2023 (9) TMI 1447 - AT - Income Tax

Revision u/s 263 - limited scrutiny assessment in assessee's case conducted - As per CIT different figures of tangible asset, intangible asset are getting reflected, however, no question has been asked by the AO on acquisition of assets, depreciation, its impact on profit and loss account and ultimately on the taxable income of the assessee, thus, the assessment order is not only erroneous but prejudicial to the interest of Revenue and therefore needs revisions - assessee s case was selected for limited scrutiny purpose for the purpose of verification of refund claim and ICDS compliance and adjustment HELD THAT - AO can not go beyond the items specified in the limited scrutiny hence the jurisdiction exercised by ld PCIT is not in accordance with law, reason being assessee s case was selected for limited scrutiny and the issue involved in the items selected in limited scrutiny were answered by the assessee during the assessment stage. Apart from this, during the assessment proceedings the assessee had provided all the required information to the assessing officer, which includes the complete financial statements and tax audit report of the company and other details sought by the AO. Hence assessment order passed by the assessing officer should not be erroneous and therefore the order of PCIT should be quashed. On merit, we note that AO has issued notice u/s 142(1) wherein although he has not raised the issue pertaining to depreciation, because he was instructed to conduct limited scrutiny, however, we note that tax audit report which contains depreciation schedule as per Income Tax Act, and audit report as per Companies Act, which contains depreciation as per Companies Act, were on the record of the assessing officer. Therefore, Assessing Officer having satisfied himself passed the assessment order and such order passed by the Assessing Officer should not be prejudicial to the interest of revenue. The assessee has not claimed the depreciation in tax audit report (for income tax purposes) as the new assets so purchased were not put to use. However, for Companies Act purpose, the assessee has shown depreciation in the audited books of accounts, this difference between the depreciation schedule prepared as per Income Tax Act and the depreciation schedule prepared by the assessee, as per companies Act, has been raised by ld PCIT. We note that there is no default on the part of the assessee to submit the depreciation schedule as per companies Act and as per Income Tax Act before the assessing officer. Therefore, on merit also the assessing officer has examined the issue which was raised by the ld. Principal Commissioner of Income Tax. Therefore, order of the assessing officer passed u/s 143(3) cannot be termed as erroneous since enquiry was, in fact, carried out by assessing officer on the issue on which the ld PCIT has found fault with and has taken a plausible view. The Hon ble Supreme Court in the case of Malabar Industries 2000 (2) TMI 10 - SUPREME COURT held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer - it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law . Based on the facts and circumstances of the case, we quash the order passed by ld PCIT - Decided in favour of assessee.

Summary

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).
2. Determination of whether the assessment order under Section 143(3) was erroneous and prejudicial to the interests of the revenue.
3. Consideration of CBDT Instruction No.9/2007.
4. Setting aside the order of the Assessing Officer without justifiable reasons.

Summary of Judgment:

Issue 1: Invocation of Section 263 of the Income Tax Act by the PCIT
The assessee challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax (PCIT), Valsad, under Section 263 of the Income Tax Act, 1961, for the assessment year 2018-19. The PCIT invoked Section 263, noting discrepancies in the figures of tangible and intangible assets between the annual report and the income tax return, and claimed that the Assessing Officer (AO) did not verify the depreciation details as mandated by CBDT Instruction No.9/2007.

Issue 2: Determination of whether the assessment order under Section 143(3) was erroneous and prejudicial to the interests of the revenue
The PCIT argued that the AO failed to verify the depreciation details and other discrepancies, making the assessment order erroneous and prejudicial to the interests of the revenue. The assessee contended that their case was selected for limited scrutiny, focusing only on refund claims and ICDS compliance, and thus the AO was not required to examine depreciation details unless the scrutiny was converted to unlimited scrutiny, which did not happen.

Issue 3: Consideration of CBDT Instruction No.9/2007
The PCIT noted that the AO did not consider CBDT Instruction No.9/2007 regarding the verification of depreciation and brought forward losses. The assessee argued that the instruction was not applicable as there were no issues of brought forward losses or unabsorbed depreciation in their case.

Issue 4: Setting aside the order of the Assessing Officer without justifiable reasons
The ITAT found that the AO had conducted the assessment within the scope of limited scrutiny, and the issues raised by the PCIT were beyond this scope. The ITAT held that the order passed by the AO was neither erroneous nor prejudicial to the interests of the revenue, as the AO had verified all necessary details within the limited scrutiny framework.

Conclusion:
The ITAT quashed the order passed by the PCIT under Section 263, holding that the jurisdiction exercised by the PCIT was not reasonable and beyond the scope of limited scrutiny. The appeal of the assessee was allowed.