Income Tax Appellate Tribunal - Cuttack
Shri Sushanta Kumar Chaudhury, ... vs Pr.Cit, Sambalpur on 5 October, 2020
आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक
IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK
BEFORE SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM
आयकर अपीऱ सं./ITA No.226/CTK/2019
(नििाारण वषा / Assessment Year :2014-2015)
Sri Sushanta Kumar Choudhury Vs The Pr.CIT, Sambalpur
At/PO: Koira,
Dist : Sundergarh-770048
PAN No. : AGEPC 5665 M
(अऩीलाथी /Appellant) .. (प्रत्यथी / Respondent)
ननधाारिती की ओर से /Assessee by : Shri S.K.Tulsyan/B.K.Tibrewal, ARs
िाजस्व की ओर से /Revenue by : Shri M.K.Gautam, CIT DR
सुनवाई की तािीख / Date of Hearing : 22/09/2020
घोषणा की तािीख/Date of Pronouncement : 05/10/2020
आदे श / O R D E R
Per L.P.Sahu, AM:
This is an appeal filed by the assessee against the order dated 28.03.2019, passed by the Pr.CIT, Sambalpur for the assessment year 2014-2015.
2. As per the office note, there is a delay of 30 days in filing the present appeal. In this regard, ld.AR of the assessee has filed an application for condonation of delay alongwith an affidavit explaining the reasons for delay in filing the present appeal, to which ld. DR did not object. Considering the contents of the application and the affidavit filed by the assessee, we find that there is a reasonable cause explained by the assessee with regard to delay in filing the appeal. Accordingly, 2 ITA No.226/CTK/2019 we condone the delay of 30 days in filing the present appeal and the appeal is heard finally.
3. The assessee has raised the following grounds :-
1. That the Ld. Pr. CIT. Sambalpur has erred in law by invoking section 263 on the issues which were never the part of original assessment us 143(3) (Limited Scrutiny) and hence the order passed u/s 263 is bad in law and needs to be annulled.
2. That the limited scrutiny order passed u/s 143(3) dated 19-12-
2016 was neither erroneous nor prejudicial to the interest of revenue on the facts and in the circumstances of the case, and hence the Ld. Pr. CIT, Sambalpur has erred in law by invoking section 263. Hence fresh assessment is unlawful & the order passed u/s 263 needs to be quashed.
3. That the Ld. Pr CIT Sambalpur has erred in law by utilizing section 263 for making a fresh assessment which was never intended earlier by the department as the case of the appellant is of limited scrutiny assessment. Provisions of 263 does not allow to proceed a fresh assessment which was never intended earlier by revenue. Hence the subsequent order passed us 263 needs to be quashed in toto.
4. That the order of the Ld. Pr. CIT, Sambalpur being not based on the facts of the case of the appellant and being contrary to law, should hence be quashed and the appellant be given such relief or reliefs as prayed for.
5. That the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.
4. Out of the above five grounds, ground No.5 is residuary ground and rest of the grounds, being effective, are to be decided in the following paragraphs.
5. Brief facts of the case are that the assessee is an individual deriving income from execution of mining contract works and filed his return of income electronically on 01.05.2015 showing total income at Rs.10,83,010/-. The return of the assessee was processed u/s.143(1) of 3 ITA No.226/CTK/2019 the Act. Later on the case was selected through CASS for limited scrutiny. Accordingly, the notice u/s.143(2) of the Act was issued. The reason for selection for limited scrutiny was based the three following points :-
i) contract receipts/fees mistmatch
ii) sales turnover mismatch
iv) tax credit mismatch
Thereafter the AO issued notice u/s.142(1) of the Act and completed the assessment u/s.143(3) of the Act assessing total income of assessee at Rs.12,78,010/- and made additions of Rs.1,10,000/- under the head repair and maintenance on estimate basis and Rs.85,000/- under the head stores and spare parts.
6. Subsequently, the Pr.CIT in exercise of statutory powers vested u/s.263 of the Act, called for the assessment records and examined the same. After examination of the assessment records, the Pr.CIT issued show cause notice to the assessee and reasons for exercising powers u/s.263 of the Act is as under :-
No. Pr.CIT/SBP/263/2018-19/4760 Date - 01.03.2019 To Sri Sushanta Kumai Choudhury, (PAN: AGE PC 5665 M) Koira, Sundergarh Sir, Sub: Show cause Notice under section 263 of the Income Act, 1961 for the Assessment Year 2014-15. Assessment order dated 19.12.2016 passed under section 143(3)n of the IT. Act order erroneous and prejudicial to the interest of Revenue-Matter regarding.
2. This is to inform you that in exercise of statutory powers vested u/s.263(1) of the IT. Act,19. I have called for your assessment records for the A.Y.2014-15 and have examined the records of assessment including the materials available in the return of income filed for the A Y.2014 15 4 ITA No.226/CTK/2019 and the documents produced before the A.O. during the course of assessment proceedings. On such scrutiny, the finding of the Assessing Officer in the assessment order framed u/s.143(3) of the IT. Act,1961, dt. 19.12.2016 is considered to be erroneous in so far as it is prejudicial to the interest of revenue for the reasons mentioned hereunder.
3. On perusal of the assessment record, it is seen that you derive income from Transporting and service providing business. As per Form 3CD, service tax liability of Rs. 24,66,126/- has been incurred in the previous year, which was no paid on or before the due date for furnishing the return of income Similarly, service tax liability, of Rs.7,08,245/- relating to earlier years was not paid during the previous year. The same were required to be added to the total income of the assessee u/s 43B of the IT. Act. The A.O. has failed to do so.
4. Further, the balance of loan as at 31.03,2014 outstanding against SRE! Equipment Finance Pvt. Ltd. was of Rs, 2,25,49,948/-. The assessee debited Rs.27.59.555/- to P & L account towards "Interest on Equipment Finance', The assessee has not deducted tax al source u/s 194A while making payment/ giving credit to the account o1 SREI Finance Pvt. Ltd.
The same was required to be disallowed u/s 40(a)(ia) and added to the total income of the assessee. The Assessing Officer failed to examine the issue and passed the order without applying his mind. 5, Further, as per the details of sundry debtors al the: assessee, Rs.28,00.006/ was receivable from M/s Baba Langaleswar Fuel, where you are the proprietor and which was to be shown in the balance sheet of M/s Baba Langaleswar Fuel as 'sundry creditors" But the same was not shown as "sundry creditors". But. this has been wrongly treated as "capital introduced during the year'' in the balance sheet of M/s Baba Langaleswar account. Therefore, the same should have been treated as unexplained income u/s 68 of the l.T. Act, 1S61 and added to the total income of the assessee. But, the Assessing Officer failed to examine these issues, which made the assessment order erroneous and prejudicial to the interest of revenue.
6 On the whole, the Assessing Officer, who is supposed to protect the interest of revenue as a tax collector has not performed his job in the right spin) and has passed the assessment order perfunctorily which shows lack ot application ol mind, failure to conduct due diligence and enquiry before passing the order. Reference in this context is invited to the decision of Delhi High Court in the case of Duggai & Co v. CIT(1996) 226 STR456(Dei), wherein it has been held as under:
"The ITO is not only an adjudicator, but also an investigator. He cannot remain passive in the face of a return which is apparently in order hut calls further enquiry It is incumbent on the AC) to further investigate the facts stated in the return, when circumstances would makes such an enquiry prudent. The word ''erroneous" in section 263 includes the failure to make such enquiry."
7, The above view of the Court now been given statutory approval by the inserting Exptanation-2 to Section 263 (1) w.e.f. 01,06.2015. which reads as under.-
5 ITA No.226/CTK/2019Explanation 2 to section 263 "For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner.-
(a) The order is passed without making inquiries or verification which should have been made;
(b) The order is passed allowing any relief without inquiring into tin: claim,
(c) The order has not boon made in accordance with any order, direction 01 instruction issued by the Board under section 119;
or
(d) The order has not been passed in accordance with any decision which is prejudicial to the assessee. rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
8 Thus, the manner in which the Assessing Officer completed the assessment without enquiry or verification and without applying relevant provisions of the Act, which should have been made in the facts and circumstances of the case, has rendered the assessment order both erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the I.T.Act.
9. In view of the above, you are directed to show-cause as to why flu- assessment order framed u/s 143(3) of the IT Act, 1961 on dt. 19 12 2018 for the A.Y.2014-15 shall not to be cancelled/ modified u/s 263 of the I T. Act
10. You are required to furnish reply to the above show-cause notice along with Audit Report, all books of account, Bank Statement and other documentary evidences for the financial year 2013-14 either in person or through your Authorized Representative before the undersigned on 08.03.2019 at 03:30 PM at Aayakar Bhawan, Ainthapali, Sambalpur, failing which it will be presumed that you have nothing to say in this matter.
11. Please note that any request for adjournment of hearing shall not be entertained.
12. You are also requested to submit your written submission by e- mail in a MS-Word editable format at the given mail address above.
Yours faithfully, Sd/-
( Debendra Narayan Kar, IRS ) Pr Commissioner of Income Tax Sambalpur.
6 ITA No.226/CTK/2019The assessee did not reply the above show cause notice issued by the ld. Pr.CIT, therefore, the ld.Pr.CIT decided the issue on the basis of records available before him after observing as under :-
Decision :
8. I have duly considered the provisions of law, the facts of the case, the submissions of the assessee and perused the assessment records.
9. it is noticed from the assessment record that the A.O. had not verified the issue of service tax liability of Rs.24,66,126/- relating to F.Y.2013-14, which was not paid on or before due date for furnishing the return. Secondly, service tax liability of Rs.7,28,245/- relating to earlier year was also not paid during the previous year. Both amounts were required to be disallowed u/s.43B of the Act and added to the total income. But the AO had failed to bring the same to tax while completing the assessment for the AY, 2014-15, Thirdly, the assessee had debited an amount of Rs.27,59,555/- to P& L account towards "Interest on Equipment Finance", But it had not deducted tax at source u/s 194A while making payment/ giving credit to the account of SREI Equipment Finance Pvt. Ltd. The same was required to be disallowed u/s.40{a)(ia) and added to the total income of the assessee. Fourthly, as per the details of "sundry debtors" of the assessee appearing in the books of Mis.
