself to the issue for which the case of the assessee was selected for limited scrutiny, 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. The Pr. CIT erred in assuming revisionary powers under Section 263 of the Act in respect of issues not forming part of scope of immediate scrutiny assessment.
Following the judicial precedents, the Tribunal held that Pr. CIT erred in assuming revisionary powers under Section 263 of the Act in respect of issues not forming part of scope of immediate scrutiny assessment.
Accordingly, the ITAT quashed the impugned order of Pr. CIT.
Download Full Judgment ABCAUS 3959 (2024) (04) ITAT Click Here >>
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