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2021 (5) TMI 485 - AT - Income TaxRevision u/s 263 - directions for fresh assessment on the issues which were not the subject matter of the assessment framed on the basis of limited scrutiny - wrong allowance of exemption u/s 54 as assessee had not deposited the capital gain in Capital Gain Deposit Account before the specific date - HELD THAT - Admittedly, the case of the assessee was selected for limited scrutiny under CASS for the reason that there is substantial increase in the capital in the relevant year and the AO passed the assessment order and accepted the return filed by the assessee after examining the issue regarding increase in capital account as the assessee had credited his capital account with agricultural income and the capital gain from sale of flat. The assessee has reflected that same in its capital account - Further in response to the letter dated 07.10.2016 issued by the AO during assessment proceedings, the assessee submitted his reply explaining the reason for increase in capital. Ld. Pr. CIT exercising jurisdiction under section 263 of the Act, directed the AO to make fresh assessment on the issues which were not the subject matter of the limited scrutiny. CIT(A) 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 the assessment framed on the basis of limited scrutiny. Further, no contrary decision was brought to our notice by the Ld. DR. Hence the appeal of the assessee and set aside the impugned order passed by the Ld. Pr. CIT u/s 263 - Decided in favour of assessee.
Issues Involved:
1. Legality of the notice and order passed under section 263 of the Income Tax Act. 2. Examination of the Principal Commissioner of Income Tax's (Pr. CIT) jurisdiction in issuing the notice under section 263. 3. Validity of invoking section 263 in a limited scrutiny case. 4. Analysis of the specific issues raised by the Pr. CIT regarding exemption under section 54, opening balance of capital, and agricultural income. Detailed Analysis: 1. Legality of the Notice and Order Passed Under Section 263: The assessee challenged the legality of the notice issued under section 263 by the Principal Commissioner of Income Tax (Pr. CIT) and the subsequent order passed. The assessee contended that the order was "illegal, bad in law and against the facts of the case." The Pr. CIT invoked section 263 on the grounds that the assessment order was erroneous and prejudicial to the interest of the revenue due to issues related to exemption under section 54, the opening balance of capital, and agricultural income. The assessee argued that the assessment order was neither erroneous nor prejudicial to the revenue's interest. 2. Examination of Pr. CIT's Jurisdiction in Issuing Notice Under Section 263: The assessee raised a legal issue that the Pr. CIT exceeded his jurisdiction by issuing a notice under section 263 in a case selected for limited scrutiny under CASS (Computer Aided Scrutiny Selection). The assessee argued that the Pr. CIT could not expand the scope of limited scrutiny without proper authorization. The Tribunal allowed the assessee to argue this legal ground, noting that it did not require further verification or enquiry. 3. Validity of Invoking Section 263 in a Limited Scrutiny Case: The Tribunal examined whether the Pr. CIT could invoke section 263 in a limited scrutiny case. The assessee's counsel cited various decisions from different Benches of the Tribunal, which held that the Pr. CIT could not exceed his jurisdiction under section 263 in limited scrutiny cases. The Tribunal referred to the Mumbai Bench's decision in M/s Su-Raj Diamond Dealers Pvt. Ltd., which quashed an order passed under section 263 in a limited scrutiny assessment. The Tribunal observed that the Pr. CIT could not traverse beyond the jurisdiction vested with the Assessing Officer (AO) while framing the assessment. 4. Analysis of Specific Issues Raised by the Pr. CIT: The Pr. CIT raised three specific issues: (i) The assessee filed the return late and did not deposit the capital gain in the Capital Gain Deposit Account before the specified date, making the exemption under section 54 inapplicable. (ii) The assessee showed an opening balance of capital without filing a return for the previous assessment year, raising doubts about its genuineness. (iii) The AO failed to verify the agricultural income claimed by the assessee. The Tribunal found that the AO had examined the issue of capital increase during the limited scrutiny assessment. The assessee had provided explanations and documentation, which the AO accepted. The Tribunal held that the Pr. CIT could not direct the AO to make fresh assessments on issues not covered under the limited scrutiny. The Tribunal referred to several cases, including Nayek Paper Converters vs. ACIT and Gift Land Handicrafts vs. CIT, which supported the assessee's contention that the Pr. CIT exceeded his jurisdiction. Conclusion: The Tribunal concluded that the Pr. CIT exceeded his jurisdiction under section 263 by directing the AO to make fresh assessments on issues not within the scope of limited scrutiny. The Tribunal allowed the appeal of the assessee and set aside the impugned order passed by the Pr. CIT under section 263. The appeal filed by the assessee was allowed, and the order was pronounced on 13.05.2021.
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