Sushanta Kumar Choudhury (proprietary concern of the assessee), Rs.28,00,006/- was receivable from M/s Baba Langaleswar Fuel, where also the assessee is the proprietor. Therefore, the same amount was to be shown in the Balance Sheet of fvl/s Baba Langaleswar Fuel as "sundry creditors". But instead of showing as "sundry creditors", the amount has been wrongly treated as "capita! introduced during the year" in the Balance Sheet of M/s Baba Langaleswar Fuel, Hence, this amount of Rs.28,00,008/- should have been treated as unexplained cash credit u/s 68 of the IT. Act, 1961 and added to the total income of the assessee. However; the AO had not examined the allowability or otherwise of these claims and had failed to verify these issues while scrutinizing the case u/s. 143(3) of the Income Tax Act, 1961. Hence, his assessment order dated 19.12.2018 is found to be both erroneous and prejudicial to the interest of revenue within the meaning of section 263(1) of the I.T. Act, 1961.
10. While holding so, I have also taken into consideration the ratio laid down by the Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 !TR 83 (SC). In that case, it has been held that in the following circumstances an order would be held erroneous -
"An incorrect assumption of facts or incorrect application of law will - satisfy the requirement of the order being erroneous. In the same category fall orders passed without 7 ITA No.226/CTK/2019 applying the principles of natural justice or without application of mind", (Emphasis mine),
11. Similarly, the Hon'ble High Court of Calcutta in the case of Dawjee Dadabhoy & Co v. S.P. Jain (1957) 31 ITR 872 (Cal.) has held that although the words "prejudicial to the interest of revenue' 5 have not been defined in the Act, it must mean that the order of assessment under challenge is such as not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized. Without doubt, the present case squarely falls under that criterion.
12. In this context, reference can also be made to the decisions of Hon'ble Supreme Court in the cases of Ramapyari Devi Saraogi (1988) 67 ITR 84 (SC| and Smt Taradevi Agarwai Vs CfT 88 ITR 323 (SC), wherein the Hon'ble Apex Court has held that lack of enquiry or verification at the relevant time by the AO would constitute "prejudice to the interest of revenue" and would make such order "erroneous". Similarly, the Hon'ble High Court of Orissa in the case of Uma Shankar *Rice Mills v. CIT (1991) 187 ITR 638 (Ori.) has observed that where the Commissioner felt that proper enquiry was not made by the AO during the assessment proceeding, he was justified in invoking the provisions of section 263 in respect of the order passed by the AO.
13. The above views of the Courts have been given statutory approval by the inserting Exptanaiion~2 to Section 283 (1) w.e.f. 01.08.2015, which reads as under:-
Explanation 2 to section 263 "For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if in the opinion of the Principal Commissioner or Commissioner,
(a) The order is passed without making inquiries or verification which should have been made;
(b) The- order is passed allowing any relief without inquiring into the claim;
(c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119:
or
(d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
14. Recently, the ITAT, Cuttack Bench, Cuttack, while upholding action u/s 263 in the case of Cuttack Development Authority v. CIT, Cuttack in ITA No.381/CTK/2014 on the same ground of failure to conduct further enquiries where circumstances demands so, has held as under 8 ITA No.226/CTK/2019 "We rely on various judicial pronouncements, wherein, it was held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income Tax Officer should ham made further inquiries before accepting the statements made by the assessee in his return, ft was also held that the Income Tax Officer is not only an adjudicator hut also an investigator, it is his duty to ascertain the truth of the facts stated in the return of income. When the circumstances of the case are such so as to provoke an enquiry, it is his duty to make proper enquiry. Failure to make enquiry in such circumstances would make the assessment order erroneous. The Hon'ble Apex Court in the case of Smt Tara Devi Aggarwai vs. CIT, 88ITR 323 (SC), has held that the CIT may consider an order of the AO to be erroneous not only it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereotyped order which simply accepts what the assesses has stated in his return and fails to make enquiries which are called for in the circumstances of the case. Recently, the Hon'ble Apex Court in the case of Denial Merchants Pvt Ltd ws ITQ in Special Leave (C) No.(s) 23976/2017 and others order dated 29.11.2017 has upheld the judgement of Hon'ble Calcutta High Court passed on 10,04.2017 in G.A. No.599/2016, dismissing the special leave petition observing that the C!T after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed enquiry."
15, in the light of the above discussion and in exercise of powers available u/s.263 of the Act, I set aside the assessment order dated 19,12,2018 for adjudication of the above issues afresh and direct him to reframe the assessment after proper appreciation of facts in accordance with law and as per the directions given hereunder
(i) The AO is required to verify whether service tax liability of Rs,24,86,126/- which was incurred during the year has been paid by due date of filing of the return. Again the AO has to verify whether service tax liability of Rs.7,08,245/- relating 4o earlier years has been paid during the year. Necessary addition would be made to the extent of nonpayment of service tax liability on or before due date for furnishing the return of income u/s,43B of the Income Tax Act.
(ii) The AO is required to verify whether due tax has been deducted at source while making payment to SREI" Equipment Finance Pvt. Ltd towards Interest on Equipment Finance" of Rs.27,59,555/- Necessary disallowance u/s 40(a)(ia) of the I.T. Act, 1981 would be made to the extent of payment of " Interest on Equipment Finance" if it is proved that no tax was deducted at source and no satisfactory reply is submitted for such non- deduction.
9 ITA No.226/CTK/2019(iii) The AO is required to verify why Rs, 28,00,006/- is not appearing in the Balance Sheet of M/s Baba Langaleswar Fuel as "sundry creditors5'. Rather, this has been wrongly treated as "capital introduced during the year" in its Balance Sheet. Necessary addition would be made on account of unexplained income u/s 68 of the IT. Act, 1361 unless satisfactory explanation is furnished.
16. Needless to say, while refraining the assessment order, the AO would provide adequate opportunity to the assessee to present his case.
17. The fresh assessment order needs to be passed latest by 31.12.2019, as mandated u/s 153(3) of the Act.
7. Feeling aggrieved from the order of the ld. Pr.CIT, the assessee filed appeal before the Income Tax Appellate Tribunal.
8. Ld. AR before us has filed written submission as under :-
The following further submission for the A.Y 2014-15 is being made before your Honours pursuant to the Appeal filed before your Honours against the Order passed by the Ld. Principal Commissioner of Income Tax, Sambalpur, for the A.Y.2014-15 dated 28/03/2019, directing set aside of the assessment order dated 19/12/2016 for adjudication of the fresh issues in relation to service tax liability, disallowance u/s.40(a)(ia) of the Act of interest payment on equipment finance and addition made alleging unexplained income u/s.68 of the Act, as discussed in the said order (dated 28/03/2019) and further directing the AO to reframe the assessment accordingly after proper appreciation of facts and in accordance with law.
The issue involved in the appeal before your Honours is laid put as below:
• That the revision order passed by the Ld.Pr.CIT u/s.263 of the Act, on issues which were never the part of original assessment u/s. 143(3) of the Act, completed based on limited scrutiny, is not as per law.
Before going into the details, attention is invited to the brief facts of the assessee's case, laid as under:
The assessee is an individual deriving income from execution of mining contract works. For the Financial year 2013-14 relevant to Assessment year 2014-15, the assessee filed his return of income on 01/05/2015 showing total income of Rs. 10,83,010/-.The return so filed was processed u/s.143(1) by CPC, Bangalore on 01/06/2015, accepting income shown and raising refund of Rs.70,330/-.
Thereafter, the case was selected through CASS for limited scrutiny (refer pg.l of the assessment order dated 19/12/2016 enclosed at page no.13 of the P/b) and notice u/s.l43(2) of the Act dated 10 ITA No.226/CTK/2019 20/09/2016 (enclosed at page nos.3-4 of the P/b) was issued and served on the assessee.
Perusal of the above-said notice reveals that the issues for which the limited scrutiny was done related to three points viz.
(i) Contract Receipts/Fees Mismatch, (ii) Sales Turnover Mismatch (iii) Tax Credit Mismatch.
Subsequently, notice u/s. 142(1) of the Act dated 28/09/2016 and 08/11/2016 were issued and served on the assessee. Copies enclosed at page nos.5-6 of the P b.
In response to the notices issued, the assessee filed written submission on 17/11/2016, wherein detailed discussion explaining all the aforementioned points as raised in limited scrutiny, as above were made. Copy of the same enclosed at page nos. 7-9 of the P/b.
Further, on 06/12/2016, another written submission, copy of which is enclosed at page nos. 10-11 of the P/h, was filed by the assessee with respect to turnover mismatch.
Finally, after taking into consideration the discussions made in the written submissions filed in connection to specific points raised in limited scrutiny assessment, the assessment order u/s.143(3) of the Act was passed on 19/12/2016, wherein the AO after dealing with the issues raised in limited scrutiny, accepted the income filed by the assessee, after making disallowance of a sum of Rs.l,10,000/- and Rs.85,000/- under the head repair & maintenance and stores & spare parts respectively.
Later on, the Ld. Pr. CIT invoked the revisionary jurisdiction u/s.263 of the Act to look into the other issues relating to the assessee which were not within the purview of the limited scrutiny and accordingly issued show cause notice dated 01/03/2019 (enclosed at pages 15-17 of the P/b), requiring the assessee to explain why the assessment order framed u/s. 143(3) of the Act dated 19/12/2016 should not be considered to be erroneous in so far as it is prejudicial to the interest of revenue for the following reasons (which were never part of the limited scrutiny, as discussed above):
(i) Addition of Rs.24,66,126/- & Rs.7,08,245/- proposed to be made u/s.43B of the Act on account of service tax liability.
(ii) Disallowance of Rs.27,59,555/- u/s.40(a)(ia) of the Act on account of interest payment on equipment finance.
(iii) Addition of Rs.28,00,006/- as unexplained income u/s.68 of the Act.11 ITA No.226/CTK/2019
Thus, in view of the facts stated as above, it clearly follows that the case of the assessee was selected for limited scrutiny on the basis of AIR information as evident from the assessment order dated 19/12/2016 passed u/s.143(3) of the Act (refer page no. 13 of the P/b) on the following grounds viz. Contract Receipts/Fees Mismatch, Sales Turnover Mismatch & Tax Credit Mismatch. Again, there is also no whisper in the order of the AO for expanding the scope of limited scrutiny.
