2024 (10) TMI 487 - AT - Income Tax

Revision u/s 263 - Assessee case selected for limited scrutiny under CASS - PCIT observed that the assessee alongwith two other co-owners (all three having equal share of one third each) had purchased an immovable property being land - HELD THAT - It is pertinent to note that Section 142(1) of the Act cannot extend the scope of defective notice u/s 143(2) as stated by the Ld. AR. In fact, this can only be extended through approval of PCIT which was not done in the present case. It is further noted that as per the notice u/s 143(2) of the Act and that also the scrutiny was only to the extent of large cash deposits. Notice u/s 142(1) also mentions transfer of property and not that of purchase of property. The assessee at the time the assessment proceedings has given details related to large cash deposits as well as transfer of property in the present Assessment Year. PCIT cannot invoke Section 263 when the assessee has given the detailed reply to the issue which was called upon by the AO not only that of notice u/s 143(2) of the Act but also after the issuance of notice under Section 142(1) of the Act. Thus, the Assessing Officer has passed the Assessment Order after taking into account all the relevant details and this cannot be said as erroneous or prejudicial to the interest of Revenue. Besides this, the component of transfer of one or more properties during the year and the assessee s subsequent reply related to one third of the property and his investment in the said property conveys that the AO has taken into account the transfer of property including that of purchase of property. Thus, the PCIT is taking different stand/view related to the valuation of the immovable property which cannot be matter of revision once the same has been verified by the AO. The test of errors and prejudice to the interest of Revenue components in Assessment Order though has been mentioned by the PCIT being that the fair market value of the property in accordance with stamp duty value has not been taken by the Assessing Officer as held cannot be the sole criteria for making the Assessment Order erroneous and prejudicial to the interest of Revenue. Thus, the order passed by the PCIT is not justifiable u/s 263 of the Act. Decided in favour of assessee.

Summary

Issues:
Jurisdiction of the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act for limited scrutiny case; Validity of notice under Section 143(2) of the Act; Scope of Limited Scrutiny; Invocation of Section 263 based on failure to verify property transactions; Correctness of PCIT's direction to pass a fresh Assessment Order.

Analysis:
The appeal before the Appellate Tribunal ITAT Ahmedabad involved a challenge by the Assessee against an order passed by the Principal Commissioner of Income Tax under Section 263 for the Assessment Year 2015-16. The Assessee raised multiple grounds of appeal, questioning the jurisdiction of the PCIT to issue the notice under Section 263 and pass the order, especially in a case initially taken for limited scrutiny under CASS. The Assessee contended that the PCIT exceeded jurisdiction by not adhering to the norms of limited scrutiny and raising issues beyond the scope specified. Furthermore, the Assessee argued that the PCIT erred in assuming jurisdiction under Section 263 due to the lack of inquiry by the Assessing Officer regarding a property purchase. The PCIT had set aside the Assessment Order and directed a fresh assessment, leading to the Assessee's appeal before the Tribunal.

The Assessee, through the Learned AR, emphasized the importance of a valid notice under Section 143(2) of the Act for jurisdiction in scrutiny cases. The AR cited various judicial decisions to support the contention that the notice under Section 143(2) is a jurisdictional notice and cannot be substituted by a notice under Section 142(1). The AR argued that the scope of limited scrutiny must be clearly communicated to the Assessee in the notice under Section 143(2) and any expansion beyond that without proper permission would be illegal. Additionally, the AR highlighted that the PCIT's invocation of Section 263 disregarded the Assessee's detailed submissions and participation in the assessment proceedings, which were not considered.

On the other hand, the Departmental Representative supported the PCIT's decision to invoke Section 263 based on the failure of the Assessing Officer to verify property transactions during the assessment. The DR contended that the PCIT rightly directed the Assessing Officer to conduct further verification and pass a fresh Assessment Order.

After hearing both parties and examining the material on record, the Tribunal noted that the notice under Section 143(2) of the Act and the limited scrutiny scope did not encompass property purchase issues. The Tribunal found that the Assessing Officer had considered relevant details, including property transactions, in the assessment, making the PCIT's invocation of Section 263 unwarranted. The Tribunal held that errors in the valuation of property alone do not render the Assessment Order erroneous or prejudicial to revenue interests. Consequently, the Tribunal allowed the Assessee's appeal, concluding that the PCIT's order under Section 263 was not justifiable.

In conclusion, the Tribunal's decision favored the Assessee, emphasizing the importance of adhering to procedural requirements and ensuring that jurisdictional notices are valid and scope-specific in limited scrutiny cases to avoid unwarranted revisions under Section 263 of the Income Tax Act.