2021 (10) TMI 649 - AT - Income Tax

Revision u/s 263 - scope of limited scrutiny - case of assessee was selected for limited scrutiny for four reasons, i.e. (i) contract receipt/ fees mismatch (ii) sales turnover (iii) sundry creditors and (iv) tax credit mismatch - HELD THAT - The assessee explained all these queries and the mismatch between Form 26AS vis- -vis audited P L A/c with reference to the turnover/ gross receipt, TDS credit and the turnover reported in audit report as compared with ITR was explained. So far as verification of sundry creditors is concerned the same was explained by filing confirmation of M/s Krishna Infrastructure which is the main sundry creditor of ₹ 4.10 crores out of total sundry creditors of ₹ 4,59,61,765/. The sundry creditors were mainly in respect of outstanding sub-contractor payment and the explanation for increase in sundry creditors vis- -vis last year was also furnished before the CIT - on issue of mismatch of turnover and TDS credit, the ld. PCIT has not raised any issue but in respect of sundry creditors he has raised the issue in Sec.263 order ignoring that this issue has been thoroughly examined by the AO during the course of assessment proceedings. Thus, on this issue, the order of AO cannot be held to be erroneous or prejudicial to the interest of revenue. Only when the AO notices that there is potential escapement of income exceeding ₹ 5 lacs then the case may be taken for complete scrutiny. However, on verification of the issues taken up for limited scrutiny, the AO has not found anything incorrect and therefore, there was no reason for him to ask for complete scrutiny. Therefore, in respect of Chapter VI-A deduction, if the AO has not made an enquiry the same cannot be considered as erroneous or prejudicial to the interest of revenue more particularly when such claim is allowed in the preceding year and is verifiable from the capital account of assessee for the year under consideration. On the issue of large amount of sundry creditors and expenses claimed in the P L A/c the same is duly explained before the AO, who after making necessary verification and enquiry from the assessee has accepted the explanation of assessee. Therefore, on the issue of increase in sundry creditor with respect to turnover as compared to the preceding year, therefore, in our view, the order passed by the AO cannot be held to be erroneous or prejudicial to the interest of revenue. The ld. PCIT has directed the AO to pass the assessment order afresh ignoring that when the case is selected for limited scrutiny, the jurisdiction of CIT for holding the order erroneous or prejudicial to the interest of revenue is confined only to the issue of limited scrutiny and not to direct the AO to pass a denovo assessment afresh by raising issues beyond what is permitted in the limited scrutiny. Hence, the direction given by Ld. CIT is also bad in law. We are not in agreement with the view taken by the ld. Pr.CIT in the facts and circumstances of the case and therefore we hold that the assessment order, subjected to revision u/s 263, is not erroneous and prejudicial to the interest of the revenue - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the order passed by the Pr.CIT under Section 263 of the Income Tax Act.
2. Whether the Pr.CIT was correct in directing the AO to pass a fresh assessment order.
3. Examination of the claim of deduction under Section 80C.
4. Enlargement of the scope of limited scrutiny by the Pr.CIT.

Detailed Analysis:

1. Legality of the Order Passed by the Pr.CIT under Section 263:
The assessee challenged the order of the Pr.CIT under Section 263 of the Income Tax Act, arguing that it was illegal and bad in law. The Tribunal observed that the case was selected for limited scrutiny to verify specific issues such as contract receipt/fees mismatch, sales turnover mismatch, sundry creditors, and tax credit mismatch. The AO had examined these issues in detail, issued notices under Section 142(1), and accepted the income returned by the assessee. The Tribunal concluded that the AO's order was not erroneous or prejudicial to the interest of revenue, as the issues raised by the Pr.CIT were already thoroughly examined during the assessment proceedings.

2. Direction to Pass Fresh Assessment Order:
The Pr.CIT directed the AO to pass a fresh assessment order, which the assessee contended was illegal. The Tribunal noted that the Pr.CIT's direction to make a fresh assessment was based on the observation that the AO had not made proper enquiries. However, the Tribunal found that the AO had indeed conducted necessary verifications and enquiries. The Tribunal held that the Pr.CIT's direction to pass a fresh assessment order was not justified, as the AO had already examined the relevant issues during the original assessment proceedings.

3. Examination of the Claim of Deduction Under Section 80C:
The Pr.CIT directed the AO to examine the claim of deduction under Section 80C, which was not an issue for limited scrutiny. The Tribunal noted that the AO is required to confine himself to the specific issues for which the case was picked up for limited scrutiny, as per CBDT Instruction No. 20/2015. The Tribunal observed that the AO had not found any potential escapement of income exceeding ?5 lakhs that would necessitate a complete scrutiny. Therefore, the Tribunal concluded that the AO's non-enquiry into the Section 80C deduction could not be considered erroneous or prejudicial to the interest of revenue.

4. Enlargement of the Scope of Limited Scrutiny:
The Pr.CIT expanded the scope of limited scrutiny by directing the AO to consider additional issues that may come to notice during the assessment proceedings. The Tribunal held that the Pr.CIT's jurisdiction for holding the order erroneous or prejudicial to the interest of revenue is confined only to the issues of limited scrutiny. The Tribunal cited case laws, including Torrent Pharmaceuticals Ltd. Vs. DCIT and Amira Pure Foods Pvt. Ltd. Vs. PCIT, to support its view that the Pr.CIT cannot direct a denovo assessment afresh by raising issues beyond what is permitted in limited scrutiny.

Conclusion:
The Tribunal quashed the order passed under Section 263 of the Income Tax Act by the Pr.CIT, holding that the assessment order was not erroneous or prejudicial to the interest of revenue. Consequently, the other grounds raised by the assessee became infructuous and required no adjudication. The appeal of the assessee was allowed. The order was pronounced in the open court on 15th September 2021.