Under such circumstances, the scrutiny should have been limited only to examining the above-mentioned three issues which the Assessing Officer had already verified in course of the assessment and has thereafter passed the assessment order u/s. 143(3) of the Act dated 19/12/2016 (copy enclosed at page nos. 12-14 of the P/b).
It would be of relevance to invite attention at this juncture to the CBDT Circular [vide its letter F-No.225/26/2006-ITA-H (Pt.)] dated 8th September, 2010 wherein the CBDT has described the procedure for handling limited scrutiny cases wherein the Assessing Officer shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny.
The same is reproduced as under:
CBDT CircularF.No.225/26/2006-ITA-H(Pt) dated 8th Sept 2010 "Scope of enquiry in the scrutiny cases selected only on the basis of information received through the AIR returns"
•It has been decided that the scrutiny of such cases would be limited only to theaspects of information received through AIR. •However, a case may be taken up forwider scrutiny with the approval of theadministrative Commissioner, where it is felt that apart from the AIRinformation there is a potential escapement of income more than Rs.10 lakhs.
•It has also been decided that in all the cases which are picked up for scrutinyonly on the basis of AIR information, the notice under Section 143(2) of thelncome Tax Act, 1961 should clearly be stamped with "AIR case."
In light of the above, it is an undisputed fact that in the instant case, the jurisdiction of the AO was confined to limited scrutiny. However, the Ld. PCIT has initiated the revisionary proceedings u/s.263 of the Act on issues which were never the subject matter of limited scrutiny (mentioned above) as shall be evident from perusal of the show cause notice dated 01/03/2019, enclosed at pages 15-17 of the P/b.
Hence, undoubtedly, this is a defect of jurisdiction which cannot be cured as held by the Hon'ble Supreme Court in the case of Kiran 12 ITA No.226/CTK/2019 Singh & Ors. V. Chaman Paswan & Ors. reported in [1955] 1SCR117(SC):
Relevant extract of the judgement reproduced as under:
"It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject- matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties."
In the present case of the assessee, clearly the Ld. PCIT has completely failed to appreciate the provisions of section 263 of the Act which lays down two basic requirements of invoking the said section i.e. only when the order passed by the AO is erroneous & is prejudicial to the interests of Revenue.
Relevant extract of sub-section (1) of section 263 of the Income Tax Act, 1961, reproduced as under:
"Sec. 263 (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing afresh assessment. "
On the contrary, by travelling beyond the issues dealt in limited scrutiny, the Ld.PCIT has tried to acquire jurisdiction on issues with which the AO was never seized with.
Therefore, the aforesaid finding of the Hon'ble Supreme Court clearly applies to the facts of the case which is furthermore supported by the decision of the Hon'ble Jurisdictional IT AT in the case of Sanjeev Kr. Khemka vs. Pr. CIT, ITA No.l361/Kol/2016 (order copy enclosed), wherein similar invoking of jurisdiction u/s.263 was held to be bad in law.
Relevant extract of the judgement reproduced as under:
"4. We have heard the rival contentions of the parties and perused the materials on record. The primary issue in the case on hand revolves whether it is a case selected under CASS for limited scrutiny or regular scrutiny. It can be seen from the grounds of appeal that the\ assessee wants to contend that the very initiation of proceedings u/s 13 ITA No.226/CTK/2019 143(3) of the Act on the\ basis of regular scrutiny under the Act was bad in law. The proceedings under section] 143(3) of the Act should have been limited to the extent of the information gathered] through AIR. Accordingly the proceedings u/s 263 of the Act cannot be expanded beyond\ the issue raised in AIR.Thus the order u/s 143(3) of the Act beyond the points of AIR is invalid in law and so the same is with the order passed u/s 263 of the Act. It is the further contention of the assessee that in the items which are not subject matter of AIR cannot subject matter of scrutiny. Such matters include salary of the assessee, loans & interest on loans, payment of LIC, Commission & brokerage income etc. It is the case of the assessee that in the assessment order passed u/s 143(3) of the Act, the AO has travelled beyond the points of the AIR on the basis of which the case of scrutiny was selected under CASS module. It is the plea of the assessee that when no addition/disallowance can be made I beyond the points mentioned in AIR in the assessment proceedings then same is the case with proceedings initiated u/s 263 of the Act."
Again, similar observation that the Ld. PC1T cannot exceed his jurisdiction by invoking revisionary power u/s.263 of the Act by holding the order of AO as erroneous in so far as prejudicial to the interest of Revenue on those items which are not emanating from the AIR, was made by the Hon'ble Mumbai Tribunal in the case of Mrs. Sonali Hemant Bhavsar vs Pr.Cit-29, ITA No.742/M/2019 (order copy enclosed).
Relevant extract of the observation of the Hon'ble Tribunal reproduced as under:
"After hearing both the parties and perusing the materials before us, we observe from the notice issued under section 143(2) of the Act for limited scrutiny dated 19.09.2016 and find merits in the contentions of the assessee that the said limited scrutiny cannot be expanded unless the AO converted it into complete scrutiny with the approval of Ld. Pr.CIT and if the AO after considering the submissions of the assessee does not come to the conclusion of potential escapement the Ld. Pr. CIT cannot hold the order to be erroneous on the ground that AO ought to have reached to such conclusion............"
In the instant case, undisputedly the case of the assessee was selected for limited scrutiny on the basis of AIR information on the following grounds viz. Contract Receipts/Fees Mismatch. Sales Turnover Mismatch & Tax Credit Mismatch. Again, the AO verified those issues for which limited scrutiny was conducted and has thereafter completed the assessment u/s. 143(3) of the Act vide order dated 19/12/2016 (copy enclosed at page nos. 12-14 of the P/b). Therefore, the Ld.PCIT's power to revise the impugned assessment order dated 19/12/2016, also, is restricted to the aforementioned three issues. On the contrary, the Ld. PCIT has invoked revisionary power u/s.263 of the Act by holding the order of AO as erroneous in so far as prejudicial to the interest of 14 ITA No.226/CTK/2019 Revenue thereby exceeding his jurisdiction on those items which are not emanating from the AIR. For the above reason, the action of the Ld.PCIT was bereft of jurisdiction.
As such, taking into consideration the above, it clearly follows that the Assessment Order dated 19/12/2016 passed by the Ld.AO u/s.143(3) of the Act, is neither erroneous nor prejudicial to the interest of the Revenue.
9. In addition to the written submissions, ld.AR also submitted that the case was selected for limited scrutiny which has been duly examined on the basis of reasons/points raised in the notice u/s.143(2) of the Act by the AO. The assessee has also complied all the requirements on the basis of which the AO satisfied and made addition only of Rs.1,95,000/-Once the case has been selected under limited scrutiny which has been duly examined by the AO, therefore, ld. Pr.CIT has no jurisdiction u/s.263 of the Act for revisioning the case decided by the AO. It has been brought by the Circular for the benefit of the assessee to avoid the undue harassment by the superior authorities to the assessee. To support his contentions, ld. AR relied on the decision of co ordinate bench of ITAT Mumbai in case of Mrs. Sonali Hemant Bhavsar Vs. Pr.CIT-29, ITANo.742/M/2019. In this decision the coordinate bench of ITAT MUMBAI has considered the decision of the Sanjeev Kumar Khemka Vs. Pr.CIT, ITA No.1361/Kol/2016 and has allowed the appeal of the assessee which is as under :-
6. After hearing both the parties and perusing the materials before us, we observe from the notice issued under section 143(2) of the Act for limited scrutiny dated 19.09.2016 and find merits in the contentions of the assessee that the said limited scrutiny can not be expanded unless the AO converted it into complete scrutiny with the approval of Ld. Pr.15 ITA No.226/CTK/2019
CIT and if the AO after considering the submissions of the assessee does not come to the conclusion of potential escapement the Ld. Pr. CIT can not hold the order to be erroneous on the ground that AO ought to have reached to such conclusion. The case of the assessee is squarely covered by the decision of Kolkata Bench in the case of Sanjeev Kr. Khemka vs. Pr. CIT in ITA No.1361/Kol/2016 A.Y. 2011-12 dated 02.06.2017 wherein the co-ordinate bench of the Tribunal has held as under:
"4. We have heard the rival contentions of the parties and perused the materials on record. The primary issue in the case on hand revolves whether it is a case selected under CASS for limited scrutiny or regular scrutiny. It can be seen from the grounds of appeal that the assessee wants to contend that the very initiation of proceedings Mrs. Sonali Hemant Bhavsar u/s 143(3) of the Act on the basis of regular scrutiny under the Act was bad in law. The proceedings under section 143(3) of the Act should have been limited to the extent of the information gathered through AIR. Accordingly the proceedings u/s 263 of the Act cannot be expanded beyond the issue raised in AIR. Thus the order u/s 143(3) of the Act beyond the points of AIR is invalid in law and so the same is with the order passed u/s 263 of the Act. It is the further contention of the assessee that in the items which are not subject matter of AIR cannot subject matter of scrutiny. Such matters include salary of the assessee, loans & interest on loans, payment of LIC, Commission & brokerage income etc. It is the case of the assessee that in the assessment order passed u/s 143(3) of the Act, the AO has travelled beyond the points of the AIR on the basis of which the case of scrutiny was selected under CASS module. It is the plea of the assessee that when no addition/disallowance can be made beyond the points mentioned in AIR in the assessment proceedings then same is the case with proceedings initiated u/s 263 of the Act.
4.1 The first aspect which needs to be examined is as to whether the assessee is entitled to challenge the validity of initiation expanded in the proceedings u/s 143(3) of the Act in the present appeals in which he has challenged the validity of expanded order passed u/s 263 of the Act covering the points which are not part of the AIR. The ld. Counsel for the assessee submitted before us that it is open to an assessee in an appeal against the order u/s 263 of the Act which seeks to revise an order passed u/s 143(3) of the Act, to challenge the validity of the expansion of order passed u/s.143(3) of the Act covering the points which are not part of the AIR. In this regard we find that Lucknow Bench of Hon'ble ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai 'G' Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016 have taken a view that when an Assessment order passed u/s 147 of the Act was illegal the Ld.CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon'ble Mumbai bench of the Tribunal has specifically framed the following questions :-
"1.Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263?16 ITA No.226/CTK/2019
2. Whether the impugned assessment order passed u/s 143(3) dated 24- 10- 2013 was valid in the eyes of law or a nullity as has been claimed by the assessee?
