2019 (12) TMI 399 - AT - Income Tax

Power of revision - scope of assessment under limited scrutiny - Validity of the revision order passed by the ld. PCIT u/s 263 of the Act - HELD THAT - The Assessing Officer had completed the assessment after making addition of 3,00,000/- treating the gift received from his brother as unexplained cash credit. But it appears that the Assessing Officer had looked into issue of source only to the extent of 41,50,000/- which is apparent consideration paid for the purchase of property. The value adopted for stamp duty purpose is taken as deemed consideration u/s 56(2)(vii) (b) of the Act and this is only deemed provision and there is no occasion for the assessee to explain the source for deemed consideration paid. It is settled position of law that while completing the assessment under limited scrutiny, the Assessing Officer cannot look beyond the issue for which the case was selected for scrutiny. It is beyond the power of the Assessing Officer to look into any other issue which has come to his notice during the course of assessment proceedings. The impugned order passed by the ld. PCIT cannot be sustained in the eyes of law - appeal of assessee allowed.

Summary

Issues:
- Validity of revision order passed by the Principal Commissioner of Income Tax-2, Madurai, under section 263 of the Income Tax Act for the Assessment Year 2014-2015.

Detailed Analysis:

Issue 1 - Grounds of Appeal Raised by Assessee:
The appellant challenged the order of the Principal Commissioner of Income Tax-2, Madurai, alleging it to be wrong, illegal, and opposed to facts. Assessee argued that the assessment order was not erroneous or prejudicial to revenue interests, emphasizing limited scrutiny and proper verification of property purchase sources. Additionally, the appellant contested the invocation of Section 56(2)(vii)(b)(ii) of the Income Tax Act and the direction for a fresh assessment after cancellation.

Issue 2 - Examination of Source of Funds for Property Purchase:
The appellant, an individual and partner in a firm, disclosed income for AY 2014-15 and underwent limited scrutiny to verify property purchase funds. The Assessing Officer made additions but did not examine the applicability of Section 50C of the Act. The PCIT issued a show cause notice under section 263, leading to the cancellation of the assessment due to lack of inquiry into the value difference for stamp duty purposes.

Issue 3 - Judicial Review of Revision Order:
The Tribunal considered whether the PCIT's revision order was valid. It was noted that the Assessing Officer's scrutiny was limited to property purchase sources and not the stamp duty value. The Tribunal held that the PCIT exceeded the scope of revision by delving into issues beyond the initial scrutiny, emphasizing that the AO's powers during limited scrutiny are restricted to the selected issue. As a result, the Tribunal concluded that the PCIT's revision order was not legally sustainable.

Conclusion:
The Tribunal allowed the appeal, finding in favor of the assessee due to the PCIT's overreach in revising the assessment beyond the limited scrutiny scope. The judgment emphasized the limitations on the Assessing Officer's authority during limited scrutiny assessments and the consequent restrictions on the PCIT's power of revision.