Limited scrutiny order passed by AO was not erroneous or prejudicial to the interest of Revenue as enquiries were focused and limited – ITAT
ABCAUS Case Law Citation:
ABCAUS 2902 (2019) (05) ITAT
Important Case Laws Cited/relied upon by the parties
Malabar Industrial Co Ltd Vs. CIT’ (2008) 109 Taxman 66 (SC).
The assessee had preferred an appeal against the order u/s 263 of the Income Tax Act, 1961 (the Act) passed by the Pr. Commissioner of Income Tax (PCIT).
The PCIT noted from the assessment order that the assessee had claimed expenditure in the trading account as ‘land cost’. He further noted that while purchasing the said land, the assessee had made cash payment twice to the seller.
Further, from the perusal of the ledger account, the PCIT noted that the assessee had made cash payment on account of expenditure in respect of ‘Job Work charges’.
He, therefore, held that the provisions of section 40A(3) were attracted and the disallowance of aforesaid amount was warranted which the Assessing officer failed to do so.
He, therefore, held that the assessment order passed by the Assessing officer was erroneous and prejudicial to the interest of Revenue. The PCIT, therefore, set aside the assessment order passed u/s 143(3) of the Act for the assessment year under consideration with a direction to the Assessing officer to pass the assessment order afresh.
Before the Tribunal, the assessee submitted that the return filed by the assessee was originally processed u/s 143(1) of the Act, however, the case was later selected for limited scrutiny under the CASS to verify the large increase in unsecured loans raised during the year.
It was further submitted that the enquiries of the Assessing officer were, therefore, limited to the aspect of the genuineness and verification of unsecured loans, the details and explanation regarding which were duly supplied to the Assessing officer and the Assessing officer being satisfied with the evidences given by the assessee competed the assessment.
It was also submitted that neither the Assessing officer was authorised nor there was any occasion to the Assessing officer to scrutinize and make enquiries, about the other factors of the case as it was a limited scrutiny assessment case, hence, the enquiry, if any, was restricted to the limited issue of unsecured loans which was duly done by the Assessing officer and no fault had been found by the CIT(A) in that respect. Under the circumstances, the order passed by the Assessing officer cannot be said to be erroneous.
The Tribunal observed that as per the provisions of section 263 of the Act, the CIT / PCIT on exerciser jurisdiction u/s 263 of the Act, if he consider that the order passed by the Assessing officer is erroneous in so far as it is prejudicial to the interest of Revenue.
It was also noted that it had been held time and again by various Courts of law including the Hon’ble Apex Court that for exercise of jurisdiction u/s 263 of the Act, the twin conditions must be satisfied i.e. (i) the order passed by the Assessing officer is erroneous, and; (ii) it must be prejudicial to the interest of Revenue. If any of the twin conditions is absent, the Commissioner cannot exercise jurisdiction u/s 263 of the Act.
In view of the above, the Tribunal opined that the order passed by the Assessing officer could not be said to be erroneous, hence, the PCIT was not authorised to invoke his powers u/s 263 of the Act and cancel the assessment order.
Accordingly, the Tribunal quashed the order passed by the PCIT.On merit also the Tribunal held that since the assessee did not claim any expenditure during the year, no disallowance of expenditure could be made even under the provisions of section 40A(3) of the Act.