3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order?"
On question no. 1 and 3 which is relevant to the present case the Hon'ble Mumbai bench of the Tribunal has taken the view that when the original assessment proceedings are null and void in the eyes of law for want of proper assumption of jurisdiction then such validity can be challenged even in collateral proceedings. The Mumbai bench took the view that the proceedings u/s 147 of the Act are primary proceedings and proceedings u/s 263 of the Act are collateral proceedings and in such collateral proceedings, the validity of initiation of the original proceedings u/s Mrs. Sonali Hemant Bhavsar 147 of the Act can be challenged. The Mumbai bench of the Tribunal in this regard has placed reliance on several decisions, the principal decision being that of the Hon'ble Supreme Court in the case of Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117(SC) wherein the Hon'ble Supreme Court observed as follows :-
"It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties."
Now coming to the facts of the instant case, we find that the instant case was selected on the basis of AIR Information as evident from the order of AO under section 143(3) of the Act. There is also no whisper in the order of the AO for expanding the scope of limited scrutiny after obtaining the permission from the Administrative CIT. The ld. DR has also failed to bring anything contrary to the argument of the ld. AR. Therefore in our considered view the scrutiny should have been limited only to the information emanating from the AIR. Admittedly, the assessee has claimed to have filed an appeal before Ld. CIT(A) challenging the jurisdiction exceeded by the AO while framing the assessment order u/s 143(3) of the Act. We find that the impugned issue being legal in nature and goes to the root of the matter therefore we are inclined to proceed with this issue first by holding that, from the above submission and after examining of the records, we find that the Ld. CIT in his impugned order u/s 263 of the Act has exceeded his jurisdiction while holding the order of AO as erroneous in so far prejudicial to the interest of Revenue. In view of the above we hold that the ld. CIT has in his order u/s. 263 of the Act exceeded the jurisdiction by holding the order of AO as erroneous in so far as prejudicial to the interest of Revenue on those items which are not emanating from the AIR. Thus, we are inclined to adjudicate only those matters which are emanating from the AIR as discussed above.
17 ITA No.226/CTK/20194.2 The assessment was framed by AO for the A.Y. 2011-12 under section 143(3) of the Act vide order dated 29.03.2014 after making certain additions/ disallowances to the total income of assessee. Subsequently, Ld. CIT u/s 263 of the Act observed certain errors in the order of AO, therefore, he was of the view that the order passed by the AO is erroneous in so far as prejudicial to the interest of Revenue on account of no proper-enquiry before completing assessment as discussed below:-
(i) The assessee has deposited in its bank account in HDFC bank Goa for Rs.17.56 lakh and out of that there was a withdrawal only for Rs.1.50 lakh but the AO has made the addition only to the extent of Rs.4 lakh on account of unexplained cash credit. Therefore, certain unexplained cash credit of the assessee has been under assessed by the AO.
ii) There was another bank account of the assessee in HDFC bank in Goa where total deposits of Rs. 19,31,750/- was made by the assessee but the Mrs. Sonali Hemant Bhavsar AO found credited amount of Rs.
5,76,056/- only. Thus, total deposits made in the bank were not brought to tax;
(iii) There was transactions of Rs.3 76,225/- through credit card which was not explained and thus the entire amount was liable to be added to the total income of assessee but the AO has added only a sum of Rs.2,98,225/- to the total income of assessee. Thus, there was under
assessment of income by Rs.78,000/-;
(iv) The assessee during the year has sold property for Rs.36 lakh and exemption of Rs.19,74,763/- was claimed by assessee u/s. 10(38) of the Act. This fact was not verified by the AO at the time of assessment proceedings.
In view of above, the Ld. CIT found the order of AO is erroneous in so far as prejudicial to the interest of Revenue and therefore show-cause notice was issued u/s. 263 of the Act vide dated 13.10.2015 for the clarification of the above transactions.
In compliance thereto, the assessee submitted as under :
i) The deposit in HDFC bank account No. 03151930000609 was duly reflected in his IT return. Therefore, no cause has happened to the Revenue which is prejudicial to the interest of Revenue.
ii) The deposit of Rs.19,73,750/- was duly reflected in the IT return and therefore there was no error which is prejudicial to the interest of Revenue.
iii) Regarding the credit card payment, the addition on account of undisclosed cash deposit has already been added by the AO and therefore there is no error causing prejudice to the interest of Revenue.
iv) There was no sale of the property and therefore no exemption u/s10(38) of the Act was claimed.
However the Ld. CIT after considering the submission of assessee has held the order of AO is error and prejudicial to the interest of Revenue by observing as under:-
"I have carefully considered the issues with specific reference to the relevant assessment records as well as written submission furnished by the A/R. The AO has not taken cognizance of the following issues, despite being apparent from record:-
(1) Addition of Rs. 4 lakhs only was made against total cash deposit of Rs.17,56,000/- without taking any explanation from the assessee. (2) 18 ITA No.226/CTK/2019 The balance deposits in another account with HDFC, Porvorim, Goa was not considered in assessment.
(3) Interest income from all savings accounts and FDRs was not considered at the time of assessment.
(4) Submission of assessee regarding explanation of credit card payment of Rs.3,76,225/- was partly accepted in assessment without proper verification. (5) Although a salaried person, the assessee's bank account reflect huge transactions/transfer entries, which required further investigation. (6) Long term capital gain of Rs.19,74,763/- was not properly verified. (7) Loan transactions and Mrs. Sonali Hemant Bhavsar interest on loans required proper verification. (8) Salary was received in cash without TDS, which should have been viewed adversely. (9) LIC premium was paid for a minor but assessee's capital account did not reflect the same.
(10) Lastly, the assessee declared income from commission/brokerage in the previous two AYs but no such income was shown in this year.
"An incorrect assumption of facts or an incorrect application of law will always make the order passed by the Assessing Officer erroneous. The Assessing Officer has not made proper enquiry before completing assessment regarding above issues. By not checking the above issues and by not making adequate enquiry the Assessing Officer has not assessed the proper income and the order has become erroneous and prejudicial to the interest of the revenue. In view of the above, the order dated 29/03/2014 passed by ACIT, Circle-43, Kolkata is found to be erroneous and prejudicial to the interest of revenue and hence it is set aside with the direction to pass fresh assessment order after examining the evidences and documents in respect of the above issues raised after giving opportunity to the assessee and in accordance with law."
Being aggrieved by this order of Ld. CIT assessee is in appeal before us on the following grounds:-
"(1) For that the Ld Pr. Commissioner of Income Tax erred in exercising the power of revision for the purpose of directing the AO to hold another investigation when the order passed by the AO was neither erroneous nor prejudicial to the interest of revenue.
(2) For that the Ld Pr.CIT erred and exceeded jurisdiction by giving direction in respect of the matters which are subject matters of appeal before the CIT(A), therefore order passed by Pr. CIT-15 is unlawful, beyond provision of law and therefore liable to be quashed. (3) For that the Ld Pr. CIT had alleged arbitrarily irrelevant matters, factual and untrue position in the show cause notice u/s. 263 and therefore order passed by Pr. CIT-15 Kolkata u/s. 263 is nullity and liable to be quashed. (4) For that Ld Pr. CIT has wrongly assumed the jurisdiction u/s. 263 by wrongly mentioning that deposits in HDFC Goa A/c & HDFC Porvorim Goa A/c were under-assessed by the AO despite these two a/cs were disclosed in the balance sheet and deposits were explained, therefore allegation so made is bad in law and void ab-initio. (5) For that on the facts & in the circumstances of the case Ld Pr. CIT was not justified in initiating proceeding u/s. 263. (6) For that your petitioner craves the right to put additional grounds and/or to alter/amend/modify the present grounds before or at the time of hearing."19 ITA No.226/CTK/2019
The ld. AR before us filed two paper books which are running from pages 1 to 27 and 28 to 31. The ld. AR before us submitted that the necessary enquiries were made by the AO at the time of assessment. Thus the order of the AO cannot be held Mrs. Sonali Hemant Bhavsar erroneous and prejudicial to the interest of Revenue on account of non enquiry whereas the ld. DR vehemently supported the order of the ld. CIT.
5. We have heard the rival contentions & perused the materials available on record. From the foregoing discussion, we find that order of AO has been treated erroneous and prejudicial to the interest of revenue on the ground that proper enquiry was not made by the AO. Therefore, Ld. CIT held that the order of AO is erroneous and prejudicial to the interest of revenue. However, after examining the order of Authorities Below and other relevant records our observations are as follows:-
a) deposit of cash of Rs.17.56 lakh in HDFC bank a/c No.03151930000609 From the order or AO, we find that the AO at the time of assessment proceedings has applied his mind while determining the undisclosed income from the said bank account for Rs. 4 lacs. Thus the AO after considering the bank statements of the assessee has consciously made the addition of Rs.4 lakh as unexplained cash credit against which assessee claimed to have filed appeal before Ld. CIT(A).
Therefore, in our considered view, the allegation of Ld. CIT that proper enquiry was not made by the AO is not true.
b) Deposit of cash Rs.19,31,750/- in HDFC bank A/c 0315100006743 From the order of AO we find that AO has already made the addition of the entire amount as unexplained cash credit. Therefore, the allegation of the ld. CIT-A that the order of AO is erroneous and prejudicial to the interest of Revenue is not true.
c) Credit card payment of Rs.3,76,225/-
From the order of AO, we find that the AO has made the addition of Rs.2,78,225/- out of total credit card payment of Rs.3,76,225/-. Therefore, it is clear that AO has applied his mind while framing the assessment proceedings u/s. 143(3) of the Act. Thus, the allegation of the AO in the impugned order or Ld. CIT u/s. 263 of the Act that there was no proper enquiry conducted by AO at the time of assessment proceedings is not true.
d) Sale of property for consideration of Rs.36 lakh. On perusal of AIR information which is placed on page 1 of the paper book, we find that no immovable property has been sold by assessee in the year under consideration. Besides the above, there is also no whisper in the assessment order for any addition on account of capital gains. Therefore, we find that the allegation of Ld. CIT that AO has not conducted sufficient enquiry in relation to sale of immovable property is not true.
