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2021 (7) TMI 90 - AT - Income Tax


Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act.
2. Validity of the Pr. CIT's order for 'Denovo' assessment.
3. Adherence to the scope of 'Limited Scrutiny' by the Assessing Officer (AO).
4. Examination of the valuation of Work-in-Progress (WIP) and agricultural income.

Detailed Analysis:

1. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act:
The assessee contended that the Pr. CIT had no occasion to initiate proceedings under Section 263 as the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Pr. CIT's action was deemed unreasonable and bad in law. The tribunal noted that the Pr. CIT can call for and examine the record of any proceeding under the Act and pass an order if the assessment order is erroneous and prejudicial to the interests of the revenue.

2. Validity of the Pr. CIT's order for 'Denovo' assessment:
The assessee argued that the Pr. CIT ordered a 'Denovo' assessment without considering the reply filed by the assessee, which is outside the jurisdiction of the Commissioner of Income Tax in a limited scrutiny case. The tribunal found that the Pr. CIT's order for 'Denovo' assessment was not justified as the issues raised were outside the scope of the limited scrutiny.

3. Adherence to the scope of 'Limited Scrutiny' by the Assessing Officer (AO):
The tribunal emphasized that the scope of enquiry in a limited scrutiny case is confined to the issues for which the case was selected. The AO had issued a notice under Section 143(2) and examined the issues identified for limited scrutiny, including the mismatch of sales turnover reported in the audit report and ITR. The tribunal noted that the AO had conducted a thorough examination of the sale deeds and reconciled the sales turnover with the financials, ITR, AIR, and CIB data. Therefore, the AO had adhered to the scope of limited scrutiny, and the assessment order was not erroneous or prejudicial to the revenue.

4. Examination of the valuation of Work-in-Progress (WIP) and agricultural income:
The Pr. CIT raised issues regarding the valuation of WIP and the treatment of agricultural income. The tribunal found that these issues were outside the scope of the limited scrutiny and were not connected to the reasons for which the case was selected. The AO had followed the accepted method of accounting (Percentage of Completion Method) and had accounted for actual costs incurred. The tribunal held that there was no tangible material or information available during the assessment proceedings that could have led the AO to convert the limited scrutiny into a complete scrutiny. The tribunal also noted that the correct course of action for the revenue would have been to invoke jurisdiction under Section 147 of the Act if there was any potential escapement of income, rather than the Pr. CIT invoking jurisdiction under Section 263.

Conclusion:
The tribunal concluded that the Pr. CIT's order under Section 263 was not justified as the AO had adhered to the scope of limited scrutiny and there was no material evidence to suggest any potential escapement of income. The tribunal set aside the order passed by the Pr. CIT and sustained the assessment order. The appeal of the assessee was allowed.

 

 

 

 

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