2024 (6) TMI 1126 - AT - Income Tax

Revision u/s 263 - allowability of deduction of interest claimed u/s 57 - submission made by the Ld. A.R. is this that the PCIT is not justified in invoking jurisdiction u/s 263 of the Act by directing the fresh assessment when the earlier assessment as assessed u/s 143(3) of the Act has been covered under limited scrutiny category and AO has passed the order in conformity with the CBDT instructions applicable for limited scrutiny considering all the relevant facts available on the matter HELD THAT - We find that the assessment was finalised u/s 143(3) by AO under limited scrutiny scheme wherein the assessment was related to allowability of deduction of interest, claimed u/s 57 and the AO while conducting limited scrutiny in accordance with the above mentioned CBDT circular as argued by the AR and relied upon, considered all facts and only thereafter disallowed the deduction u/s 57 as claimed by the assessee. In that view of the matter, the order passed by the AO cannot be said to be erroneous so as to prejudicial to the interest of Revenue. We note that when the Ld. AO has exercised its jurisdiction within the boundary of the CBDT circular, verified the issues raised in a limited scrutiny and only upon due application of mind finalised the issue upon making disallowance u/s 57, PCIT cannot exercise the revisional jurisdiction conferred upon him u/s 263 of the Act beyond the issues which were raised and finalised under such limited scrutiny. On this aspect we have considered the judgement passed by different coordinate benches and the higher forums as relied upon by the Ld. A.R. It is a settled principle of law the PCIT cannot exercise the power of revision to look into any other issue which the assessing officer himself could not look into under the limited scrutiny proceeding. In other words the powers of the PCIT for revision u/s 263 of the Act would be limited to the issues which has been considered in the limited scrutiny assessment; the revisionary powers u/s 263 cannot frame beyond the issues considered in the limited scrutiny. In that view of the matter as observed by the PCIT that since the agricultural receipts and the issue of adequacy of agricultural expenditure were not verified by the assessing officer, the order passed u/s 143(3) of the Act is erroneous insofar as prejudicial to the interest of Revenue is palpably bad, not sustainable in the eye of law and therefore quashed. Appeal of the assessee is allowed.

Summary

Issues Involved:
Appeal against order passed under Section 263 of the Income Tax Act, 1961 for Assessment Year 2018-19.

Analysis:

Issue 1: Jurisdiction of Principal Commissioner under Section 263
The appeal challenges the Principal Commissioner's order under Section 263, revising the assessment order passed under Section 143(3) of the Act. The appellant argues that the PCIT overstepped jurisdiction by directing a fresh assessment beyond the limited scrutiny issues. Citing various judgments, the appellant contends that PCIT's revisionary powers are confined to issues considered in limited scrutiny assessments. The PCIT's order was deemed erroneous and prejudicial to revenue, leading to the appeal.

Issue 2: Limited Scrutiny Assessment and PCIT's Revisionary Powers
The PCIT found discrepancies in the appellant's agricultural income and expenses, directing a fresh assessment. However, the limited scrutiny assessment under Section 143(3) was based on specific issues related to deduction of interest under Section 57. The Tribunal held that the PCIT cannot expand revisionary powers beyond issues addressed in limited scrutiny assessments. Rulings emphasized that PCIT cannot delve into unconnected issues not part of the original limited scrutiny scope.

Conclusion:
The Tribunal allowed the appeal, quashing the PCIT's order under Section 263. It reiterated that PCIT's revisionary powers are limited to issues considered in limited scrutiny assessments. The original assessment, focused on interest deduction, was deemed valid within the boundaries of the CBDT circular. The Tribunal upheld the principle that PCIT cannot revise assessments based on unverified issues beyond the limited scrutiny scope. The judgment emphasized the importance of confining revisionary powers to issues addressed during limited scrutiny assessments, leading to the appeal's success.