2024 (9) TMI 360 - AT - Income Tax

Revision u/s 263 - non examination of share application - as argued examination of the issues under limited scrutiny, completed assessment without making any adverse findings against the assessee - HELD THAT - There is no reference to the fact that the case is under limited scrutiny. Further, as rightly pointed out by the D.R., the issue of non examination of share application emanates from the second issue identified for examination. There is no whisper in the order as to whether the same was investigated. This is a clear case of no enquiry, as envisaged in the revisionary order passed under section 263 by the learned PCIT. Consequently, we hold that the usurpation of jurisdiction under section 263 of the Act by the learned PCIT is justified. Accordingly, the grounds raised by the assessee in its appeal are dismissed.

Issues Involved:

1. Legality of the revision order under Section 263 of the Income Tax Act.
2. Invocation of Explanation 2(b) of Section 263.
3. Consideration of the appellant's submission and opportunity of being heard.
4. Justification for setting aside the entire assessment order for fresh assessment instead of specific issues.

Detailed Analysis:

1. Legality of the revision order under Section 263 of the Income Tax Act:

The assessee challenged the revision order dated 24/02/2021, passed by the learned Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, revising the assessment order dated 25/11/2018, passed under Section 143(3) of the Act. The assessee argued that the revision order is "illegal and bad in law" as it was based on issues outside the scope of the limited scrutiny assessment initiated through CASS.

2. Invocation of Explanation 2(b) of Section 263:

The assessee contended that the PCIT's invocation of Explanation 2(b) of Section 263 was "illegal and bad in law." The PCIT cited several discrepancies, including the treatment of Rs. 1,50,00,000 as deemed dividend under Section 2(22)(e), the genuineness of a Rs. 15,00,000 unsecured loan, and the source of share application money. The assessee argued that these issues were not part of the limited scrutiny and hence, the PCIT could not invoke Section 263 based on these grounds.

3. Consideration of the appellant's submission and opportunity of being heard:

The assessee claimed that the revision order was passed "without considering appellant's submission," violating the statutory requirement to provide an opportunity to be heard. The PCIT's order did not reflect any consideration of the assessee's responses to the notice issued under Section 263, which the assessee argued was a procedural lapse rendering the order invalid.

4. Justification for setting aside the entire assessment order for fresh assessment:

The assessee argued that the PCIT was not justified in setting aside the entire assessment order for a fresh assessment. The PCIT should have limited the revision to specific issues requiring additional verification. The assessee cited several judicial precedents supporting the view that the PCIT's powers under Section 263 should be confined to issues within the scope of the original limited scrutiny.

Tribunal's Findings:

The Tribunal noted that the appeal was filed within the extended time granted by the Hon'ble Supreme Court during the COVID period, hence there was no delay in filing the appeal.

The Tribunal examined the PCIT's order, which highlighted several discrepancies and concluded that the Assessing Officer (AO) had not made necessary inquiries or verifications. The PCIT invoked Explanation 2 to Section 263, asserting that the AO's order was "erroneous and prejudicial to the interest of revenue."

The Tribunal found that the original assessment was indeed conducted under limited scrutiny, focusing on specific issues such as the substantial increase in share application money and mismatch in sales turnover. However, the Tribunal agreed with the PCIT that the AO had not properly investigated these issues, particularly the share application money, which was one of the reasons for the case's selection under CASS.

The Tribunal also considered the judicial precedents cited by the assessee but found them unpersuasive in this context. The Tribunal concluded that the PCIT was justified in invoking Section 263, as the AO had failed to make necessary inquiries, rendering the assessment order erroneous and prejudicial to the revenue's interest.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, upholding the PCIT's revision order under Section 263. The Tribunal held that the PCIT's invocation of jurisdiction under Section 263 was justified due to the AO's failure to conduct proper inquiries and verifications during the limited scrutiny assessment.

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