5.1 In view of the above we find that Ld. CIT has passed impugned order u/s. 263 of the Act by holding the order of AO as erroneous in so far as prejudicial to the interest of revenue on account of inadequate enquiry made by AO while passing order u/s. 143(3) of the Act. However, we find that proper and sufficient enquiries were conducted by the AO at the time of assessment as evident from the order of AO. Therefore it cannot be concluded that no proper enquiry has been conducted Mrs. Sonali 20 ITA No.226/CTK/2019 Hemant Bhavsar by the AO at the time of assessment proceedings. The AO has taken conscious view after considering the facts and circumstances of the case and giving proper opportunity to the assessee. Thus, the view expressed by AO in the form in his assessment order cannot be replaced with the view of Ld. CIT u/s 263 of the Act. In holding so, we find support and guidance from the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. M/s. J.L. Morrison (India) Ltd.(ITA No 168 of 2011) in GA No 1541 of 2012 dated 15.05.2014, wherein it was held as under:-
"By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision."
We also rely on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Max India Limited reported in 295 ITR 282 wherein it was held as under :
"When the CIT passed the impugned order under s. 263, two views were inherently possible on the word "profits" occurring in the proviso to s.80HHC(3) and therefore, subsequent amendment of s. 80HHC made in the ITA No.1361/Kol/2016 A.Y. 2011-12 S.K. Khemka Vs. Pr. CIT-15 Kol. Page 12 year 2005, though retrospective, did not render the order of the AO erroneous and prejudicial to the interest of the Revenue, and CIT could not exercise powers under s. 263."
In view of the above proposition, and respectfully following principle laid down by the Hon'ble courts and keeping in view all these discussion, as also bearing in mind entirety of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly.
10. On the other hand, ld. DR relied on the order of ld. Pr.CIT and submitted that the limited scrutiny can be converted into full scrutiny after taking permission from the ld. Pr.CIT/CIT. The Assessing Officer is not only confined to the scrutiny assessment but also he should see as to whether any potentiality/escapement of the income. If he finds any potentiality/escapement of income, he should have taken permission from the Pr.CIT/CIT for converting the limited scrutiny to full scrutiny which is lack in this case. In support of legal issue, ld.CIT DR relied on the decision of the coordinate bench in the case of Baby Memorial 21 ITA No.226/CTK/2019 Hospital Ltd. Vs. ACIT, [2019] 111 taxmann.com 189 (Cochin-Trib.). He also submitted that the assessing officer has made addition on the other issues which has not been challenged by the assessee. He also submitted that there is no any deliberation on the assessment order on the subject matter of the scrutiny selection i.e the AO has not applied his mind properly. He is not only an adjudicator but he is also an investigator. Further ld. CIT DR relying on the order of Pr.CIT, submitted that the case law relied on by the ld. AR is not applicable in the present case because the facts involved in the decision relied on by the ld. AR are different to the facts involved in the present case.
11. After hearing both the sides and perusing the entire material available on record and the orders of authorities below, we find that the case of the assessee was selected through CASS for the limited scrutiny purpose for verification on the following three points :-
i) contract receipts/fees mistmatch
ii) sales turnover mismatch
iv) tax credit mismatch
On going through the AO's order, we noticed that he has made addition on the claims of the expenses debited into the profit and loss account under the account head repair and maintenance and spare parts on lumpsum basis of Rs.1,10,000/- and Rs.85,000/-, respectively, which is also beyond the purpose for taking limited scrutiny and as per the documents available before us, this issue has not been challenged by 22 ITA No.226/CTK/2019 the assessee before any of the authorities below. Later on the ld. Pr.CIT after examining the records exercised his power u/s.263(1) of the Act on the aforesaid issues and directed the AO to pass a fresh assessment order. Ld.AR vehemently objected the powers exercised by the ld.
Pr.CIT regarding passing of fresh assessment order as per the show cause notice issued by him whereas he was unable to demonstrate the action of the AO who has travelled beyond the limited scrutiny that means the order of AO has been accepted. In one hand, the assessee has accepted the assessment framed by the AO whereas in other hand, the assessee has challenged the order of Pr.CIT for examining in details. In our opinion, the contention of ld. AR regarding revisionary power exercised by the Pr.CIT in case of limited scrutiny, is not accepted on the basis of recent decision of the coordinate bench of the Tribunal in case of Baby Memorial Hospital Ltd. (supra). If there is an escapement of income or potentiality of income involved in the issues which has not been done by the AO while completing the limited scrutiny assessment the AO could have obtained the permission from the ld. Pr.CIT if he finds that there is a potentiality of the income. The case law relied on by the ld. DR is for the assessment year 2014-2015 and the assessee's case is also for the assessment year 2014-2015, therefore, the case is squarely covered by decision of the of coordinate bench of the Tribunal 23 ITA No.226/CTK/2019 in case of Baby Memorial Hospital Ltd. (supra), wherein the Tribunal has observed as under :-
3. The facts of the case are that the assessment was completed u/s. 143(3) of the Act for the assessment year 2014-15 by accepting the income returned. On verification of records, the Pr. CIT noticed that the assessment order passed by the Assessing Officer was prima facie erroneous in so far as it was prejudicial to the interest of the revenue. The Pr. CIT found that the assessee had claimed an amount of Rs.2,08,09,140/- being foreign exchange loss which was allowed by the Assessing Officer. According to the Pr. CIT, the foreign exchange loss was on account of foreign currency loan taken for the construction of new building and additional equipment and the loss was recognized translating the liabilities at exchange rate in effect at the balance sheet date.
According to the Pr. CIT, the loss on devaluation of rupees on account of loan utilized for fixed capital was not deductible u/s. 37(1) of the Act since the expenditure is capital in nature. Therefore, it was held that the foreign exchange loss claimed as revenue expenditure is to be disallowed in the assessment 3.1 Further, it was noticed that the assessee debited an amount of Rs.15,83,130/- in its P&L account towards provision for doubtful debts. According to the Pr. CIT, this being provision for diminution in value of trade receivables in the balance sheet had to be added to profit for computation of book profit which resulted in short assessment of income under MAT. The Pr. CIT observed that as per clause (1) explanation 1 to section 115JB(2), the provision for doubtful debts being provision for diminution in value of trade receivables, had to be added to profit for computation of book profit for calculation of income under Minimum Alternate Tax.
3.2 The Pr. CIT observed that the Assessing Officer had not considered or had applied his mind to the facts of the case and with regard to the provisions of the Act in respect of the above issues. Therefore, the Pr. CIT set aside the assessment for I.T.A. No.420/Coch/2019 the assessment year 2014-15 and invoked the provision of section 263 of the I.T. Act for the limited purpose of verifying whether the foreign exchange loss qualifies for being a revenue expenditure and secondly to rework MAT income after adding back the provision for doubtful debts, as necessary examination/verification has not been made during the assessment.
4. Against this, the assessee is in appeal before us. The Ld. AR submitted that this was a limited Scrutiny assessment and the reasons for which the case was selected for scrutiny for furnishing of details specific to the CASS reasons. It was submitted that the details were furnished in response to notice issued u/s. 142(1) of the Act dated 27/06/2016 and after verification the Asst. Commissioner had accepted the explanation given by the assessee, so proper enquiry was made in the limited scrutiny case and therefore, the A.O had applied his mind to the facts of the case and therefore, his order is not erroneous or prejudicial to the 24 ITA No.226/CTK/2019 interest of the Revenue. Hence, it was submitted that the order of the Commissioner is invalid.
4.1 The learned AR had submitted that in a limited scrutiny assessment, the Assessing Officer has to restrict himself to the issues raised in the limited scrutiny and cannot make any addition on other issues. In support of this submission, the learned AR had relied on the following Tribunal orders:-
(i) Nitin Killawala & Associates v. ITO [ITA No.1611/Mum/2013 -
order dated 16.09.2015] ITAT Mumbai Benches.
(ii) Ms.Yikti Tiwari v. ITO [ITA No.660/Lkw/2018 - order dated 22.02.2019] ITAT Lucknow Benches.
(iii) Suresh Jugraj Mutha v. Addl.CIT [ITA No.05/Pun/2016 - order dated 04.05.2018] ITAT Pune Benches.
(iv) M/s.Srinidhi Mines v. ITO [3084/Bang/2018 - order dated 25.04.2019] ITAT Bangalore Benches.
(v) Smt.Gurpreet Kaur v. ITO [87/Asr/2016 - order dated 24.03.2016] ITAT Amritsar Bench.
4.2 In these cases, it was held that when an assessment is selected for limited scrutiny, the Assessing Officer cannot expand the scope of limited scrutiny beyond the reasons for which the case was selected for scrutiny unless prior administrative approval is obtained from the Pr.CIT /CIT or DIT concerned.
4.3 The learned AR had also submitted that if the Assessing Officer has no power to pass an order on a particular issue, then Pr.CIT also has no power on that issue u/s 263 of the I.T. Act. In this context, the learned AR relied on the order of the Tribunal in the case of Paul John, Delicious Cashew Co. 94 ITD 131 (Cochin Tribunal), which was upheld by the Hon'ble High Court in the case reported in 200 Taxmann 154. In the case of Paul John, Delicious Cashew Co. (supra) considered by the Cochin Bench of the Tribunal, it was held that the completed assessment cannot be reopened by the A.O. It was further held by the Tribunal that if the Assessing Officer does not have power to reopen an assessment, which is already concluded, the CIT could not have exercised his powers u/s 263 of the I.T. Act directing the A.O. to pass assessment making disallowance. The above view taken by the Tribunal was upheld by the Hon'ble High Court.
4.4 The learned AR further submitted that when the assessment is taken up for `limited scrutiny', the Pr.CIT / CIT cannot hold the assessment order as erroneous and prejudicial to the interest of the revenue in respect of an issue which was not a reason for selection of the case for `limited scrutiny'. In this context, the learned AR had relied on the following Tribunal orders:-
(i) The Deccan Paper Mills Co. Ltd. v. CIT [1013 & 1035/Pun/2014 -
order dated 10.10.2017], ITAT Pune Benches.
