2021 (10) TMI 873 - AT - Income Tax

Revision u/s 263 by CIT - scope of enquiry as assigned under 'limited scrutiny' - assessment so framed under section 143(3) should be modified/set aside on the ground that such order is erroneous in so far as prejudicial to the interest of the revenue - Discrepancy in turnover shown,Some of the expenses have considerably increased as compared to last year and unexplained unsecured loan - HELD THAT - It is the PCIT who has acted in haste and without due application of mind to such glaring facts. Significantly, the assessment was made under 'limited scrutiny' on specific points. The issue aforesaid raised by the PCIT does not form part of the issues raised in the notice under section 142(1) dated 24.07.2017. A.O. was having no mandate to expand the scope of enquiry beyond the points for which case was put under limited scrutiny. The action of the A.O. for not making alleged enquiry on increase in the expenses thus cannot be levelled as erroneous. Thus, looking from any perspective, the action of the PCIT cannot be countenanced on this score. Allegation towards non-verification of nature and source of loan from Goldfeather Ventures PCIT issued show cause notice for verification merely because the Company is a Kolkata based Co. This approach, in our view, is highly untenable. Consequent directions of the PCIT is clearly in the realm of suspicion and surmises entertained by him for the reason that the loan has been availed from a Kolkata based Company. Such action, if endorsed, may tantamount to saying that all loans given by a Company addressed at Kolkata carries lesser bona fides in financial transactions. We cannot reckon such approach on judicial parameters. Secondly and importantly, the aforesaid issue also did not form part of the subject matter of limited scrutiny. Thus, the A.O. was actually prevented from carrying out enquiries on the point beyond the scope of limited scrutiny having regard to the guidelines issued by CBDT vide Instruction No. 5 dated 14.07.2016 in this regard. PCIT cannot ask the A.O. to travel beyond the scope of enquiry assigned by him under 'limited scrutiny'. We thus have no hesitation to hold that the action of the A.O. cannot be branded as erroneous. The exercise of jurisdiction under section 263 of the Act is thus without authorities of law and hence fails. Objections raised on behalf of the assessee towards serious lack of opportunity to the assessee while remanding the matter back to the A.O. for fresh assessment. PCIT, in the instant case, apparently has not given any effective opportunity to the assessee to counter the allegations raised in the show cause notice. - Decided in favour of assessee.

Summary

Issues:
Challenge to revisional order under section 263 of the Income Tax Act, 1961 concerning Assessment Year 2015-16.

Analysis:

1. Jurisdiction of PCIT under Section 263:
The appeal was filed against the revisional order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act. The PCIT directed the Assessing Officer (A.O.) to reframe the assessment order for the Assessment Year (A.Y.) 2015-16. The assessee contested the assumption of jurisdiction by the PCIT, arguing that the original assessment order was neither erroneous nor prejudicial to the revenue's interest. The PCIT's revisional powers were exercised based on alleged discrepancies in turnover, increased expenses, and unverified loan transactions.

2. Discrepancy in Turnover:
The assessee's turnover in the Profit & Loss account differed from the tax audit report, primarily due to the exclusion of certain 'other income' for calculating ratios. The assessee demonstrated reconciliation of the turnover, asserting that the higher turnover did not prejudice revenue. The Tribunal found merit in the reconciliation and noted the absence of any revenue prejudice due to the higher turnover. The PCIT's action on this issue was deemed unjustified.

3. Increased Expenses:
The PCIT directed a denovo assessment based on increased expenses compared to the previous year. The Tribunal observed that a mere increase in expenses does not warrant extensive inquiry unless disproportional to operations. The PCIT's vague direction lacked justification, especially as the revenue from operations had increased. Such generic directives could render every assessment order subject to revision, which the Tribunal deemed inappropriate.

4. Loan Verification:
The PCIT questioned the nature and source of an unsecured loan from a Kolkata-based company, Goldfeather Ventures. The Tribunal criticized the PCIT's suspicion-based approach, highlighting that the issue was beyond the limited scrutiny's scope. The Tribunal emphasized that the PCIT cannot expand the inquiry scope beyond what was assigned under limited scrutiny guidelines.

5. Lack of Opportunity and Unjustified Revisional Order:
The Tribunal noted the lack of effective opportunity for the assessee to counter allegations before remanding the matter to the A.O. for fresh assessment. Despite this procedural flaw, the Tribunal focused on the lack of merit in the PCIT's actions and quashed the revisional order, emphasizing the unjustified exercise of jurisdiction under section 263.

In conclusion, the Tribunal allowed the assessee's appeal, setting aside the revisional order of the PCIT. The judgment highlighted the importance of justifying revisional actions under the Income Tax Act and ensuring proper application of mind before directing denovo assessments.