2022 (12) TMI 1474 - AT - Income Tax

Revision u/s 263 - taxability of undisclosed expenses as declared in survey action - case of assessee was selected for limited scrutiny - As per CIT income declared during the survey was also charged to tax at normal rate instead of charging at special rate at 60% as per the provisions of Section 115BBE of the Act which is in violation of Section 68 to 69C r.w.s. 115BBE - HELD THAT - We find that the case of assessee was selected for limited scrutiny and for limited scrutiny, AO issued necessary questionnaire about seeking details of bank accounts and other related information and evidences. The assessee in its reply, furnished such details of bank statement and other information. AO after taking such reply, completed the assessment on 18/12/2019 without any variation. CIT in its show cause notice, identified the issue which was not the subject matter of limited scrutiny. In the show cause notice, the ld. Pr. CIT raised the issue that survey action was conducted on the assessee firm in relevant financial year and that the assessee made declaration of Rs. 1.24 crore on account of undisclosed expenses. We find that such issue was not the subject matter of scrutiny, hence, the Assessing Officer was not entitled to raise such question. We find that in Balvinder Kumar 2021 (3) TMI 649 - ITAT DELHI has held that in case of limited scrutiny, AO could not go beyond reason for which matter was selected for limited scrutiny thus, it would not be open to Principal Commissioner to pass revisionary order u/s 263 on other aspects and remit matter to AO for fresh assessment. The Supreme Court in celebrated/ leading case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT held that the prerequisite for the exercise of jurisdiction by the Commissioner suo-motu is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1) of the Act. Thus the twin condition as required to revise the assessment order is not meet out in the present case, therefore, the order passed by the ld. Pr. CIT is set aside and the grounds of appeal raised by the assessee are allowed.

Summary

Issues Involved:
1. Initiation of proceedings under Section 263 of the Income Tax Act, 1961.
2. Assumption of jurisdiction under Section 263 by the Principal Commissioner of Income Tax (Pr. CIT).
3. Alleged violation of principles of natural justice by the Pr. CIT.
4. Whether the order under Section 263 constitutes a mere "change of opinion".
5. Verification of income adjustment declared during the survey against current and brought forward losses.
6. Validity of the entire proceedings under Section 263.
7. Whether the Pr. CIT erred in setting aside the assessment order without pointing out specific errors.
8. Request for revocation of the proceedings.

Detailed Analysis:

1. Initiation of Proceedings under Section 263:
The assessee argued that the Pr. CIT erred in initiating proceedings under Section 263. The case was selected for limited scrutiny to verify cash deposits during the demonetization period. The Assessing Officer (AO) had issued a notice and obtained the necessary details from the assessee, concluding the assessment without any variations.

2. Assumption of Jurisdiction under Section 263 by the Pr. CIT:
The Pr. CIT assumed jurisdiction under Section 263, revising the AO's order on the grounds that the AO did not tax the income declared during the survey at the special rate of 60% under Section 115BBE, which was required for unexplained income under Sections 68 to 69C. The Pr. CIT considered the AO's order erroneous and prejudicial to the interests of revenue.

3. Alleged Violation of Principles of Natural Justice:
The assessee contended that the Pr. CIT violated principles of natural justice by not mentioning the grounds for initiating action under Section 263 in the show cause notice. The Pr. CIT's order was thus claimed to be void ab initio.

4. Whether the Order under Section 263 Constitutes a Mere "Change of Opinion":
The assessee argued that the Pr. CIT's order under Section 263 was merely a change of opinion. The AO had already scrutinized the income declared during the survey and the adjustments against current and brought forward losses, thus the original assessment was not erroneous.

5. Verification of Income Adjustment Declared During the Survey:
The Pr. CIT assumed that the AO did not verify the adjustment of the income declared during the survey against current year losses and brought forward losses. However, the assessee provided detailed responses and documentation during the assessment, which the AO considered before passing the order.

6. Validity of the Entire Proceedings under Section 263:
The assessee claimed that the entire proceedings under Section 263 were invalid as the AO had conducted due inquiry during the original assessment. The Pr. CIT's revision was based on issues not within the scope of the limited scrutiny.

7. Whether the Pr. CIT Erred in Setting Aside the Assessment Order without Pointing Out Specific Errors:
The assessee contended that the Pr. CIT set aside the assessment order without specifying how it was erroneous and prejudicial to the revenue. The Pr. CIT's direction for a de novo assessment was thus unwarranted.

8. Request for Revocation of the Proceedings:
The assessee prayed for the revocation of the proceedings initiated by the Pr. CIT under Section 263, arguing that the original assessment was thorough and compliant with the limited scrutiny scope.

Tribunal's Findings:
The Tribunal found that the case was selected for limited scrutiny, and the AO had issued necessary questionnaires and obtained detailed responses from the assessee. The AO's assessment was based on the specific issue of cash deposits during the demonetization period, and the Pr. CIT's revision was on matters outside this scope. The Tribunal referred to various precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, emphasizing that the twin conditions for revision under Section 263 were not met. The Tribunal concluded that the Pr. CIT's order was not justified and set it aside, allowing the assessee's appeal.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal setting aside the Pr. CIT's order under Section 263, affirming that the original assessment was neither erroneous nor prejudicial to the interests of revenue.