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TMI Blog2023 (4) TMI 1301X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that being so, assessee had already discharged his onus to prove the genuineness and identity of the said loan creditors, so the conduct of the assessee cannot be said to be found to be faulty. Even otherwise, the case of the assessee was selected for Limited Scrutiny to verify the Deduction against income from other sources only. Therefore, by any stretch of imagination it was out of purview of the AO to verify the fresh loan creditors. The ambit of the assessment for Limited Scrutiny under CASS was admittedly in relation to the verification of Deduction against interest income from other sources in response to which the assessee had already furnished complete documents relating to interest expenses claimed against the interest income under section 56 of the IT Act under the head Income from other sources. Even otherwise, the AO could not have travelled beyond enquiry into the interest expenses in view of CBDT Instruction No. 7/2014, 20/2015 and 5/2016 and also the CBDT letter dated 30 Nov. 2017 and thus asking for further details was beyond the purview of assessment. AO made enquiries on the issue and the assessee complied with the enquiry and filed all the required details. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/2014, 20/2015 and 5/2016 and also the CBDT letter dated 13.11.2017 and thus asking further details was beyond the purview of the assessment, and 2. That without prejudice the ground No. (1) above the ld. Pr.CIT, Jaipur-1 is further wrong and has erred in law in holding that the assessment order for AY. 2017-18 passed by the ld. A.O. u/s 143(3) of the I.T. Act, 1961 on 26.09.2019 is erroneous as well as prejudicial to the interest of revenue alleging that the A.O. has passed the assessment order without proper enquiries and verification with regard to: (a) Utilization of loans raised (b) Rate of interest on loan received and advanced (c) Nexus between loan taken and loan advanced and (d) Reason of excess interest paid to the extent of Rs.2270883/- over interest earned. The impugned finding recorded by the Pr. CIT-1, Jaipur is wrong and bad in law in as much as appellant filed complete details of name, address and PAN number of persons from whom loan was raised and also details of interest paid and received. Further appellant also submitted that no claim of excess interest paid of Rs. 2270883/- was made by the appellant in ITR filed. 3. That the appellant crav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 143(3) on 26.09.2019 may not be revised under section 263 of the IT Act, 1961 in a suitable manner. 2.1. In reply to the Show Cause notice under section 263 of the IT Act, 1961 issued by the ld. Principal CIT, the assessee filed his detailed reply/submission on 11.03.2022. The assessee in his reply submitted the complete facts of the case along with documentary evidences of interest paid and confirmation letters of fresh unsecured loans which were filed before the AO and accepted by him after application of his mind on evidences submitted during the course of hearing. As such it is quite wrong to allege that AO has failed to enquire into interest expenses claimed and new unsecured loans taken. The ld. PCIT considered the reply of the assessee dated 11.03.2022 but could not find favour, and on the findings given in Show Cause notice held that the assessment order dated 26.09.2019 for Asstt.Year 2017-18 passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue and accordingly set aside the assessment on the issue discussed above and directed the AO to pass fresh assessment order on those issues. Aggrieved by the order of the ld. Principal CIT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress and IT PAN of persons to whom said interest paid alongwith their confirmation letters. For verification of submission made complete details interest paid having name, complete address, IT PA number etc. alongwith confirmation letters filed before lower authorities are enclosed herewith. The said details filed were duly examined by the Ld. AO and after verification of complete details/documents passed the assessment order accepting the returned income. It is further submitted on the similar reasons preceding assessment years 2013-14 and 2016-17 were also completed by department u/s 143(3) of the I T Act, 1961. The assessee does now know how the Ld. CIT selfdrawn the conclusion that Ld. AO not verified the interest claimed. 3. Regarding verification of extra interest expenses Rs.22,70,883/- it is submitted that assessee only claimed interest expenses up to the interest income. The said fact is verifiable from the computation of total income available on assessment record that assessee claimed interest expenses only up to the interest income. The above said extra interest of Rs.22,70,883/- was not at all claimed by assessee. As no expenses claimed there is no point of verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requiring examination/verification. In such cases, all efforts would be made to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date. CBDT Instruction No. 20/2015 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-one is'Limited Scrutiny' and other is Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under: (a) …. (b) The Questionnaire under section 142(1) of the Act in 1Limited Scrutiny * cases shalre nut in confined only to the specific reasons/issues for which case has been picked upforscrutiny.Further, the scope ofenquiry shal be restricted to the Limited Scrutiny' issues. CBDT Instruction No. 5/2016 "4. It is further clarified that in cases under 'Limited Scrutiny \ the scrutiny assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iny for the limited purpose or issue and on perusal of the entire record or detailed it cannot be