2024 (6) TMI 412 - AT - Income Tax

Revision u/s 263 - validity of Limited scrutiny Assessment - observation of the PCIT that the AO has not properly examined the issue relating to disallowance u/s 36(1)(iii) of the Act and u/s 14A of the Act - HELD THAT - AO was not authorized to scrutinized and enquire these issues without the permission of the Competent Authority. The assessment was selected for limited scrutiny on the three issues and the AO was not supposed to scrutinize any other issue, therefore, the observation of the ld. PCIT that the assessment order was erroneous because the AO has not scrutinized the issue relating to disallowance u/s 36(1)(iii) and Section 14A of the Act is not correct, the assessment order cannot be held erroneous as the AO was not supposed to go into these issues in case of limited scrutiny. DR has fairly agreed on these submissions of the ld. counsel. Since in this case, the aforesaid issue relating to disallowance u/s 36(1)(iii) and 14A of the Act were not covered under the limited scrutiny, therefore, the assessment order cannot be held to be erroneous for want of detailed enquiries on these issues by the AO. Claim of deduction u/s 80JJAA - We note that the adequate enquiries were made by the AO on these issues and the ld. PCIT has not pointed out what additional enquiries were required to be made by the AO on this issue. Moreover, the assessee has duly explained before the ld. PCIT that the assessee has outsourced the employees, therefore, the expenditure on account of additional infrastructure was not incurred. The ld. PCIT has simply held the order erroneous on this issue by making general observation that the AO was required to make more enquiries, which, in our view, is not a valid ground to hold the assessment order erroneous and prejudicial to the interests of the Revenue. Issue of shares to the two companies - PCIT has not pointed out in the impugned order that what further enquiries were required to be made by the AO in this case which have not been so made. The ld. PCIT has only by single observation held that these claims of the assessee alongwith claim on the issue of share capital paid to the companies namely M/s Takecare India Pvt. Ltd. and Videocon Realty Infrastructure Ltd. are held to be a matter that needs to be factually verified and examined accordingly by the AO. We note that these are the general observations of the ld. PCIT. PCIT has not given any specific finding as to why the order of the AO was erroneous and prejudicial to the interests of the Revenue on this issue and on what account. The ld. PCIT has not pointed out any defect, infirmity or inadequacy in the explanation offered by the assessee on the queries made by the ld. PCIT. Simply holding that the AO was required to make more enquiries is not a valid ground to hold assessment order as erroneous and prejudicial to the interests of the Revenue. The exercise of the revision power by the Ld. PCIT, in this case, is not justified. Appeal of the assessee stands allowed.

Summary

Issues involved:
The judgment involves issues related to limited scrutiny assessment on refund claim, share capital/other capital, and deduction under Chapter VI-A. Additional issues include deduction u/s 80JJAA, disallowance u/s 36(1)(iii), disallowance u/s 14A, and examination of Non Cumulative Compulsory Redeemable Preference Shares (NCRPS).

Limited Scrutiny Assessment:
The Assessing Officer (AO) accepted the returned income of the assessee after examining the issues under limited scrutiny. However, the Principal Commissioner of Income Tax (PCIT) found discrepancies in the deduction claimed u/s 80JJAA, interest expenditure, and investments made by the assessee. The PCIT observed lack of proper examination by the AO on these matters.

Deduction u/s 80JJAA:
The PCIT raised concerns regarding the deduction claimed u/s 80JJAA by the assessee. It was noted that the AO did not adequately inquire into the expenses related to infrastructure for newly added employees. The PCIT considered the AO's lack of thorough investigation as a reason to set aside the assessment order for denovo assessment.

Disallowance u/s 36(1)(iii) and u/s 14A:
The PCIT highlighted that the AO did not examine the issues of disallowance u/s 36(1)(iii) and u/s 14A related to interest expenditure and exempt income from investments. The PCIT considered this as a basis for holding the assessment order as erroneous and prejudicial to the Revenue's interests.

Non Cumulative Compulsory Redeemable Preference Shares (NCRPS):
The PCIT observed that the AO did not adequately examine the issue of NCRPS issued by the assessee. Concerns were raised regarding the identity, financial worthiness of share subscribers, and genuineness of transactions related to NCRPS.

Judgment and Conclusion:
The assessee appealed against the PCIT's order, arguing that the AO was not authorized to scrutinize issues beyond the limited scrutiny scope. The Tribunal agreed with the assessee, stating that the AO was not required to delve into matters outside the specified limited scrutiny areas. The Tribunal found that the AO had conducted sufficient inquiries on the deduction u/s 80JJAA and share capital issues. It concluded that the PCIT's general observations did not justify holding the assessment order as erroneous. Therefore, the Tribunal allowed the appeal, quashing the PCIT's revisional order.

Separate Judgment:
The Tribunal's decision was pronounced on 27th February, 2024, allowing the appeal of the assessee and declaring the PCIT's revisional order as not sustainable in the eyes of the law.