25 ITA No.226/CTK/2019(ii) M/s.Aggarwal Promoters v. Pr.CIT [1708/Chd/2017 - order dated 16.04.2019] ITA Chandigarh Benches.
(iii) Sanjeev Kr. Khemka v. Pr.CIT [1361/Kol/2016 - order dated 02.06.2017] ITAT Kolkata Benches.
(iv) Rakesh Kumar v. CIT [6187/Del/2015 - order dated 20.12.2018] ITAT New Delhi Benches.
(v) M/s. R & H Property Developer Pvt.Ltd. v. Pr.CIT [1906/Mum/2019 - order dated 30.07.2019] ITAT Mumbai Benches.
(vi) Mrs.Sonali Hemant Bhavsar v. Pr.CIT [742/Mum/2019 - order dated 17.05.2019] ITAT Mumbai Benches.
4.5 The learned AR had submitted that in response to the show cause notice u/s 263 of the I.T. Act, when the assessee has filed replies, the PCIT has to give positive finding on merits while setting aside the matter u/s 263 of the I.T. Act on how the assessment order is erroneous and prejudicial to the interest of the revenue. In support of his submission, the learned AR relied on the judgment of the Hon'ble Karnataka High Court in the case of CIT v. Narayana Pai (T) [98 ITR 422]. The Explanation 2(a) to section 263 of the I.T. Act, states that the assessment order shall deem to be erroneous and prejudicial to the interest of the revenue if I.T.A. No.420/Coch/2019 such an order was passed without making inquiry or verification, which should have been made.
x x x x x
6. The Ld. DR submitted that in this case, the assessment was taken up for limited scrutiny under CASS on account of AR information. Notice under section 143(2) of the I.T. Act dated 31/08/2015 was issued to the assessee. Further details specific to CASS were called for from the assessee vide notice issued u/s. 142(1) dated 27/06/2016 and the Assessing Officer accepted the explanation offered by the assessee in response to such notice.
6.1 The Ld. DR relied on the subsequent Circular No.20/2015 dated 29.12.2015 and Instruction No.5/2016 dated 14.07.2016. He drew our attention to para 4 of the above Instruction wherein it was mentioned that when potential escapement of income exceeds Rs.10 lakh on issues other than selected under CASS, the Assessing Officer has the power to take up the assessment for comprehensive scrutiny with the approval of the Pr.CIT/DIT concerned. In the instant case, the potential escapement of income is far exceeding Rs.10 lakh prescribed under the above mentioned CBDT Instructions.. Therefore, the Assessing Officer could have converted the limited scrutiny assessment into a complete scrutiny assessment by obtaining approval from the Pr.CIT/DIT concerned. According to the Ld. DR, the Assessing Officer failed to convert the limited scrutiny into a complete scrutiny and thereby, there was escapement of income of more than Rs.10 lakhs. As such the order of the Assessing Officer is erroneous and prejudicial to the interest of revenue for the Pr.CIT to invoke his jurisdiction u/s 263 of the I.T. Act.
26 ITA No.226/CTK/20196.2 Further, the Ld. DR submitted that the CBDT Instruction relevant for the period as regards the limited scrutiny assessment is Instruction No.7/2014 dated 26.09.2014. Instruction No.7/2014 reads as follow:-
"Subject: - Scope of enquiry in cases selected for scrutiny during the Financial Year 2014- 2015 on basis of mis-match-regarding-
It has come to the notice of the Board that during the scrutiny assessment proceedings some of the AOs are routinely calling for information which is not relevant, for enquiry into the issues to be considered. This has been causing undue harassment to the taxpayers and has also drawn adverse criticism from several quarters. Further, feedback and analysis of such orders indicates that many times the core issues, which formed the basis of selection of the case for scrutiny were not examined properly. Such instances primarily occurred in cases selected for scrutiny under Computer Aided Scrutiny Selection ('CASS') for verification of specific information obtained from third party sources which apparently did not match with the details submitted by the tax payer in the return of income.
2. Therefore, for proper administration of the Income-tax Act, 1961 ('Act'), Central Board of Direct Taxes, by virtue of its powers under section 119 of the Act, in supersession of earlier instructions/ guidelines on this subject, ere by directs that the cases selected for scrutiny during the Financial Year 2014-20 5 under CASS, on the basis of either AIR data or CIB information or for non re- conciliation with 26AS data, the scope of enquiry should be limited to verification these particular aspects only. Therefore, in such cases, an Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny.
3. The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice u/s 143(2), after generation from AST, is issued to the taxpayer with the remark "Selected under Computer Aided Scrutiny Selection (CASS)". The functionality in AST is being modified suitably to flag the reasons for scrutiny selection in cases. This functionality is expected to be operationalised by 15th October, 2014. Further, the Assessing Officer while issuing notice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verify only the specific aspects requiring examination/verification. In such cases, all efforts would be made to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date.
4. In case, during the course of assessment proceedings it is found that there is potential escapement of income exceeding Rs. 10 lakhs (for non- metro charges, the monetary limit shall be Rs. 5 lakhs) on any other issue(s) apart from the information based on which the case was selected under CASS requiring substantial verification, the case may be 27 ITA No.226/CTK/2019 taken up for comprehensive scrutiny with the approval of the Pr.CIT/DIT concerned. However, such an approval shall be accorded by the Pr. CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. Cases so taken up for detailed scrutiny shall be monitored by the Jt. CIT/Addl. CIT concerned.
5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance."
6.3 It was submitted that the above Instructions have been modified subsequently vide Instruction No.20/2015 dated 29.12.2015 and Instruction No.5/2016 dated 14.07.2016. From para 4 of the above Instruction, it is clear that when potential escapement of income exceeds Rs.10 lakh on issues other than selected under I.T.A. No.420/Coch/2019 CASS, the Assessing Officer has the power to take up the assessment for comprehensive scrutiny with the approval of the Pr.CIT / DIT concerned. In the instant case, the potential escapement of income is far exceeding Rs.10 lakh prescribed under the above mentioned CBDT Instructions. Therefore, the Assessing Officer could have converted the limited scrutiny assessment in this case to a complete scrutiny assessment by taking approval / permission from the Pr.CIT / DIT concerned. On merit, the Ld. DR relied on the order of the Pr. CIT.
7. We have heard the rival submissions and perused the record and also gone through all the case laws cited by the parties. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner is well within his powers to treat an order as erroneous on the ground that the Assessing Officer should have made further inquiries before accepting the wrong claims made by the assessee. The Assessing Officer cannot remain passive in the face of a claim, which calls for further enquiry to know the genuineness of it. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The Assessing Officer was statutorily required to make the assessment under Section 143(3) after I.T.A. No.420/Coch/2019 scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. The Assessing Officer should protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated 28 ITA No.226/CTK/2019 and the genuineness of the claims made in the return. The order passed by the Assessing Officer becomes erroneous when an enquiry has not been made before accepting the genuineness of the claim which resulted in loss of revenue.
7.1 In the present case, the first issue for our consideration is whether the Assessing Officer having failed to convert limited scrutiny into a complete scrutiny, the assessment order would be rendered erroneous and prejudicial to the interests of the Revenue.
7.2 The Pr. CIT invoked the provisions of section 263 of the Act for considering the following two issues:
"The assessee had claimed an amount of Rs 2,08,09,140/- being foreign exchange loss was allowed in assessment The foreign exchange loss on account of foreign currency loan taken for the construction of new and additional equipment. The loss was recognized translating the liabilities at exchange rate in effect at the balance sheet date. The loss on devaluation of rupees on account of loan utilized for fixed capital not deductible u/s. 37(1) of the Act, since the expenditure is capital in nature.
Assessee debited an amount of Rs 15,83,130/- in its P&L account towards provision for doubtful debts. This being provision for diminution in value of trade receivables in the balance sheet, had to be added to profit for computation of book profit. This has resulted in short assessment of income under MAT."
7.3 On the above two issues, the Pr. CIT observed as follows:
"The issue is that the AO has not considered or had applied his mind to the facts of the case and with relation to the provision of the Act in respect of the above issues. Therefore, the assessment for the AY 2014- 15 is hereby set aside for the limited purpose of verifying whether the foreign exchange loss qualifies for being a revenue expenditure and secondly to rework MAT income after adding back the provision for doubtful debts, as necessary examination/verification has not been made during the assessment.
7.4 In this case, the assessment was based on limited scrutiny with reference to AR information and no addition was made by the Assessing Officer on that count. In our opinion, even in a case of limited scrutiny assessment, the Assessing Officer is duty bound to make a prima facie enquiry as to whether there is any other item which requires examination and in the assessment, the potential escapement of income thereof exceeded Rs.10 lakhs. He ought to have sought the permission of CIT/DIT to convert the 'limited scrutiny assessment' into a 'complete scrutiny assessment'. If there is no escapement of income, which would have been more than Rs.10 lakhs, the Pr. CIT could not exercise jurisdiction u/s. 263 of the I.T. Act. In the present case, the assessee itself agreed that the Pr. CIT is justified in giving direction to rework MAT 29 ITA No.226/CTK/2019 income after adding back the provision for doubtful debts. Now, the argument of the Ld. AR that in case of limited scrutiny assessment, the Pr. CIT could not exercise jurisdiction u/s. 263 of the Act, is devoid of merit. Accordingly, the ground relating to challenging of the exercise of jurisdiction by the Pr. CIT u/s. 263 is rejected.
12. On going through the assessment order, there is no any whisper in the order of assessment passed by the AO regarding the subject matter of purpose for the scrutiny and he has made addition on the other subjects which was not part of the aforesaid purpose of the limited scrutiny. In these circumstances, the AO should have obtained permission from the ld. Pr.CIT/CIT. In view of this, the order passed by the AO is also erroneous and prejudicial to the interest of revenue. To support our view, we would like to place reliance on the decision of coordinate bench of the Tribunal in the case of Maa Tarini Industries Ltd., ITA No.292/CTK/2019, order dated 17.03.2020, wherein the issue of limited scrutiny is involved which is similar to the present case. The relevant observations of the Tribunal are as under :-
25. On careful consideration of the rival submissions, we are of the view that admittedly and undisputedly, from the copy of the notice by the AO u/s. 142(1) of the Act dated 13.1.2015, it is ample clear that the case of the assessee for assessment year 2014-15 was selected for Limited Scrutiny only on two issues i.e. higher turnover report in service tax return compared to ITR and mismatch in amount paid to related persons u/s.40A(2)(b) reported in audit report and ITR.
