2021 (10) TMI 1306 - AT - Income Tax

Revision u/s 263 by CIT - case of the assessee was selected for limited scrutiny to verify the sales turnover mismatch and expenditure of personal nature - HELD THAT - Admittedly, the assessee s case was selected for limited scrutiny for the reason that the assessee had reported higher turnover in service tax return as compared the ITR; the assessee had deposited large amount of cash in saving bank account and there was mismatch in expenditure of personal nature. As pointed out by the ld. counsel in the present case, the AO accepted the return of income filed by the assessee after examining the submissions made by the AR in the light of the documents and details placed on record. Further as pointed out by the ld. counsel the issues examined by the assessee during the limited scrutiny were different from the issues raised by the Ld. PCIT in the impugned order. This Bench of the Tribunal has already held in the case of Tej Paul Bhardwaj 2021 (5) TMI 485 - ITAT CHANDIGARH that the ld. PCIT has exceeded jurisdiction u/s 263 of the Act by directing the AO to make fresh assessment on the issues which were not the subject matter of assessment framed in limited scrutiny. Since the issue involved in the present appeal is identical to the issue involved in the case of Tej Paul Bhardwaj vs PCIT (supra), we do not find any reason for taking a different view in this case. Hence, consistent with our findings in the aforesaid case, we hold that the Ld. PCIT has exceeded his jurisdiction under section 263 of the Act by directing the AO to conduct enquiry on the issues which were not the subject matter of limited scrutiny. We therefore allow the appeal of the assessee and set aside the order passed by the ld. PCIT u/s 263 - Appeal of assessee allowed.

Summary

Issues:
1. Jurisdiction of Principal Commissioner of Income Tax to set aside assessment order under section 263 of the Income Tax Act.
2. Validity of the order passed by the Principal Commissioner of Income Tax.
3. Scope of limited scrutiny assessment and jurisdiction of Principal Commissioner of Income Tax to direct verification on issues not examined during assessment proceedings.

Analysis:

Issue 1: Jurisdiction of Principal Commissioner of Income Tax
The appellant challenged the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, contending that the assessment order was neither erroneous nor prejudicial to the interests of revenue. The PCIT set aside the assessment order passed under section 143(3) of the Act and directed the Assessing Officer (AO) to re-assess the income of the assessee. The appellant argued that the PCIT exceeded jurisdiction by directing the AO to make fresh assessment on issues not part of the limited scrutiny assessment. The Tribunal referred to a previous case where it was held that the PCIT had exceeded jurisdiction by directing fresh assessment on issues not part of the limited scrutiny. Consequently, the Tribunal held that the PCIT had exceeded jurisdiction under section 263 of the Act in this case as well, leading to the allowance of the appeal by the assessee.

Issue 2: Validity of the PCIT's Order
The appellant raised grounds challenging the legality of the PCIT's order, arguing that there was no specific finding that the assessment order was erroneous or prejudicial to revenue interests. The Tribunal considered the arguments presented and found that the PCIT's order lacked jurisdiction as the issues raised were not part of the limited scrutiny conducted by the AO. The Tribunal referred to precedents where similar issues were decided in favor of the assessee, supporting the appellant's contention that the PCIT acted without jurisdiction in passing the order. Ultimately, the Tribunal held that the PCIT's order was invalid due to exceeding jurisdiction under section 263 of the Act.

Issue 3: Scope of Limited Scrutiny Assessment
The case involved limited scrutiny to examine sales turnover mismatch and personal expenditure. The PCIT initiated proceedings under section 263 on issues related to interest-free loans and advances to related parties and expenditure on interest on tax, which were not part of the limited scrutiny. The appellant argued that since these issues were not examined during the limited scrutiny, the PCIT had no jurisdiction to revise the assessment order. The Tribunal agreed with the appellant, citing previous decisions where it was held that the PCIT cannot invoke jurisdiction under section 263 on issues not part of the limited scrutiny assessment. The Tribunal concluded that the PCIT's direction to conduct verification on unexamined issues exceeded jurisdiction, leading to the setting aside of the PCIT's order.

In conclusion, the Tribunal allowed the appeal of the assessee, holding that the PCIT had exceeded jurisdiction under section 263 of the Income Tax Act by directing the AO to conduct inquiries on issues not part of the limited scrutiny assessment. The Tribunal set aside the PCIT's order and pronounced the judgment in favor of the assessee on 27th October 2021.