2023 (1) TMI 683 - AT - Income Tax

Revision u/s 263 - case was selected for limited scrutiny under CASS cycle 2017 to examine the issue of capital gains / loss as reflected in the return of income - CIT directed Ld. AO to examine the issue of cash deposit and agricultural income earned by the assessee - HELD THAT - The undisputed facts that emerge are that the issues which have been flagged by Ld. Pr. CIT to seek revision could not have been, otherwise, examined by AO since the case was selected under limited scrutiny to verify the genuineness of capital gains / losses. The issues lagged for limited scrutiny was duly examined and verified by Ld. AO The scope of limited scrutiny for CASS cycles 2017 and 2018 could be widened only upon receipt of credible material or information from any law enforcement / intelligence / regulatory authority or agency regarding tax-evasion by an assessee. In such a case, the issues arising from such information could also be examined during the course of conduct of assessment proceedings in such 'limited scrutiny' cases with prior administrative approval of the concerned Pr. CIT/CIT. In the present case, we find that there is no such credible material or information which would justify widening the scope of limited scrutiny. Therefore, Ld. Pr. CIT, in our considered opinion, could not term the assessment order as erroneous or prejudicial to the revenue since the flagged issues, could otherwise be not examined by Ld. AO during the course of regular assessment proceedings. The revision of the order could not be upheld in the eyes of law. By quashing the same, we allow the appeal of the assessee.

Summary

Issues:
Challenge to validity of revisional jurisdiction u/s 263 by Principal Commissioner of Income Tax against assessment framed by Assessing Officer under section 143(3) for AY 2016-17.

Detailed Analysis:

1. Validity of Revisional Jurisdiction: The appellant challenged the revisional jurisdiction exercised by the Principal Commissioner of Income Tax (Pr.CIT) under section 263. The appellant contended that the order of the Pr.CIT was without jurisdiction, contrary to law, and opposed to principles of equity and natural justice. The appellant argued that there was no error or prejudice to warrant the invocation of powers under section 263. Additionally, the appellant asserted that the case was taken up for limited scrutiny to examine Capital Gain/Loss, and the Assessing Officer (AO) could only examine specific issues under limited scrutiny. The Pr.CIT directed the AO to examine issues beyond the scope of limited scrutiny, such as cash deposits and agricultural income, which the AO could not have examined under limited scrutiny.

2. Delay Condonation and Admittance of Appeal: The Registry noted a delay of 212 days in the appeal, which was condoned due to the lockdown situation caused by the Covid-19 pandemic. The appeal was admitted for adjudication on merits.

3. Arguments and Submissions: The appellant's representative argued that the case was selected for limited scrutiny to examine capital gains/losses. The AO had made additions based on this examination. The appellant cited CBDT Instruction to support the contention that issues beyond limited scrutiny required credible material or information from external agencies. The CIT-DR, however, argued that the revision was justified as cash deposits were linked to capital gains. The Tribunal considered these submissions for adjudication.

4. Examination of Limited Scrutiny Issues: The AO conducted limited scrutiny to verify the genuineness of capital gains/losses, as per the CASS cycle. The issues under limited scrutiny were examined, and additions were made accordingly. However, the Pr.CIT found the order erroneous due to unverified cash deposits and agricultural income. The Pr.CIT directed the AO to consider these issues, leading to the appeal.

5. Legal Framework and Tribunal Decision: The Tribunal referred to CBDT Instructions for limited scrutiny cases under CASS cycles 2017 and 2018. It highlighted that expanding the scope of limited scrutiny required credible material or information from external agencies. In the absence of such material, the Pr.CIT could not term the assessment order as erroneous or prejudicial to revenue. The Tribunal cited a recent decision where it was held that the Pr.CIT exceeded jurisdiction by revising issues beyond the scope of limited scrutiny. The Tribunal quashed the revision order, citing similar decisions from other Tribunals.

6. Conclusion: Based on the legal framework and precedents, the Tribunal found that the revision of the order could not be upheld. The appeal of the assessee was allowed by quashing the revision order, as it exceeded the scope of limited scrutiny. The decision was in favor of the appellant, and the appeal was allowed accordingly.

This detailed analysis covers the various aspects of the legal judgment, including challenges to revisional jurisdiction, examination of limited scrutiny issues, legal framework, and the Tribunal's decision based on precedents and relevant instructions.