28 .So far as sufficiency and adequacy of enquiry on the issues of ' Limited Scrutiny' are concerned, we observe that the AO issued notice u/s.143(2) and u/s.142(1) of the Act which were replied by the assessee and copies of these notices and replies have been placed on record at APB pages 42 to 113, which shows that the AO makes some inquiry on the issues picked up by him by way of issuing notices and taking on record replies, explanation and relevant documents submitted by the assessee in compliance to the said notice. However, we are unable to 30 ITA No.226/CTK/2019 find any deliberation in the assessment order regarding these issues which could show and satisfy us that the AO not only made sufficient and adequate enquiries on the issues for which the case was selected for limited scrutiny but also made deliberation by application of mind and thereafter adjudicated the issues by way of inserting deliberation in the assessment order.
29. Ld A.R. has placed into service CBDT Circular/instruction No.5/2016 dated 14.7.2016 regarding scope of enquiry in cases under ' Limited Scrutiny' selected through CASS 2015 and 2016 but in the same instruction/circular, in paras 2 to 6, it has also been provided that in a case which was originally earmarked for ' Limited scrutiny', the 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' and the case may be converted from limited scrutiny to complete scrutiny, which requires administrative approval from pr.
CIT/CIT/Pr. DIT/DIT, as prescribed in para 3(d) of earlier instruction dated 29.12.2015.
30. From a careful reading of the impugned order passed u/s.263 of the Act, we clearly observe that the assessee company had shown gross turnover /revenue from operation of Rs.63,97,71,157/- for financial year 2013-14 but as per statement in 26AS, the assessee had shown Rs.16,91,82,966/- from works contract bit it had disclosed its gross receipts in the profit and loss account only Rs.15,69,31,397/- resulting that the gross receipts is understated by Rs.1,22,51,569/- which should have been verified by the AO during scrutiny proceedings. The AO by way of notice u/s.142(1) initiated enquiry on this issue but after filing reply of the assessee in compliance to the said notice, the AO as an adjudicator and investigator did not bother to deliberate this issue in the assessment order and in our humble opinion,until and unless inquiry started by the AO is terminated to a logical and plausible end, such kind of enquiry has to be held as inadequate and insufficient inquiry on the issues, which makes the assessment order as erroneous and prejudicial to the interest of the revenue.
31. From the material placed before us, we also observe that from the service tax return of the assessee, the assessee had shown Rs. Rs.8,45,95,617/- as gross value of service provided under the head 00440262 (transport of goods by road) and a sum of Rs.15,69,31,397/- as gross value of service provided under the head 00440402 (service provided in relation to mining of minerals, oil or gas) as is revealed from service tax return. However, the assessee had not accounted for the receipt of Rs.8,45,95,617/- in its income. Moreover, this amount of Rs.8,45,95,617/- had been grouped in "note 19"under the head "cost of materials consumed". Thus, the income credited to P&L account was understated to the tune of Rs.16,91,91,234/- which were not enquired by the AO.
31 ITA No.226/CTK/201932. We also observe that the issue of brought forward unabsorbed depreciation of Rs.1,34,85,465/- and MAT credit of Rs.26,33,135/- was not under Limited Scrutiny, hence, the AO has not enquired into the matter while passing the assessment order. Although both the issues were not under limited scrutiny but from the spirit and mandate of section 263 of the Act, which provides revisional powers to Pr. CIT/CIT in the cases where the assessment order or any other proceedings under this Act, passed by the AO is erroneous and prejudicial to the interests of the revenue. This section is itself a mini code wherein proceedings for revision has also been provided and as per this provision, the first and foremost requirement for invoking the revisional proceedings is that the ld. Pr. CIT/CIT shall call and examine the assessment records of any proceedings under this Act, which include scrutiny assessment records and if after applying his mind to such record or proceedings, he consider that any order passed by the AO is erroneous and prejudicial to the interest of the revenue, then, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry, he deems necessary, pass such order thereon, as the circumstances of the case justify, which includes an order of enhancement or modification assessment or cancelling the assessment with a direction to pass fresh assessment order. Since both the issues were not considered by the AO in the original assessment order, Ld. Pr. CIT consider it necessary to direct the AO to enquiry the matter and reframe the assessment accordingly.
33. In the case of Gee Vee Enterprises vs. Addl. CIT [99 ITR 375], the Hon'ble Delhi High Court held as under :-
"It is not necessary for the Commissioner to make further inquiries before canceling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Incometax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is duty to ascertain the truth of the facts stated in the return which the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."32 ITA No.226/CTK/2019
34. The Hon'ble Delhi High Court also in the case of Duggal & Co. vs. CIT [220 ITR 456], held as under:
" The ITO is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls further enquiry. It is incumbent on the AO to further investigate the facts stated in the return when circumstances would make such an enquiry prudent. The work ' erroneous' in section 263 includes the failure to make such enquiry."
35. In the case of Tarajan Tea Co. Pvt. Ltd. vs. CIT [205 ITR 45], the Hon'ble Gauhati High Court held as under :-
"that it was not quite certain whether the tress sold in the previous year relevant to the assessment year were trees standing at the time of acquisition or trees which grew on roots and trunk existing on the date of acquisition or on roots and trunks of trees existing at the time of acquisition and cut subsequently. This was a matter which had to be investigated by the Income-tax Officer after calling upon the assessee to furnish relevant data. The Inspecting Assistant Commissioner had no such data before him in order to enable him to conclude that there was no cost of acquisition. It was also to be considered whether the spontaneous growth required any care or attention by way of protection from animals and the like and, if so, whether the assessee did not incur any cost in that regard. Any decision either way without considering these aspects would certainly be erroneous and any decision in favour of the assessee without considering these aspects would be prejudicial to the interests of the Revenue. The order passed by the Commissioner of Income-tax and the order passed by the Tribunal sustaining the same as a whole were valid."
36. In the case of Addl. CIT vs. Mukur Corporation [111 ITR 312], Hon'ble Gujarat High Court held as under :-
"that the words "prejudicial to the interests of the revenue' in section 263 have not been defined but they must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. In the present case, it was obvious that the Income-tax Officer had committed an error in not making enquiry into the details as regards both the deductions and also that want of such enquiry had resulted in prejudice to the interests of the revenue. To this extent, the initiation of action under section 263 by the Commissioner was quite proper."
37. In the case of CIT vs. South India Shipping Corpn. Ltd. [233 ITR 546], Hon'ble Madras High Court held as under :-
"Even assuming that the Income-tax Officer had called for the particulars, which were also furnished by the assessee, if the Income-tax Officer without probing into the matter further had allowed the claim of 33 ITA No.226/CTK/2019 the assessee for weighted deduction and if the Commissioner on the basis of materials formed an opinion that the grant of allowance made by the officer was erroneous and not warranted by law, the jurisdiction of the Commissioner under section 263 of the Act was not ousted. The Commissioner may not have recorded his final conclusion, but the question for exercising the power of revision by the Commissioner is whether the order of the Assessing Officer can be regarded as erroneous and prejudicial to the interests of the Revenue. It may be erroneous in law or in fact. It may be erroneous in the sense that the Income-tax Officer had passed the order without properly conducting the inquiry in completion of the assessment and the order may also be erroneous when the expenditure allowed was against the provisions of law."
38. From the reading of all the above decisions of Hon'ble High Courts, it is evident that their Lordships have taken the unanimous view that the Income-tax Officer is not only an adjudicator but also an investigator. It is his duty to ascertain the truth of the facts stated in the return. When the circumstances of the case are such so as to provoke an enquiry, it is his duty to make proper enquiry. Failure to make enquiry in such circumstances would make the assessment order erroneous and prejudicial to the interest of the revenue. we concur with the submissions of Ld. CIT-DR that it was a case of lack of inquiry and there was no application of mind by AO on the issues which formed subject matter of revisional jurisdiction u/s 263. Therefore, we do not find any illegality in the action of Ld. Pr. CIT in exercising the said jurisdiction.
39. We also find that the case laws relied upon by ld A.R. of the assessee are distinguishable on facts
40. In view of foregoing discussion, we do not see any reason to interfere with the order of ld Pr. CIT by directing the AO to reframe the assessment after conducting proper enquiry on the issues and, therefore, we affirm the same.
13. Further in the case of M/s Akash Ganga Promoters & Developers, ITA No.164/CTK/2019, order dated 18.12.2019, wherein the similar issue of limited scrutiny is involved, however, the Tribunal has decided the issue in favour of the assessee because in this case the AO has made sufficient, adequate and proper enquiry and thereafter took both the issues to a logical conclusion by way of adjudication and deliberation in the assessment order and he was satisfied that there was no 34 ITA No.226/CTK/2019 escapement of revenue, therefore, there was no room for further enquiry by the Pr.CIT. For the sake of convenience, we would like to reproduce the relevant observations of the Tribunal in this regard, are as under :-
15. On careful consideration of rival submissions, first of all, we may point out that undisputedly, the case of the assessee for the assessment year 2015-16 was selected for limited scrutiny on two points i.e. (i) real estimate business with high closing stock (verify whether assessee has adopted percentage completion method) and (ii) mismatch in sales turnover reported in audit report and ITR.
