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2021 (1) TMI 1127 - AT - Income TaxRevision u/s 263 - Addition u/s 14A - selection of the case for limited scrutiny - HELD THAT - PCIT could not have exercised his revisional jurisdiction on the issue on which he found fault with the action/omission on the part of AO because in the first place the AO could not have been faulted for not conducting any enquiry on the issue of Section 14A of the Act in respect of exempt income since the assessee s case was selected for scrutiny only for limited purpose under CASS and the issue of disallowance u/s 14A read with Rule 8D in respect of exempt income was not the reason for selection of the case for limited scrutiny. Therefore as per the CBDT circular (supra) the AO could not have initiated enquiry on the issue of section 14A of the Act and it is settled that CBDT circulars are binding on income tax authorities. Therefore in such a scenario the Ld. PCIT could not have invoked jurisdiction u/s 263 of the Act because he could not have held the AO s order to be erroneous because the AO was justified in not enquiring in to the issue of disallowance u/s 14A read with Rule 8D in respect of exempt income since the AO has gone as per the dictum of CBDT circular on the subject. Therefore the AO s action/ omission of not looking into the issue of 14A of the Act cannot be a ground for the Ld. PCIT to exercise his jurisdiction since he cannot hold the AO s omission to be erroneous as well as prejudicial to Revenue and the impugned action of Ld. PCIT is akin to do indirectly what the AO could not have done directly. PCIT has ventured to exercise his revisional jurisdiction by issuing SCN without even satisfying the condition precedent to invoke the jurisdiction u/s 263 - Therefore the SCN itself is bad in law and therefore it is quashed - Decided in favour of assessee.
Issues:
1. Jurisdiction of Ld. PCIT to interfere in assessment order under section 263 of the Income Tax Act, 1962. 2. Limited scrutiny under CASS and its implications on the revisional jurisdiction. 3. Disallowance under Rule 8 of Income Tax Rules, 1962 and the justification for not conducting an enquiry. 4. Compliance with CBDT circular and its impact on the revisional jurisdiction. 5. Legal precedents on the scope of limited scrutiny and revisional jurisdiction. Analysis: Issue 1: Jurisdiction of Ld. PCIT The appeal challenged the order of Ld. PCIT-2, Kolkata for AY 2015-16 under section 263 of the Act. The Ld. A.R contended that the Ld. PCIT erred in invoking revisional jurisdiction without satisfying the conditions precedent under section 263. The AO's assessment order was accepted based on limited scrutiny under CASS, raising questions on the Ld. PCIT's interference. Issue 2: Limited Scrutiny under CASS The limited scrutiny for three specific items was evident from the notice issued by the AO under section 142(1). The AO accepted the income as per the return of income, emphasizing the restricted scope of scrutiny. The Ld. PCIT's show cause notice focused on disallowance under Rule 8, prompting objections from the assessee regarding the expansion of the assessment beyond the CASS reasons. Issue 3: Disallowance under Rule 8 The Ld. PCIT's scrutiny on disallowance under Rule 8D was challenged by the assessee, citing the CBDT Instruction prohibiting inquiries beyond limited scrutiny issues. The AO's omission to inquire into the disallowance was justified, as the CBDT circular guided the assessment process. The Ld. A.R argued against the necessity of disallowance under Rule 8D, supported by legal precedents upholding the assessee's actions. Issue 4: Compliance with CBDT Circular The compliance with the CBDT circular became a crucial point in determining the validity of the Ld. PCIT's revisional jurisdiction. The Ld. PCIT's attempt to expand the assessment beyond the limited scrutiny scope was deemed inappropriate, given the binding nature of CBDT circulars on income tax authorities. Issue 5: Legal Precedents The Tribunal referred to previous decisions, such as the Sanjib Kumar Khemka case, emphasizing the importance of adhering to limited scrutiny parameters and restricting revisional jurisdiction to issues emanating from the limited scope. The Chengmari Tea Co. Ltd. case further supported the assessee's position regarding the limited scrutiny's boundaries and the inadmissibility of expanding the assessment beyond its initial scope. In conclusion, the Tribunal found the Ld. PCIT's actions to be unjustified, quashing the SCN and declaring all subsequent proceedings non-est in the eyes of the law. The appeal of the assessee was allowed based on the outlined legal principles and precedents.
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