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TMI Blog2021 (7) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Revenue. The ld. Pr. CIT has not brought out any variations. It is also not true on the part of the Pr. CIT that the order was passed in a haste for the reason that, three hearings were taken place after the proceedings was initiated on 09.09.2017 and the assessment was completed on 11.12.2017. Even otherwise unless there is an error which is prejudicial to the interest of the Revenue it cannot be said that power u/s 263 of the Act can be invoked. In view of the above discussion we quash the order passed u/s 263 of the Act and allow this appeal of the assessee. - I.T.A. No. 65/Kol/2021 - - - Dated:- 23-6-2021 - Sri J. Sudhakar Reddy, Accountant Member And Sri Aby T. Varkey, Judicial Member For the Assessee : Sh. S.M. Surana, Adv. For the Revenue : Sh. Tushar Dhawal Singh, CIT(D/R) ORDER PER J. SUDHAKAR REDDY, AM: This is an appeal filed by the assessee directed against the order of the Learned Pr. Commissioner of Income Tax-16, Kolkata [hereinafter the Pr. CIT ], passed u/s 263 of the Income Tax Act, 1961 (hereinafter the Act ), dated 24.06.2020 for the Assessment Year 2015-16. Delay of 186 days in filing of the appeal is condoned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest component, (iv) The A.O. had not applied his mind in the matter of comparison of investment in unlisted equities. (v) The A.O, had not applied his mind in the matter of comparison of high loans/advances/investments, (vi) The A.O. had examined the reason for low income with high investments. (vii) The Assessing Officer has passed order in haste and without carrying out adequate enquiries/verifications. (viii) For proper verification on the above mentioned issues the A.O. should have taken proper approval from PCIT for converting limited scrutiny to complete scrutiny in accordance with the CBDT Instruction No. 5/2016 dated 14.07.2016. 4. The assessee did not furnish any reply. As there is failure in reply, the Pr. CIT at para-3.1 to 3.3 held as follows: 3.1. It is seen from the records that the assessee converted itself into an LLP from a Pvt. Ltd. Company in F.Y. 14-15 relevant to AY 15-16 Upon the said conversion, a substantial amount of assets of the erstwhile company was transferred to the assessee in its newly formed avatar of LLP The AO being an investigator as well as an adjudicator was duty bound to examine the antece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in depth enquiries/verification on the above mentioned issues especially when there was large and substantial amount of funds involved and that too in newly created LLP. 4.1. Thereafter he relied on certain case laws and at para-5 held as follows: 5. From the examination of all the materials on record and careful appreciation of the facts and circumstances of the case, I find that the AO has passed the assessment order in an ad hoc and perfunctory manner, leaving out issues which had a material bearing on assessing the correct income of the tax payer. On the whole, the AO had not performed his job in the right spirit and has passed the assessment order in a manner which shows lack of application of mind, failure to conduct due diligence and to apply the correct provisions of law before passing the order After having considered the position of law and facts and circumstances of the instant case, I am of the considered opinion that the assessment order u/s 143(3) dated 13.12.2017 passed by the A.O., is erroneous in so far as it is prejudicial to the interest of revenue within the meaning of section 263(1) and its explanation 2(a) of the I.T. Act, 1961. As a result, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the value of assets was prior to conversion. He also pointed out that the case of unlisted securities, the figure prior to conversion and after conversion are the same and that there is no acquisition of new assets. 6.2. He submits that all these points are not the points for which the case was selected for limited scrutiny and hence the AO was not in error in not seeking permission from the Pr. CIT for converting the limited scrutiny of this case to complete scrutiny. He relied on the following case laws: i) Naga Dhunseri Group Ltd. vs. PCIT, ITA No. 370/Kol/2020, order dated 27.01.2021. ii) Sonali Hemant Bhavsar vs. PCIT, ITA No. 742/Kol/2019, order dated17.05.2019. 6.3. He submitted that the AO has made enquiries on all the issues and after application of mind has taken a plausible view and this cannot be termed as erroneous and prejudicial to the interest of the Revenue and hence the exercise of powers u/s 263 of the Act is bad in law. He prayed for relief. 7. The ld. D/R on the other hand submitted that the AO is duty bound to investigate certain issues and not doing so is an error which is prejudicial to the interest of the Revenue. He emphasized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... high loans/advances/investments (iv) Low income and high investments. 10.1. The record shows that the AO has called for details and all these issues by issuing notice u/s 142(1) of the Act, a copy of which is placed at page-4 to 5 of the paper book. Specific replies to these points were filed by the assessee, copies of which are at page-8 to 16 of the paper book. The AO found that no interest expense was claimed by the assessee. On the issue of investment on unlisted securities the AO found that this amount was brought forward from the company M/s. Rosemary Vincom Pvt. Ltd. which was taken over by the assessee. On the issue of low income and high loans/advances/investments, the assessee explained that the conversion took place towards the end of the year and this explanation was accepted by the AO. Low income and high investment was also explained as a fact that arose because of the takeover of the company by the L.L.P. towards the end of the year. The number of operational days were less. The AO, in our view, has applied his mind to the four issues that were the points on which the assessment of the assessee was selected for limited scrutiny. This is not the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer is prohibited from examining any other issue or matter than what was the reasons for selecting the case for limited scrutiny, then the Assessing Officer cannot be accused of non-application of mind or negligence. 