16. It is also not in dispute that during the course of assessment proceedings, the AO issued notice u/s.143(2) and 142(1) of the Act alongwith questionnaire to the assessee both on 1.8.2016, which were duly served and complied by the assessee by way of filing replies on 19.8.2016, 30.11.2016, 19.1.2017 and 20.3.2017. From the replies of the assessee placed at assessee's paper book at pages 50-51, it is clearly discernible that the assessee explained that in its profit and loss account, the total turnover has been shown at Rs.2,31,60,000/- and the same figure has been reflected in the tax audit report in Cl.40 of Form 3CD under the head P&L, the total turnover has been shown as same figure and, therefore, there is no mismatch in the sale turnover shown in the tax audit report and profit and loss account filed alongwith the return of income. From the reply dated 19.1.2017, we clearly note that the assessee submitted copy of audit report, complete ITR form & profit and loss account to substantiate sales turnover figure which was accepted by the AO in the assessment order after due deliberation done at page 1 para 3 & 4 of the assessment order. Further from para 5 of the assessment order, we also gather that the AO, as a result of enquiry and verification made by him, noted that the assessee has adopted percentage completion method and has estimated profit @ 3.24% of the turnover and most of the inventory was not sold and was in stock, the work-in-progress as on 31.3.2015 was thus on a higher side. In view of above, we are satisfied that the AO has made enquiry, verification and examination on both the points for which the case was selected for limited scrutiny and from the impugned order passed by ld Pr. CIT u/s.263 of the Act, it is also ample clear that there is no allegation by him against the assessment order that the AO has not made any enquiry on any of the issues for which the case was selected for limited scrutiny.
17. In view of foregoing discussion, we reach to a logical conclusion that the AO has made sufficient, adequate and proper enquiry and thereafter took both the issues to a logical conclusion by way of adjudication and deliberation in the assessment order. Therefore, the impugned assessment cannot be held as erroneous and prejudicial to the interest of the revenue.35 ITA No.226/CTK/2019
18. Now, we proceed to adjudicate the next contention of the assessee that the p- ld Pr. CIT proceeded to initiate revisional proceedings, issued notice and passed the impugned order u/s.263 of the Act without application of mind on the proposal put forward by the Assessing Officer and draft notice prepared by the AO issued to the assessee.
19. In the present case the Assessing Officer passed limited scrutiny assessment order u/s.143(3) of the Act on 21.3.2017 and assessment proceedings terminated on the said date. From the order sheet of the Assessing Officer placed at page 52 of paper book vide dated 14.1.2019, we observe that subsequently, the AO. i.e. JCIT, Ragne-2, Sambalpur vide letter dated 5.7.2018 send a proposal to ACIT, Sambalpur for initiation of proceedings u/s.263 of the Act. From the second para of said order sheet, we note that the ACIT, Sambalpur mentioned that on analysis of the facts of the case, it is seen that the assessee has shown profit @ 3.24% on total turnover which is too low. Ld ACIT further noted that the AO asked the assessee to produce the documentary evidences related to the business of the assessee like bills & vouchers and details & documents of sale of flats etc but the assessee failed to submit the same before the AO during the scrutiny assessment. The ACIT further stated that as the reason for CASS is real estate business with high closing stock, the information about estimated cost of construction of the project, estimated sale value of the project, selling price of individual flats, period of construction etc should have been examined before completion of scrutiny assessment. But due to non-submission of the required details by the assessee, the AO estimated net profit @ 4.24% instead of 3.24% as declared by the assessee and completed the scrutiny assessment. In para 3.4 of the said note sheet, ld ACIT noted that in the interest of revenue, as proposed by the ld JCIT, Range-2, Sambalpur, revision u/s.263 may be initiated before 31.3.2019. With these observations, the ld ACIT sent draft notice u/s.263 of the Act to Pr. CIT, Sambalpur. The ld. Pr. CIT has approved the proposal given by ld ACIT on the same date i.e. 14.1.2019 and thereafter notice u/s.263 of the Act has been issued on the very same date to the assessee show causing for initiation of revisional proceedings u/s.263 of the Act. For proper adjudication of this contention, we find it necessary and appropriate to reproduce the provisions of section 263 of the Act, which reads as follows:
" 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment."36 ITA No.226/CTK/2019
20. From the spirit and mandate of section 263 of the Act, which provides revisional powers to Pr. CIT/CIT in the cases where the assessment order or any other proceedings under this Act, passed by the AO is erroneous and prejudicial to the interests of the revenue. This section is itself a mini code wherein proceedings for revision has also been provided and as per this provision, the first and foremost requirement for invoking the revisional proceedings is that the ld. Pr. CIT/CIT shall call and examine the assessment records of any proceedings under this Act, which include scrutiny assessment records and if after applying his mind to such record of proceedings, he consider that any order passed by the AO is erroneous and prejudicial to the interest of the revenue, then, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry, he deems necessary, pass such order thereon, as the circumstances of the case justify, which includes an order of enhancement or modification assessment or cancelling the assessment with a direction to pass fresh assessment order. In the present case, from the order sheet dated 14.1.2019, it is vivid that the JCIT, Range-2, Sambalpur sent a proposal for initiation of revisional proceedings u/s.263 of the Act to ACIT, Sambalpur and ld ACIT, Sambalpur after making observation regarding requirement of examination of certain issues forwarded the proposal to Ld. PCIT alongwith draft notice u/s.263 which was approved by ld PCIT in a manner in which administrative actions are proved. Hence, we are compelled to hold that the initiation of revisional proceedings, issue of notice has been done on the proposal of JCIT, Range-2, Sambalpur through ACIT, Sambalpur and mandate of procedure as provided in section 263 of the Act has not been followed and on this count, the impugned order u/s.263 of the Act also become unsustainable. While taking this view, we respectfully follow the order of ITAT Kolkata in the case of Manish Chirania order of Pune Bench of ITAT in the case of Span Overseas Ltd and order ITAT Mumbai 'F' Bench in the case of Vinay Pratap Thacker (supra).
21. On the above foregoing discussion, we reach to a logical conclusion that the ld JCIT Range-2, Sambalpur prepared a proposal for revisional proceedings u/s.263 and ld ACIT, Sambalpur in the order sheet dated 14.1.2019 created an explanation from the AO that the AO should have asked the assessee produce documentary evidence related to its business like bills and vouchers, details of documents of sale of flats but the assessee failed to submit the same before the AO during the scrutiny assessment. Therefore, he alleged that in real estate business with high closing stock, the information about estimated cost of construction of the project, estimated sale value of the project, selling price of individual flats, period of construction etc should have been examined before completion of scrutiny assessment but the ld ACIT failed to consider that it was a case of limited scrutiny only on two points and from the assessment order dated 21.3.2017, it is clearly discernible that the AO has made enquiry and deliberation on both the points and as per CBDT Circulars (supra), he is not allowed to travel beyond the ambit of the points for which, case was selected for limited scrutiny. Therefore, the ld ACIT, who was not having revisional power u/s.263 wrongly alleged 37 ITA No.226/CTK/2019 that the AO has not made enquiry on certain points. Therefore, we are unable to agree with the conclusions drawn by ld PCIT in paras 10 & 11 of the impugned order and hold that the assessment order is neither erroneous nor prejudicial to the interests of the revenue and the AO has made sufficient enquiries, investigations and examination on both the points. Consequently, the revisional proceedings, issue of notice and impugned order u/s.263 of the Act is quashed.
14. From the reading of all the above cited decisions, it is evident that the view taken in above decisions are unanimous that the Income-tax Officer is not only an adjudicator but also an investigator. It is his duty to ascertain the truth of the facts stated in the return. When the circumstances of the case are such so as to provoke an enquiry, it is his duty to make proper enquiry. First he should investigate the matters on the basis of which the assessee has prepared income tax return thereafter he should reach to a logical conclusion that the income shown is as per the Income Tax Act. Failure to make enquiry in such circumstances would make the assessment order erroneous and prejudicial to the interest of the revenue. We concur with the submissions of Ld. CIT-DR that it was a case of lack of inquiry and there was no application of mind by AO on the issues which formed subject matter of revisional jurisdiction u/s 263. Therefore, we do not find any illegality in the action of Ld. Pr. CIT in exercising the said jurisdiction. In the totality of facts and circumstances of the case, the case is squarely covered by the decision in the case of Baby Memorial Hospital Ltd.
(supra) and in the case of Maa Tarini Industries Ltd. (supra). The ld. AR 38 ITA No.226/CTK/2019 has referred to two decisions of the coordinate bench of the Tribunal in the case of Mrs. Sonali Hemant Bhavsar, ITA No.742/M/2019 and in the case of Sanjeev Kumar Khemka, 1361/Kol/2016. These two decisions have already been referred by the coordinate bench of the Tribunal in the case of Baby Memorial Hospital Ltd. (supra). Further the ld. AR has relied on the decision of Hon'ble Supreme Court in the case of Kiran Singh & Ors. [1995] 1 SCR 117 (SC). In the peculiar facts and circumstances of the present case, the case laws cited by the ld.AR of the assessee are not applicable.
15. From the provisions of Section 263 of the Act, it is clear that any order passed by the AO, the Pr.CIT/CIT can invoke his revisonary power, if he considers that the order passed by the AO is erroneous and prejudicial to the interest of Revenue within the Section 263 of the Income Tax Act, 1961. The CBDT has issued circular regarding limited scrutiny in which there is no any whisper regarding revisonary powers that the Pr.CIT/CIT cannot exercise within the statutory limit as prescribed by the Income Tax Act, 1961. If the Pr.CIT/CIT cannot interfere with the limited scrutiny done by the AO, then there must be any clarification in the CBDT Circular in this regard, which is not found in the Circular. Considering the above case laws and factual aspects, we are of the view that the ld. Pr.CIT has rightly exercised his powers and 39 ITA No.226/CTK/2019 we do not find any reason to interfere with the same. Accordingly, we dismiss the appeal of the assessee.
16. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 05/10/ 2020.
Sd/- Sd/-
(C.M.GARG) (L.P.SAHU)
न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER
कटक Cuttack; ददनाांक Dated 05/10/2020
Prakash Kumar Mishra, Sr.P.S.
आदे श की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to :
1. अऩीलाथी / The Appellant-
Sri Sushanta Kumar Choudhury At/PO: Koira, Dist : Sundergarh-770048
2. प्रत्यथी / The Respondent-
The Pr.CIT, Sambalpur
3. आयकि आयक् ु त(अऩील) / The CIT(A),
4. आयकि आयुक्त / CIT
5. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR, ITAT, Cuttack
6. गार्ा पाईल / Guard file.
आदे शािस ु ार/ BY ORDER, सत्यावऩत प्रनत //True Copy// (Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक/ITAT, Cuttack