said that the ld. AO has not made inquiries. In this preposition we would like to draw your kind attention to the latest decision of this Honble Bench in the In the case of Mahendra Singh Dhankhar HUF vs. ACIT ITA No. 265/JP/2020 Jun 30, 2021 (2021) 62 CCH 0271 Jaipur Trib where It has been held that:- "Revision--Ordering revision where case is selected for limited scrutiny-- Assessee firm is a real estate firm engaged in colonizing and developing residential projects--Case of assessee was selected for limited scrutiny through CASS on account of mismatch of AIR and CIB data, and mismatch in sale turnover reported in audit report and ITR--An addition for wrong calculation of LTCG was made by A.O. which was not challenged by assessee--Subsequently, on basis of certain audit objections, PCIT issued notice u/s 263--Assessee submitted that it is a case outside jurisdiction of Commissioner of Income tax to raise objections outside scope of limited scrutiny--PCIT ordered for 'Denovo' assessment without considering reply filed by assessee--Held, there is no dispute that scope of enq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudicial to revenue--Over exercise of power--Assessee an individual filed his return declaring income and agricultural income--Case was selected for limited scrutiny for reason that there was a substantial increase in capital during year relevant to assessment year under consideration--AO accepted return filed by assessee--Pr. CIT issued notice to assessee u/s 263 and directed AO to make assessment afresh on issues mentioned in notice--Held, Tribunal in case of M/s Su-Raj Diamond Dealers Pvt. Ltd. CIT ITA No 3098/ Mum has quashed order passed u/s 263 in case of limited scrutiny assessment, holding that Pr. CIT under garb of section 263, cannot exceed his jurisdiction holding that when case of assessee was selected for limited scrutiny for reasons viz. (i) Large other expenses claimed in P&L A/c; and (ii) Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to assessment framed by A.O on ground that he had failed to deal with other issues which though did not fall within realm of limited reasons for which case was selected for scrutiny assessment--In other words, Pr. CIT in garb of his revisional jurisdiction u/s 263 cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d purpose of verifying the Chapter VI-A deduction. Once the case is picked up for specific purpose under CASS, then it is outside the purview of the Assessing Officer to look into any other aspect other than the aspect for which it is picked up. Hence, the Assessing Officer has not formed any opinion in respect of computation of book profits in the hands of assessee. Once, no such opinion has been formed by the Assessing Officer, the Commissioner has erred in holding the order of the Assessing Officer to be erroneous and prejudicial to the interest of revenue in this regard. Accordingly, we reverse the findings of the Commissioner. Accordingly, we hold that the order passed by the Commissioner under section 263 of the Act is invalid and the same is quashed for both the assessment years." B) In M/s R.H. Property vs. PCIT, ITA No. 1906/Mum/2019 it was held that,- "As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A. O had aptly confined himself to the issue for which the case of the assessee was selected for limited scrutiny, therefore, no infjrmity can be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. is erroneous which is not valid in the eyes of law (CIT Vs. Trustees Anupam Charitable Trust (1987) 167 ITR (129) (Rajasthan), CIT Vs. Godawari Sugar Mills Ltd. (1993) 203 ITR 108 (Bom.) and CIT Vs. Shakti Charities (2000) 160 CTR 107 (Mad.). The facts and submissions are verifiable from the assessment record. The Supreme Court in case of CIT Vs. Green World Corporation (2009) 314 ITR 81 (Supreme Court) held that 'The jurisdiction under section 263 can be exercised only when both the following conditions are satisfied (i) the order of the assessing officer should be erroneous and (ii) it should be prejudicial to the interest of the Revenue. These conditions are conjunctive. An order of assessment passed by the Assessing officer should not be interfered with only because another view is possible. "The Rajasthan High Court in a recent judgement in case of CIT Vs. Chambal Fertilizers and Chemicals Ltd. (2013) 258 CTR (Raj.) 540 has held "The law is that the CIT cannot invoke the powers to correct each and every mistake or error committed by the A.O. Every loss to the Revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstituting his views with that of the Assessing Officer which is not permissible in law (refer Narayan Tatu Rane Vs. I.T.O. (2016) 70 Taxman.com227 (Mumb-Trib). Further the your good self has not gone in to the merit of the assessee's case or argument or contentions available on assessment record, if so than how it can be said or found out whether any prejudice in fact has been caused to revenue or not by lack of inquiry on the part of the AO. If no loss of revenue is caused and the result remains the same even after conduct the inquiry. It is very settled principal and legal position by various courts or judgments that it will be wrong to say that merely because proper enquiry was not conduct, the assessment would become prejudicial also. It was incumbent upon the Pr. CIT to have shown as to how the order was prejudicial to the interest of the Revenue. In the present case the appellant had furnished a detailed reply with the details which were available in the record by making the reference to the facts of the case. Despite that the Pr. CIT did not prove or bring any material or circumstantial evidence on record in support of his contention. Thus, he has not looked into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning is that non making of an enquiry may render the subject assessment erroneous, however