2022 (11) TMI 466 - AT - Income Tax

Revision u/s 263 by CIT - difference found in 26AS statement - HELD THAT - As in case of Sahita construction Company 2022 (2) TMI 1298 - ITAT INDORE it is vivid that case of the assessee was selected for limited scrutiny for verification of limited issues (Share capital and Turnover) and the same were examined in detail by the assessing officer. The issue of TDS and amount disclosed during survey were never a part of reasons for the limited scrutiny. AO does not have any occasion to examine the same, hence order passed by the assessing officer is neither erroneous nor prejudicial to the interest of Revenue. So far alternative argument of Counsel is concerned, we note that in the Tax Audit Report, the amount has been shown wrongly and during the assessment proceedings, AO has raised this issue, wherein AO has issued show-cause notice u/s 142(1) requiring the following details. We do not agree with the stand taken by Ld. DR for the Revenue to the effect that Ld. PCIT has unlimited power under section 263 of the Act to revise the order passed by the Assessing Officer, in case of limited scrutiny cases. In limited scrutiny cases, the assessing officer does not get the opportunity to examine other issues which are not part of limited scrutiny. AO has not converted the limited scrutiny into full scrutiny by taking permission from the higher Income Tax Authorities. PCIT can exercise the supervisory power under section 263 only on the issues examined by the assessing officer and therefore the definition of the term record in clause (b) of Explanation 1 of section 263, means the record on which assessing officer has expressed his opinion. Hence, the plea taken by the ld DR for the Revenue, is not acceptable. It is well established that the impugned order passed u/s. 143(3) of the Act dated 21.12.2019, was passed by assessing officer, after calling for relevant information and after detailed examination of the same. The Assessing Officer has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. Therefore, we note that during the assessment stage, the assessing officer has raised the question relating to TDS and assessee has replied and then after Assessing Officer has examined the same and applied his mind and passed the assessment order. About the amount declared during the survey proceedings to the tune assessee has shown in its profit and loss account and paid the taxes thereon. The assessee claimed the indirect expenses against other regular business income and not against the amount declared in survey. The profit and loss accounts were submitted before the assessing officer. AO has examined the profit and loss account and applied his mind and took the possible view and then after framed the assessment order, hence such order passed by the Assessing Officer, after making detained inquiry, should not be erroneous. Assessing Officer has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. PCIT s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail - Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.
2. Non-deduction of TDS on Rs.13,12,836/-.
3. Tax treatment of Rs.40,00,000/- declared during survey proceedings.

Detailed Analysis:

1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act:
The core issue is whether the PCIT had the jurisdiction to revise the assessment order under Section 263 of the Income Tax Act. The PCIT invoked Section 263, arguing that the assessment order was erroneous and prejudicial to the interest of the Revenue because the Assessing Officer (AO) did not verify the audit report or the Rs.40,00,000/- declared during the survey.

The Tribunal referred to the judicial precedent set by the Hon'ble Supreme Court in Malabar Industries Ltd. vs. CIT, which established that for the PCIT to exercise revisional jurisdiction, the order must be both erroneous and prejudicial to the interest of the Revenue. The Tribunal emphasized that the AO's order could only be considered erroneous if it was based on incorrect facts, incorrect application of law, violated principles of natural justice, or was passed without application of mind.

In this case, the Tribunal found that the AO had limited scrutiny powers and had not converted the case into full scrutiny. Therefore, the AO was not required to examine issues beyond the scope of limited scrutiny, such as the non-deduction of TDS and the Rs.40,00,000/- declared during the survey. The Tribunal cited several judgments, including Sahita Construction Company vs. PCIT and others, to support its conclusion that the PCIT could not assume jurisdiction under Section 263 for issues not covered under limited scrutiny.

2. Non-deduction of TDS on Rs.13,12,836/-:
The PCIT noted that the AO did not add back the disallowable amount of Rs.13,12,836/- for non-deduction of TDS as mentioned in the audit report. The Tribunal observed that the AO had indeed raised this issue during the assessment proceedings, and the assessee had responded, claiming the amount was wrongly shown due to a system error. The AO had considered this explanation and applied his mind before passing the assessment order.

3. Tax treatment of Rs.40,00,000/- declared during survey proceedings:
The PCIT argued that the AO failed to properly tax the Rs.40,00,000/- declared during the survey under Section 115BBE, which mandates a higher tax rate for undisclosed income. The Tribunal noted that the AO had considered the Rs.40,00,000/- in the profit and loss account and taxed it under normal provisions after the assessee paid taxes on it. The AO had not disallowed any expenses claimed against this amount, which the PCIT found objectionable.

The Tribunal held that since the AO had limited scrutiny powers, he was not required to examine the tax treatment of the Rs.40,00,000/- declared during the survey. The Tribunal concluded that the AO had applied his mind and taken a possible view, and therefore, the assessment order could not be deemed erroneous or prejudicial to the interest of the Revenue.

Conclusion:
The Tribunal quashed the PCIT's order under Section 263, holding that the AO's assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The appeal filed by the assessee was allowed, and the order of the PCIT was set aside. The Tribunal emphasized that in cases of limited scrutiny, the AO is confined to the issues specified and cannot be faulted for not examining issues beyond the scope of limited scrutiny.