2004 (12) TMI 308 - AT - Income Tax

Challenged the Order passed u/s 263 to revise the assessment order - erroneous and prejudicial to the interests of the revenue - limited scrutiny - Non issuance of notice - Validity of the assessment order u/s 143(3)(i) - HELD THAT - The grounds on which the assessment made by the Assessing Officer u/s 143(3)(i) has been set aside by the learned CIT are in our considered opinion, not permitted or covered while making an assessment on limited issues envisaged u/s 143(3)(i) of the Act. However, if the Assessing Officer's order were u/s 143(3)(ii), in course of which if the Assessing Officer were failed to examine the case in its entirety or were failed to examine important aspects of the case as pointed out by the learned CIT in his order made u/s 263 or the Assessing Officer's order completed u/s 143(3)(ii) were not in accordance with the provisions of section 143(3)(ii), it would surely be an erroneous order giving jurisdiction to CIT u/s 263 of the Act to set aside the same and to direct the Assessing Officer to make de novo assessment accordingly. But that is also not the case here. The revised return of income was furnished by the assessee on 18-2-2003. Therefore, notice under clause (ii) of sub-section (2) of section 143 could have been served on the assessee by 29-2-2004, i.e. within one year from the end of the month, in which the revised return was furnished. The time limit to serve the notice u/s 143(2)(ii) had, therefore, expired on 29-2-2004. The learned CIT by his impugned order-dated 24-5-2004 made uu/s 263 has directed the Assessing Officer to examine the case in its totality on comprehensive scale, which could be done only after issuing notice u/s 143(2)(ii) within the specified time. It is by now well settled as held in number of decisions that the Commissioner can exercise his power of revision conferred upon him u/s 263 of the Act if following two pre-requisites are satisfied - (i) Firstly, the order passes by the Assessing Officer is erroneous and; (ii) Secondly, the order passed by the Assessing Officer is prejudicial to the interests of the revenue as well. On the facts found, the Assessing Officer's order passed u/s 143(3)(i) cannot be termed, by any stretch of imagination, as an erroneous and insofar as prejudicial to the interest of revenue as well. In this view of the matter, CIT's assuming jurisdiction conferred upon him u/s 263 in respect of the Assessing Officer's order made u/s 143(3)(i) is not lawful and thus the learned CIT's order made u/s 263 cancelling Assessing Officer's order passed u/s 143(3)(i) on 28-2-2003 rendering the same as erroneous and in so far as prejudicial to the interest of revenue for the reasons given by him, is not justified and valid in the eyes of law. In the instant case, where the case was selected for limited scrutiny as envisaged u/s 143(2)(i), the Assessing Officer by any stretch of imagination cannot be expected to make an enquiry of the items pointed out by the learned CIT in his order u/s 263 of the Act, inasmuch as, to make an enquiry of the said items pointed out by the learned CIT was beyond the powers conferred upon the Assessing Officer u/s 143(2)(i) read with section 143(3)(i) of the Act or were beyond the scope of limited scrutiny of assessee's any claim of loss, exemptions, deductions, allowances or relief as envisaged by section 143(2)(i) of the Act. On the facts so found by us, we are, therefore, of the considered opinion that in the course of completing the assessment u/s 143(3)(i) of the Act, the Assessing Officer has not failed to make an enquiry of the items specified in section 143(2)(i) or the items he had set out in his notice issued u/s 143(2)(i) to verify, and thus his order made u/s 143(3)(i) cannot be termed as erroneous and prejudicial to the interests of the revenue. Thus, the order passed by the learned CIT u/s 263 of the Act in the matter of an assessment made u/s 143(3)(i) by the Assessing Officer is cancelled. In the result, the appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Validity and jurisdiction of the CIT's order u/s 263.
2. Examination of the assessment made u/s 143(3)(i) by the Assessing Officer (AO).

Summary:

Issue 1: Validity and jurisdiction of the CIT's order u/s 263:
The assessee contested that the CIT's order u/s 263 was "bad-in-law and without jurisdiction" because the assessment made by the AO u/s 143(3)(i) was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal held that the CIT's assumption of jurisdiction u/s 263 was not lawful. The AO's decision not to initiate a comprehensive scrutiny by issuing a notice u/s 143(2)(ii) could not be a basis for the CIT to render the assessment order erroneous and prejudicial to the interest of the Revenue. The Tribunal emphasized that the CIT cannot extend the time limit for issuing a notice u/s 143(2)(ii) indirectly through an order u/s 263.

Issue 2: Examination of the assessment made u/s 143(3)(i) by the AO:
The AO issued a notice u/s 143(2)(i) to examine the assessee's claims for deductions on account of interest and penalty on sales tax and firm's income-tax. The assessee revised its return, withdrawing these claims, and the AO completed the assessment accordingly. The CIT found that the AO failed to examine other important aspects such as the reduction of liabilities, capital expenditure, increased expenditure items, and a new commission payment. However, the Tribunal noted that the AO's assessment u/s 143(3)(i) was limited to the specific claims mentioned in the notice u/s 143(2)(i) and did not extend to a comprehensive scrutiny of the return. The Tribunal concluded that the AO's order was in accordance with the law and not erroneous or prejudicial to the Revenue's interests.

Conclusion:
The Tribunal cancelled the CIT's order u/s 263, holding that the assessment made by the AO u/s 143(3)(i) was valid and in accordance with the provisions of the Income-tax Act. The appeal filed by the assessee was allowed.