2023 (9) TMI 778 - AT - Income Tax

Revision u/s 263 - assessment is taken up for limited scrutiny - payment to contractors and tax deducted thereon - HELD THAT - From the assessment order we note that the case was selected under Limited Scrutiny to examine the expenses earned by the assessee for earning exempt income . In the assessment order, AO observed that the assessee has submitted its reply on the above issue for which assessment was opened and no addition was made on this issue. Accordingly, the AO being satisfied with the reply/clarification filed by the assessee, accepted the returned income of the assessee and no additions were made in the assessment order. In the recent case of Sahita Construction Company 2022 (2) TMI 1298 - ITAT INDORE the Tribunal held that when the assessment is taken up for limited scrutiny, Ld. Pr. CIT cannot hold the assessment order as erroneous and prejudicial to the interest of revenue in respect of issue which was not a reason for selection of the case for limited scrutiny . Since the assessee s case was selected for limited scrutiny on certain issues and Ld. AO has examined these issues and framed the assessments and the issue of examination of payment to contractors was not a part of the limited scrutiny reasons, in our considered view, Ld. Pr. CIT erred in assuming jurisdiction under Section 263 of the Act and also erred in holding that assessment order is erroneous and prejudicial to the interest of revenue CIT has erred in assuming revisionary powers u/s 263 of the Act in the instant facts. The impugned order of Ld. Pr. CIT is accordingly quashed. Appeal of assessee allowed.

Summary

Issues Involved:
The appeal against the order passed by the Ld. Principal Commissioner of Income Tax-1, Ahmedabad for Assessment Year 2018-19.

Grounds of Appeal:
1. The Principal Commissioner erred in holding the assessment order as erroneous and prejudicial to the interest of revenue under Section 263 of the Income Tax Act, 1961.
2. The Principal Commissioner directed the Assessing Officer to carry out proper inquiries on the deduction claimed on account of investment depreciation provision in the Profit & Loss account.

Facts of the Case:
The original assessment under Section 143(3) was conducted for "limited scrutiny assessment under e-assessment scheme, 2019" to examine expenses incurred for earning exempt income. The Principal Commissioner initiated 263 proceedings due to the deduction claimed on investment depreciation provision in the profit and loss account. The PCIT concluded that the Assessing Officer should have disallowed a larger amount, leading to the order being erroneous and prejudicial to revenue. The appellant argued that the issues were within the limited scrutiny scope and cited judicial precedents to support this.

Decision and Reasoning:
The ITAT noted that the case was selected for limited scrutiny to examine specific issues. Citing various judicial precedents, the ITAT held that the Principal Commissioner erred in assuming jurisdiction under Section 263 for issues beyond the limited scrutiny scope. The ITAT emphasized that the Assessing Officer must work within the parameters set for limited scrutiny and cannot be faulted for not examining issues outside the specified scope. Based on this, the ITAT quashed the Principal Commissioner's order and restored the original assessment order under Section 143(3) as neither erroneous nor prejudicial to revenue.

Conclusion:
The ITAT allowed the appeal, quashing the Principal Commissioner's order and restoring the original assessment order. The decision was based on jurisdictional issues regarding the scope of limited scrutiny and the Assessing Officer's obligations within that scope.