2023 (8) TMI 888 - HC - Income Tax

Conversion of limited Scrutiny into Complete scrutiny - Expansion of scope of Scrutiny - whether AO which had initially issued notice u/s 143(2) for a Limited Scrutiny of the return filed by the assessee on three aspects, could have expanded the scope prior to obtaining approval for a Complete Scrutiny by the appropriate authority? - Whether Tribunal erred not considering the fact that the case was converted from Limited Scrutiny to Complete Scrutiny on approval of the Pr. CIT in writing and only thereafter the Assessment Order was passed ? - HELD THAT - As the scheme of assessment as provided u/s 143 is a complete code by itself and the circumstances under which the power under sub-section (2) of Section 143 could be invoked has been clearly spelt out and on a reading of sub-section (3) of Section 143, it is evidently clear that on the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the AO may require on specified points, and after taking into account all relevant material which he has gathered, the AO shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. Therefore, the question of part of the provision being procedural is an incorrect interpretation of the scheme provided u/s 143 - As noted above, the CIT(A) has examined the merits of the matter and after taking note of the facts granted relief to the assessee to the extent indicated therein. Revenue has not made out any case for interference of the order passed by the Tribunal.

Summary

Issues involved:
The judgment involves the following Issues:
1. Whether the Income Tax Appellate Tribunal was justified in not considering the conversion of the case from Limited Scrutiny to Complete Scrutiny before passing the Assessment Order.
2. Whether the Tribunal was justified in quashing the order under Section 143(3) of the Act due to the Assessing Officer's enquiries outside the specific issues before the conversion.
3. Whether the Tribunal was justified in not considering the approval of the Principal Commissioner in writing for a complete scrutiny before adding back unsecured loans to the assessee's income.

Issue 1: Conversion from Limited Scrutiny to Complete Scrutiny
The Assessing Officer initially issued a notice for Limited Scrutiny but later expanded the scope before obtaining approval for Complete Scrutiny. The Tribunal found this action impermissible, citing a Circular by the CBDT which restricts the scope of enquiry in Limited Scrutiny until conversion to Complete Scrutiny. The Tribunal referred to a similar decision by the Delhi Tribunal and held that the Assessing Officer's procedure was unsustainable, leading to the dismissal of the appeal.

Issue 2: Quashing of the Section 143(3) Order
The Tribunal quashed the Section 143(3) order due to the Assessing Officer's enquiries beyond the specific issues before the conversion to Complete Scrutiny. The Tribunal found this action to be in derogation of the CBDT Instruction, leading to the dismissal of the appeal.

Issue 3: Approval for Complete Scrutiny
The Tribunal noted that the Assessing Officer passed the Section 143(3) order only after approval from the Principal Commissioner for a complete scrutiny. However, the Tribunal found that the Assessing Officer's actions were against the CBDT Instruction, which outlines the procedure for converting a case to Complete Scrutiny. The Tribunal dismissed the appeal based on this finding.

Judicial Interpretation and Decision
The Court analyzed the decisions in Venkataswamappa vs. Special Duty Commissioner and Commissioner of Wealth Tax, Meerut vs. Sharvan Kumar Swarup & Sons, but found them inapplicable to the present case under the Income Tax Act. The Court emphasized that the scheme of assessment under Section 143 of the Act is a complete code, and the circumstances for invoking the power under sub-section (2) are clearly defined. As the CIT(A) had already examined the merits of the matter and granted relief to the assessee, the Court concluded that the revenue did not establish a case for interference with the Tribunal's order. Therefore, the appeal was dismissed, and the substantial questions of law were answered against the revenue.

Conclusion
The Court found no grounds for interference with the Tribunal's order and dismissed the appeal, answering the substantial questions of law against the revenue. Additionally, the application for stay was also dismissed.