2023 (10) TMI 1011 - AT - Income Tax

Revision u/s 263 - Allowability of business expenditure challenged by CIT - scope of limited scrutiny - as per CIT the impugned expenditure is neither a capital expenditure not a revenue expenditure and the same ought not to have allowed by the A.O. thereby making the assessment order erroneous and prejudicial to the interest of the Revenue - assessee s case was selected for limited scrutiny - HELD THAT - As evident from the records of the assessment order that neither was it a case of complete scrutiny nor was the issue pertaining to the expenses incurred by the assessee was before the A.O. during the assessment proceeding u/s. 143(3) of the Act. We are conscious of the propositions laid down by the various courts wherein it was held that the A.O. cannot go beyond the scope for which the assessment proceeding was initiated and thereby restricted to make a roving enquiry, into issues not confronted to the assessee. See SHREE ANIRUDDHA UPASANA FOUNDATION VERSUS CIT (EXEMPTION) , MUMBAI 2022 (9) TMI 973 - ITAT MUMBAI Revenue has failed to substantiate that the issue related to the expenditure claimed by the assessee was before the A.O. during the assessment limited scrutiny proceeding nor it brought on record any fact to show that the A.O. had authority to go beyond the issue for which scrutiny assessment was initiated. Assessment order passed by the A.O. for the purpose of verifying the limited issue is not considered to be erroneous insofar as it is prejudicial to the interest of the Revenue. PCIT lacks jurisdiction to invoke the provision of section 263 of the Act in the present case in hand. Grounds raised by the assessee Allowed.

Summary

Issues involved:
The appeal challenges the order of the Principal Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 for the Assessment Year 2018-19.

Comprehensive Details:

1. Issue 1: Challenge to the order of the Principal Commissioner under section 263:
The assessee contested the order of the Principal Commissioner, arguing that the assessment order passed by the Assessing Officer was not erroneous or prejudicial to the Revenue's interest. Specifically, the challenge focused on the legal expenses claimed by the assessee as business expenditure.

2. Facts related to legal expenses and assessment:
The assessee, an Indian company providing services to associated enterprises, claimed legal expenses of Rs. 2,99,54,061 incurred for litigating a dispute with a lessor. The Assessing Officer accepted the returned income without questioning these expenses. However, the Principal Commissioner invoked section 263, deeming the assessment order erroneous and prejudicial to the Revenue's interest.

3. Arguments and Authorities:
The Authorized Representative for the assessee contended that the legal expenses were business-related and not part of the limited scrutiny assessment. The Departmental Representative argued that the expenses were excessive and the Assessing Officer failed to scrutinize them properly. Legal precedents were cited by both parties to support their positions.

4. Judgment and Reasoning:
After considering the submissions and the assessment process, the Tribunal found that the limited scrutiny did not cover the legal expenses issue. The Principal Commissioner's decision to invoke section 263 was deemed unjustified as the Assessing Officer's scope was limited to specific reasons for scrutiny. The Tribunal referred to CBDT instructions emphasizing the restricted nature of limited scrutiny assessments. It was concluded that the assessment order was not erroneous or prejudicial to the Revenue's interest, and the Principal Commissioner lacked jurisdiction in this case.

5. Decision and Outcome:
The Tribunal allowed the appeal filed by the assessee, setting aside the Principal Commissioner's order under section 263. The judgment was pronounced in the open court on 23.08.2023.