2022 (6) TMI 225 - AT - Income Tax

Revision u/s 263 - Validity of limited scrutiny - As per CIT Order passed u/s.143(3) as erroneous and prejudicial to the interest of revenue - difference between the jantri value and the apparent sale consideration - verification of purchase sale of immovable property - HELD THAT - As the present case was selected for limited scrutiny, in our considered opinion, learned PCIT has exceeded his power for requiring the details of sales and purchase of the immovable property. Thus, we allow the assessee's appeal.

Issues Involved:
1. Legality of invoking Section 263 of the Income Tax Act, 1961.
2. Scope of limited scrutiny under Section 143(2) of the Income Tax Act, 1961.
3. Allowability of interest expenses as revenue expenditure.
4. Validity of sale agreement and its implications under Section 56(2)(vii)(b) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of Invoking Section 263 of the Income Tax Act, 1961:

The Principal Commissioner of Income Tax (PCIT) invoked Section 263, asserting that the assessment order dated 10.08.2017 was erroneous and prejudicial to the interest of revenue. The PCIT directed the Assessing Officer (AO) to make a fresh assessment. The assessee contended that the PCIT erred in law and on facts by invoking Section 263. The Tribunal referred to multiple precedents, including Balvinder Kumar vs. PCIT and Spotlight Vanijya Ltd. vs. PCIT, to emphasize that the AO cannot go beyond the reasons for selection in a limited scrutiny case. The Tribunal concluded that the PCIT exceeded his jurisdiction by addressing issues not covered in the limited scrutiny notice, thereby quashing the PCIT's order under Section 263.

2. Scope of Limited Scrutiny under Section 143(2) of the Income Tax Act, 1961:

The Tribunal examined whether the AO could expand the scope of limited scrutiny without proper authorization. The AO's scrutiny was limited to specific issues such as interest expenses, income from other heads, assets and liabilities, sales turnover mismatch, expenditure of personal nature, and salary income mismatch. The Tribunal cited several cases, including Dharmin N. Thakkar vs. ITO and Shri Narendrakumar Rameshbhai Patel vs. DCIT, to reinforce that the AO must adhere to the limited scope unless proper approval for a complete scrutiny is obtained. The Tribunal found that the AO and PCIT overstepped their jurisdiction by examining issues beyond the limited scrutiny scope, thus invalidating their actions.

3. Allowability of Interest Expenses as Revenue Expenditure:

The assessee claimed interest expenses of Rs. 2,20,524/- as revenue expenditure, which the AO allowed. The PCIT argued that this interest was related to personal expenses for purchasing a house property and should not have been allowed as business expenditure. The assessee contended that the interest was charged on an overdraft facility used for running the hospital. The Tribunal found that the AO had allowed the interest expenses without proper verification, which was erroneous. However, since the scrutiny was limited, the AO was not supposed to verify this detail without expanding the scope legally.

4. Validity of Sale Agreement and its Implications under Section 56(2)(vii)(b) of the Income Tax Act, 1961:

The sale agreement dated 07.07.2010 was scrutinized to determine its validity and implications under Section 56(2)(vii)(b). The PCIT noted discrepancies, such as the absence of a provision for tax deduction at source (TDS) as per Section 194-IA, which was not in effect when the agreement was made. The Tribunal observed that the AO failed to consider these discrepancies, making the assessment order erroneous. However, the Tribunal also noted that the verification of the sale agreement was beyond the limited scrutiny scope, thus the AO's omission did not justify invoking Section 263.

Conclusion:

The Tribunal allowed the assessee's appeal, concluding that the PCIT and AO exceeded their jurisdiction by addressing issues beyond the limited scrutiny scope without proper authorization. The Tribunal quashed the PCIT's order under Section 263, emphasizing adherence to the limited scrutiny framework and the necessity of obtaining appropriate approvals for expanding the scrutiny scope.

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