8.1. The ITAT Mumbai G Bench of the Tribunal in the case of ITA No. 742/M/2019; Assessment Year 2015-16, order dt. 17/05/2019, held as follows:- 6. After hearing both the parties and perusing the materials before us, we observe from the notice issued under section 143(2) of the Act for limited scrutiny dated 19.09.2016 and find merits in the contentions of the assessee that the said limited scrutiny can not be expanded unless the AO converted it into complete scrutiny with the approval of Ld. Pr. CIT and if the AO after considering the submissions of the assessee does not come to the conclusion of potential escapement the Ld. Pr. CIT can not hold the order to be erroneous on the ground that AO ought to have reached to such conclusion. The case of the assessee is squarely covered by the decision of Kolkata Bench in the case of Sanjeev Kr. Khemka vs. Pr. CIT in ITA No.1361/Kol/2016 A.Y. 2011-12 dated 02.06.2017 wherein the co-ordinate bench of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fe Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016 have taken a view that when an Assessment order passed u/s 147 of the Act was illegal the Ld.CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon'ble Mumbai bench of the Tribunal has specifically framed the following questions:- 1.Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24-10- 2013 was valid in the eyes of law or a nullity as has been claimed by the assessee? 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order? On question no. 1 and 3 which is relevant to the present case the Hon'ble Mumbai bench of the Tribunal has taken the view that when the original assessment proceedings are null and void in the eyes of law for want of proper assumption of jurisdiction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hold that the ld. CIT has in his order u/s. 263 of the Act exceeded the jurisdiction by holding the order of AO as erroneous in so far as prejudicial to the interest of Revenue on those items which are not emanating from the AIR. Thus, we are inclined to adjudicate only those matters which are emanating from the AIR as discussed above. 4.2 The assessment was framed by AO for the A.Y. 2011-12 under section 143(3) of the Act vide order dated 29.03.2014 after making certain additions/ disallowances to the total income of assessee. Subsequently, Ld. CIT u/s 263 of the Act observed certain errors in the order of AO, therefore, he was of the view tht the order passed by the AO is erroneous in so far as prejudicial to the interest of Revenue on account of no proper-enquiry before completing assessment as discussed below:- (i) The assessee has deposited in its bank account in HDFC bank Goa for ₹17.56 lakh and out of that there was a withdrawal only for ₹1.50 lakh but the AO has made the addition only to the extent of ₹4 lakh on account of unexplained cash credit. Therefore, certain unexplained cash credit of the assessee has been under assessed by the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- without taking any explanation from the assessee. (2) The balance deposits in another account with HDFC, Porvorim, Goa was not considered in assessment. (3) Interest income from all savings accounts and FDRs was not considered at the time of assessment. (4) Submission of assessee regarding explanation of credit card payment of ₹ 3,76,225/- was partly accepted in assessment without proper verification. (5) Although a salaried person, the assessee's bank account reflect huge transactions/transfer entries, which required further investigation. (6) Long term capital gain of ₹ 19,74,763/- was not properly verified. (7) Loan transactions and Mrs. Sonali Hemant Bhavsar interest on loans required proper verification. (8) Salary was received in cash without TDS, which should have been viewed adversely. (9) LIC premium was paid for a minor but assessee's capital account did not reflect the same. (10) Lastly, the assessee declared income from commission/brokerage in the previous two AYs but no such income was shown in this year. An incorrect assumption of facts or an incorrect application of law will alw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR before us submitted that the necessary enquiries were made by the AO at the time of assessment. Thus the order of the AO cannot be held Mrs. Sonali Hemant Bhavsar erroneous and prejudicial to the interest of Revenue on account of non enquiry whereas the ld. DR vehemently supported the order of the ld. CIT. 5. We have heard the rival contentions perused the materials available on record. From the foregoing discussion, we find that order of AO has been treated erroneous and prejudicial to the interest of revenue on the ground that proper enquiry was not made by the AO. Therefore, Ld.3CIT held that the order of AO is erroneous and prejudicial to the interest of revenue. However, after examining the order of Authorities Below and other relevant records our observations are as follows:- a) deposit of cash of ₹17.56 lakh in HDFC bank a/c No.03151930000609 From the order or AO, we find that the AO at the time of assessment proceedings has applied his mind while determining the undisclosed income from the said bank account for ₹ 4 lacs. Thus the AO after considering the bank statements of the assessee has consciously made the addition of ₹ 4 lakh as une ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, we find support and guidance from the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. M/s. J.L. Morrison (India) Ltd.(ITA No 168 of 2011) in GA No 1541 of 2012 dated 15.05.2014, wherein it was held as under:- By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. We also rely on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Max India Limited reported in 295 ITR 282 wherein it was held as under : When the CIT passed the impugned order under s. 263, two views were inherently possible on the word profits occurring in the proviso to s.80HHC(3) and therefore, subsequent amendment of s. 80HHC made in the ITA No.1361/Kol/2016 A.Y. 2011-12 S.K. Khemka Vs. Pr. CIT-15 Kol. Page 12 year 2005, though retrospective, did not render the order of the AO erroneous and prejudicial to the interest of the Revenue, and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in unsecured loans raised during the year. The enquiries of the Ld. Assessing officer were, therefore, limited to the aspect of the genuineness and verification of unsecured loans, the details and explanation regarding which were duly supplied to the Assessing officer and the Assessing officer being satisfied with the evidences given by the ITA Nos. 1464/Chd/2017-M/s Bhandari Knit Exports, Ludhiana assessee competed the assessment at the returned loss of ₹ 10,21,815/- That neither the Assessing officer was authorised nor there was any occasion to the Assessing officer to scrutinize and make enquiries, about the other factors of the case as it was a limited scrutiny assessment case, hence, the enquiry, if any, was restricted to the limited issue of unsecured loans which was duly done by the Assessing officer and no fault has been found by the Ld. CIT(A) in that respect. Under the circumstances, the order passed by the Assessing officer cannot be said to be erroneous. 9. The propositions of law laid down in these case-law is that, when the Assessing Officer completed assessment u/s 143(3) of the Act, after examining the issues for which the case has been selected for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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