the process of making enquiries may be endless. For someone, some enquiries may be sufficient (here AO), however, the same may be insufficient for the other (here Pr. CIT). There is no straight jacket formula or parameter to make inquiry in the assessment proceedings. What is required is that the AO should frame the assessment in accordance with the provisions of the Act, as interpreted and in the light of the relevant judicial pronouncements, as available on the date of framing the assessment or material available before him. The AO being a quasi-judicial authority can also take support from one set of the decisions, if there, in case is a diversions of opinion. He can't be directed to make an assessment in a particular manner, as specifically prohibited by S. 119. Kindly refer recent judgment of Jodhpur Bench in the case of Ritesh Suhalka V/s Pr. CIT Udaipur in ITA No. 383/Jodh/2019 dt. 21.12.2020. On same plea we also would like to draw on the observation and finding In the case of Dorabji Tata Trust vs. DCIT (EXEMPTION) ITA No. 3909/Mum/2019 28th December, 2020 (2021) 209 TTJ 0409 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the Assessing Officer does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servantthat an Assessing Officer is expected to be, Commissioner cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, but an objective finding that the Assessing Officer has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the role of an auditor, would equally apply in respect of the role of the Assessing Officer as well. His Lordship had said that an auditor (read Assessing Officer in the present context) "is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watchdog, but not a bloodhound.". Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bonafide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer's notice in the assessment proceedings cannot be said to be lacking bonafide, and as long as the path adopted by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. On perusal of the order in the present case the ld. CIT has taken action u/s 263 only on the assumption and presumption that the no inquiry has been made by the AO on the issues and not verified. Kindly refer CIT v/s Paras Cotton Co. 288 ITR 211(Raj.) where held that CIT could not have acted on mere assumption. Mere suspicion cannot take place of proof and the order of CIT u/s 263 cannot be sustained. It is further submitted that proceedings under s. 263 cannot be taken on the ground that the AO has not made sufficient enquiry. The learned PR. CIT can assume jurisdiction if there has been lack of enquiry. In the instant case, the enquiry has been made, though the enquiry may not be sufficient in the opinion of the learned P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich should have been made. Further, if the order is passed allowing any relief without enquiring into the claim. Thus, in the case in hand, the AO has not conducted any enquiry on the issue of extra interest expenses of Rs. 22,70,883/- over the interest earned of Rs. 42,98,442/- and fresh loans of Rs. 1,22,00,000/- taken during the year. The ld. D/R submitted that the specific provisions of section 263 of the Act lays down that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interests of the revenue is the basic pre-condition for exercise of jurisdiction under section 263 of the Act. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the section to give the assessee an opportunity of being heard. The above conditions have been fulfilled in the instant case. In view of the above submissions, it is requested that the order of Pr. CIT may kindly be upheld. 6. We have heard the ld. Counsels of both the parties and have perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opined that the AO failed to make enquiry with reference to the explanation offered by the assessee during the course of assessment proceedings. For sake of convenience, the show cause notice issued by the ld. PCIT is reproduced below :- " On examination of assessment record for A.Y. 2017-18, it has been noticed that your case was selected for scrutiny assessment. The assessment was completed and vide order dated 26.09.2019, return income of Rs. 22,36,980/- was accepted. The case was selected for limited scrutiny under CASS for the reason of large deduction claimed u/s 57. During the year under consideration, interest payment of Rs. 65,69,325/- to parties was made and interest of Rs. 42,98,442/- was earned. On going through the details submitted during assessment proceedings, it is noticed the activity of taking loans, i.e. how the amount is utilized, what is the rate of interest paid, what is the rate of interest charged. has not been verified/examined. The reasons of extra interest expenses of Rs. 22,70,883/- over the interest earned have not been examined. Further, the submission that there is direct nexus between the loans taken and loans given has been accepted withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, in this regard assessee has categorically submitted that he has only claimed interest expenses upto the interest income. On this aspect, we have also perused the Computation of Income which is in the paper book. Since the extra interest of Rs. 22,70,883/- was not at all claimed by the assessee, therefore, there was no reason for verification of the said extra interest expenses made by the assessee. Although, the ld. PCIT raised the issue of non verification of fresh loans of Rs. 1.22 crores by the AO, but in this context we further noticed that the assessee had filed confirmation letters of each of the fresh unsecured loan creditors having complete address and PAN number and that being so, assessee had already discharged his onus to prove the genuineness and identity of the said loan creditors, so the conduct of the assessee cannot be said to be found to be faulty. Even otherwise, the case of the assessee was selected for Limited Scrutiny to verify the "Deduction against income from other sources" only. Therefore, by any stretch of imagination it was out of purview of the AO to verify the fresh loan creditors. 