2022 (8) TMI 254 - AT - Income Tax

Revision u/s 263 - case was selected for limited scrutiny under CASS - CIT-A power to enlarge scope of limited scrutiny assessment - AR submitted that the case of the assessee was initially selected for limited scrutiny under CASS for verification of introduction of capital during the year under consideration and during the course of assessment proceedings, the AO carried out necessary verification and has given a finding that there was no such introduction of capital during the year under consideration - HELD THAT - It is an undisputed fact that the case of the assessee was selected for limited scrutiny to verify the introduction of capital during the year under consideration and the AO has taken due note of the same and has given a specific finding after verification of record that since there is no fresh capital introduced during the year, the issue for which the matter was selected for limited scrutiny does not exists and no adverse view can be taken, therefore, taking into consideration the submissions of the assessee, the assessment proceedings were completed. In the show cause notice issued by the ld. Pr. CIT, it is noted that he has raised issues relating to non-reporting of contract receipts and secondly, regarding discrepancy in the sundry creditors accounts as shown in the balance sheet dated 31.03.2013, the sundry creditors shown in the preceding assessment year and the purchases made during the year under consideration. Further, besides these two issues, the ld. Pr. CIT has noticed certain discrepancies/shortcomings in the assessment order, which find mention in Point No. 13 of the impugned order and basis the same, it was held that the assessment order passed by the AO is not only erroneous but also prejudicial to the interest of the Revenue. We therefore find that two issues on which show cause notice has been issued as well as the other issues as contained in Para 13 of the impugned order, are not subject matter of limited scrutiny and therefore, it is a case where these issues have been raised for the first time by the ld. Pr. CIT by enlarging the scope of the assessment. It is a consistent stand across various Benches of the Tribunal that where the case of the assessee has been selected for limited scrutiny, the ld. Pr. CIT cannot enlarge the scope of the said assessment. Thus the impugned order passed by the ld. Pr. CIT, which travel beyond the subject matter of limited scrutiny cannot be sustained in the eyes of law and the same is hereby set aside and the order passed by the AO is sustained. Appeal of assessee allowed.

Summary

Issues Involved:
1. Jurisdiction of Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961.
2. Scope of limited scrutiny under CASS.
3. Validity of enlarging the scope of assessment by Pr. CIT.
4. Compliance with CBDT Instruction No. 20/2015 and subsequent instructions.

Issue-wise Detailed Analysis:

1. Jurisdiction of Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961:
The appeal challenges the order of the Pr. CIT passed under Section 263 of the Income Tax Act, 1961, which directed the Assessing Officer (AO) to re-assess or re-compute the income of the assessee. The Pr. CIT issued a show cause notice under Section 263, citing the assessment order as erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the Pr. CIT's jurisdiction under Section 263 is limited and cannot be used to enlarge the scope of assessment beyond the issues for which the case was initially selected for limited scrutiny.

2. Scope of limited scrutiny under CASS:
The case was selected for limited scrutiny under CASS to verify the introduction of capital during the year under consideration. The AO completed the assessment under Section 143(3) after verifying that no fresh capital was introduced. The Tribunal emphasized that the scope of limited scrutiny is confined to the specific issues for which the case was selected, and any expansion beyond these issues requires proper approval and conversion to complete scrutiny.

3. Validity of enlarging the scope of assessment by Pr. CIT:
The Pr. CIT raised additional issues in the show cause notice, including non-reporting of contract receipts and discrepancies in sundry creditors' accounts, which were not part of the initial limited scrutiny. The Tribunal held that the Pr. CIT cannot enlarge the scope of the assessment by introducing new issues that were not part of the limited scrutiny. The Tribunal cited various decisions, including those from the Co-ordinate Benches, which consistently held that the Pr. CIT cannot traverse beyond the jurisdiction vested with the AO during limited scrutiny.

4. Compliance with CBDT Instruction No. 20/2015 and subsequent instructions:
The Tribunal referred to CBDT Instruction No. 20/2015 and subsequent instructions, which mandate that any conversion from limited to complete scrutiny requires credible material and prior approval from the Pr. CIT. The Tribunal noted that the AO did not seek such conversion, and the Pr. CIT's attempt to introduce new issues was beyond the scope of the limited scrutiny. The Tribunal reiterated that the AO must follow the CBDT instructions, and any deviation without proper approval renders the assessment order erroneous.

Conclusion:
The Tribunal set aside the order passed by the Pr. CIT under Section 263, holding that the Pr. CIT cannot enlarge the scope of limited scrutiny. The Tribunal sustained the original assessment order passed by the AO, emphasizing adherence to the CBDT instructions and the limited scope of scrutiny. The appeal filed by the assessee was allowed, and the Tribunal quashed the order of the Pr. CIT.

Order Pronounced:
The appeal was allowed, and the order was pronounced on the 18th day of July, 2022, in Chandigarh.