2022 (8) TMI 383 - AT - Income Tax

Revision u/s 263 - selection of the case of the assessee for limited scrutiny under CASS - Low income and high loans/advances/ investments - HELD THAT - On the basis of observations, we are of a strong conviction, that as stated by the Ld. AR, and rightly so, the Pr. CIT had clearly traversed beyond the scope of his jurisdiction and revised the order passed by the Assessing Officer by holding the same as erroneous, for the reason that he had while framing the assessment failed to look into and carry out necessary verification and examination of the assessee s claim of loss from derivatives i.e, an issue which was never the subject matter for selection of the case of the assessee for limited scrutiny under CASS. Investment in unquoted equity shares and in unsecured loans/advances - We are principally in agreement with the view taken by the Pr. CIT that the order passed by the AO under Sec. 143(3)is erroneous in so far it is prejudicial to the interest of the revenue under Sec. 263, on the said count i.e, failure on the part of the AO in carrying out verifications as regards the substantial investments made in equity shares by the assessee during the year under consideration. Although, we have principally concurred with the Pr. CIT on the aforesaid issue, but at the same time find some substance in the claim of the ld. AR, that as stated by the assessee before the AO in the course of the assessment proceedings, as the fresh investment in unquoted equity shares made by the assessee company during the year under consideration was sourced out of its old loans and advances that were received back during the year, therefore, the same were made out of it duly disclosed sources. Be that as it may, having principally concurred with the order passed by the Pr. CIT under Sec. 263 qua the aforesaid issue in hand i.e, failure on the part of the AO in carrying out verifications as regards the substantial investments made in equity shares by the assessee during the year under consideration, we herein direct the AO to consider the aforesaid claim of the assessee in the course of the set-aside proceedings.

Summary

Issues Involved:
1. Validity of jurisdiction assumed by the Pr. CIT under Section 263 of the Income-tax Act, 1961.
2. Verification of the assessee's claim of loss from derivatives.
3. Verification and examination of investments in unquoted equity shares and unsecured loans/advances.

Detailed Analysis:

1. Validity of Jurisdiction Assumed by the Pr. CIT under Section 263:
The assessee contended that the Principal Commissioner of Income Tax (Pr. CIT) wrongly assumed jurisdiction under Section 263 of the Income-tax Act, 1961. The Pr. CIT directed a fresh assessment by setting aside the original assessment completed under Section 143(3). The assessee argued that the assessment was neither erroneous nor prejudicial to the interests of the revenue, which are prerequisites for invoking Section 263. The Pr. CIT's jurisdiction was questioned on the grounds that the case was selected for limited scrutiny under CASS, and the issues raised by the Pr. CIT did not form the basis for which the case was selected.

2. Verification of the Assessee's Claim of Loss from Derivatives:
The Pr. CIT held the original assessment order as erroneous and prejudicial to the revenue because the Assessing Officer (AO) failed to verify the assessee's claim of a loss of Rs. 26,90,317/- from derivatives. The assessee argued that this issue was not part of the limited scrutiny parameters under CASS, which included "Low income and high loans/advances/investments" and "Investment in unlisted equities." The tribunal concurred with the assessee, stating that the Pr. CIT could not expand the scope of limited scrutiny to include issues not originally selected for scrutiny. The tribunal referenced CBDT Instruction No. 20/2015, which confines scrutiny to specific issues for which the case was picked up.

3. Verification and Examination of Investments in Unquoted Equity Shares and Unsecured Loans/Advances:
The Pr. CIT observed that the AO did not make necessary verifications regarding the investments in unquoted equity shares and unsecured loans/advances, amounting to Rs. 15 crores. The tribunal noted that while the AO had asked for details of investments during the assessment proceedings, merely furnishing basic details did not constitute adequate inquiry or verification. The tribunal agreed with the Pr. CIT that the AO's failure to verify substantial investments rendered the assessment order erroneous and prejudicial to the revenue. However, the tribunal also acknowledged the assessee's claim that the fresh investment of Rs. 3.58 crores was sourced from old loans and advances received back during the year. The tribunal directed the AO to consider this claim during the set-aside proceedings.

Conclusion:
The tribunal found that the Pr. CIT had overstepped his jurisdiction by including the issue of derivative losses, which was not part of the limited scrutiny parameters. However, it upheld the Pr. CIT's decision regarding the lack of verification of investments in unquoted equity shares and unsecured loans/advances. The tribunal modified the Pr. CIT's order, directing the AO to re-examine the investments while considering the assessee's explanations.

Order:
The appeal of the assessee was allowed in part, with directions to the AO to conduct a fresh assessment limited to the verification of investments in unquoted equity shares and unsecured loans/advances. The tribunal pronounced the order on the 5th of August, 2022.