6.3. We are conscious of the fact that the ambit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Limited Scrutiny' issues. CBDT Instruction No. 5/2016 "4. It is further clarified that in cases under 'Limited Scrutiny \ the scrutiny assessment proceedings would initialy be confined only to issues under 'Limited Scrutiny' and Questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon comers ion of case to 'Complete Scrutiny' after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in 'Limited Scrutiny'. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting 'Complete Scrutiny' in such cases." CBDT Letter dated 30.11.2017 Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26-9-2014, 29-12-2015 and 14-7-2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of a I lee at ions of several irregu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered for 'Denovo' assessment without considering reply filed by assessee--Held, there is no dispute that scope of enquiry in case of limited scrutiny is only to extent of issues for which case was selected for scrutiny under CASS--CBDT has issued instructions from time to time in this respect and has specifically instructed taxing authorities that scope of enquiry should be limited to verification of all particulars for which limited scrutiny was taken up under CASS--However, in case during assessment proceeding if AO is of view that substantial verification of other issue is also required then case may be taken up for comprehensive scrutiny with approval of Pr.CIT/DIT concerned--It is also instructed that such an approval shall be accorded by Pr.CIT/DIT in writing after being satisfied about merits of issue(s) necessitating wider and detailed scrutiny in case--AO is duty bound to follow instructions in case limited scrutiny assessment proceeding are proposed to be converted into complete scrutiny and without following said procedure and necessary approval of competent authority conducting an enquiry on issue which is outside limited scrutiny would be beyond jurisdiction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for which case was selected for scrutiny assessment--In other words, Pr. CIT in garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond jurisdiction that was vested with A.O while framing assessment--As A.O had aptly confined himself to issues for which case of assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for reason, that he had failed to dwell upon certain other issues which did not form part of reasons for which case was selected for limited scrutiny under CASS--Case of assessee was selected for limited scrutiny under CASS for reason that there is substantial increase in capital in relevant year and AO passed assessment order and accepted return filed by assessee after examining issue regarding increase in capital account as assessee had credited his capital account with agricultural income and capital gain from sale of flat--Assessee has reflected that same in its capital account--Further in response to letter issued by AO during assessment proceedings, assessee submitted his reply explaining reason for increase in capital--However, Pr. CIT exercising jurisdiction under section 263, directed AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confined himself to the issue for which the case of the assessee was selected for limited scrutiny, therefore, no infjrmity can be attributed to his order for the reason. that he had failed to dwel upon certain other issues which were clearly beyond the realm of the reason for which the case of the assessee was selected for limited scrutiny as per the AIR information. We thus not being able to concur with the view taken by the fJr. CIT that the order passed by the A.O under Sec. 143(3), dated 10.10.2016 is erroneous, therefore, set aside his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT under Sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the Id. A. Ron the merits of the case, which thus are left open. " F) Hon'ble ITAT Delhi Bench Delhi in the case of Shri Balvinder Kumar Vs PCIT (ITA No. 485/Del/2020 held that : "when the assessing officer is bound to follow the CBDT instructions and while following such instructions and after verification of the material furnished by the assessee on the aspect covered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in case of CIT Vs. Kelvinator of India Ltd. (2011) 332 ITR 231 (Delhi) it has held that Assessing officer taking one of two possible views with which commissioner not agreeing the assessment order cannot be treated as an erroneous order prejudicial to the interest of revenue. The Karnataka High Court after considering various judicial pronouncement in the case of CIT Vs. Gokul Das Exports (2011) 333 ITR 214 (Kar) has held that assessing officer taking one out of two views the assessment order is not prejudicial to interest of revenue. In view of the above judicial pronouncements and various other judgments on the issue the assessment order passed by A.O. cannot be treated as an erroneous and prejudicial to the interest of revenue. In the case of CIT Vs. Vodafone Essar South Ltd. (2013) 2012 Taxman 184 Hon'ble Delhi High Court held that assessing officer before passing assessment order made an enquiry and directed his mind on all aspects. View adopted by him was clearly one among two plausible views that could have been taken. The Commissioner did not specifically furnish any reasons to say why original order was unsupportable in law. The Commissioner could not have validly e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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