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TMI Blog2004 (12) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 263 of the Act to set aside the same and to direct the Assessing Officer to make de novo assessment accordingly. But that is also not the case here. The revised return of income was furnished by the assessee on 18-2-2003. Therefore, notice under clause (ii) of sub-section (2) of section 143 could have been served on the assessee by 29-2-2004, i.e. within one year from the end of the month, in which the revised return was furnished. The time limit to serve the notice u/s 143(2)(ii) had, therefore, expired on 29-2-2004. The learned CIT by his impugned order-dated 24-5-2004 made uu/s 263 has directed the Assessing Officer to examine the case in its totality on comprehensive scale, which could be done only after issuing notice u/s 143(2)(ii) within the specified time. It is by now well settled as held in number of decisions that the Commissioner can exercise his power of revision conferred upon him u/s 263 of the Act if following two pre-requisites are satisfied: - (i) Firstly, the order passes by the Assessing Officer is erroneous and; (ii) Secondly, the order passed by the Assessing Officer is prejudicial to the interests of the revenue as well. On the facts found, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s grounds of appeal raised by the assessee, the assessee has agitated that the order of the learned CIT made under section 263 is bad-in-law and without jurisdiction inasmuch as the assessment made by the Assessing Officer under section 143(3)(i) was neither erroneous nor prejudicial to the interest of the Revenue. 3. Material facts related to the issue in brief are as under: - In the present case, the assessee, a partnership firm, filed its return of income for the year under consideration on 29-10-2002 declaring a total income at nil The return of income filed by the assessee was processed under section 143(1) on 26-12-2002 and a refund of Rs. 31,840/- was granted to the assessee. It was noticed by the Assessing Officer that the following deductions were claimed by the assessee insofar as they were debited in the Profit Loss Account - (i) Interest and penalty on sales tax Rs. 22,287/- (ii) Firm's income-tax Rs. 1,70,000/- Total Rs. 1,92,287/- The Assessing Officer was of the view that these deductions were not legally admissible. The Assessing Officer, therefore, has taken up the case for scrutiny on these two limited issues and for that matter a notice under section 143(2)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53,72,503/-] equal Rs. 13,18,600/-. The aggregate increase in your output works out to Rs. 16,07,634/- plus Rs. 13,18,600/- equal Rs. 29,26,234/-. The increase in expenditure of Rs. 14,82,981/- is apparently incongruent with the increase of assessee's output. The Assessing Officer failed to examine the increased expenditure vis-a-vis its relevance. (d) Schedule 'F' to the Profit Loss Account shows a new item of expenditure of Rs. 2,22,094/- representing payment of Commission. This was the first such claim made by the assessee. It needs be mentioned here that even this aspect of assessee's case was not examined by the Assessing Officer while framing the assessment. The justification for such expenditure was thus not examined and scrutinized. 5. In view of the above alleged glaring patent omission on the part of the Assessing Officer to scrutinize the assessee's case properly at all, the learned CIT found that the order for the year under consideration passed by him under section 143(3)(i) on 28-2-2003 to be erroneous and suffering from severe infirmities and constituting an assessment which is apparently prejudicial to the interests of revenue. The learned CIT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the directions given by him. Being aggrieved with the learned CIT's order made under section 263 cancelling the Assessing Officer's assessment order passed on 28-2-2003 under section 143(3)(i) of the Act, the assessee has preferred this appeal before the Tribunal. 7. The learned Counsel for the assessee has contended that the order passed by the Assessing Officer under section 143(3)(i) was not erroneous and prejudicial to the interests of the revenue, and as such assuming the jurisdiction under section 263 of the Act by the learned CIT and then cancelling the assessment order made under section 143(3)(i) by the Assessing Officer is bad and not sustainable in the eyes of law. He further submitted that the assessee's case was selected for limited scrutiny as provided under section 143(2)(i) on the point of deduction of interest and penalty on sales tax and firm's income-tax, which was rightly disallowed by the Assessing Officer while passing the order under section 143(3)(i) dated 28-2-2003, and as such there could not be any error or mistake in the said order of the Assessing Officer. It was also submitted that the points now raised by the learned CIT i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsection (1) of section 143 prior to 1-6-1999 has been done away by the Finance Act, 1999 with effect from 1-6-1999. On and from 1-6-1999, the sub-section (1) of section 143 provides that where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly, and if any refund is due on the basis of such return, it shall be granted to the assessee and intimation to this effect shall be sent to the assessee. In other words, sub-section (1) of section 143 as effective on and from 1-6-1999 provides for issuing an intimation specifying the sum found due on the basis of return and/or to grant the refund to the assessee found due on the basis of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. 12. Prior to the amendment in section 143(2) and 143(3) of the Act made by the Finance Act, 2002 with effect from 1-6-2002, under procedure of assessment laid down in then existing section 143, the Assessing Officer if he considers it necessary or expedient, issues a notice under section 143(2), requiring the assessee to produce any evidence which he may rely on in support of the return. Then section 143(3) provides that after hearing such evidence and after taking into account all relevant material which he has gathered, the Assessing Officer shall pass an order of assessment determining the total income or loss, and the sum payable or refundable to the assessee. By the Finance Act, 2002, section 143(2) and 143(3) has been amended to introduce a concept of limited scrutiny on and from 1-6-2002 as contemplated under section 143(2)(i), read with section 143(3)(i) of the Act in addition to existing comprehensive scrutiny. However, the concept of limited scrutiny has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (3) of section 143 as effective from 1st June, 2002. It is provided in section 143(2)(ii) that notwithstanding the fact that a case has been selected for limited scrutiny and notice under clause (i) of sub-section (2) of section 143 has been issued, if the Assessing Officer considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, he is free to issue and serve on assessee, a notice under clause (ii) of sub-section (2) of section 143 of the Act requiring him, on a date specified in the said notice, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return and then, as provided in sub-clause (ii) of sub-section (3) of section 143, on the day specified in the said notice, or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing make an assessment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (2) of section 143, notice under section 143(2)(ii) can be issued for comprehensive scrutiny and assessment under section 143(3)(ii) can be made accordingly. 14. In the present case before us, no notice under section 143(2)(ii) was ever issued by the Assessing Officer to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, and as such no question of making comprehensive scrutiny as contemplated by clause (ii) of sub-section (2) of section 143 and then completing the assessment under section 143(3)(ii) did or could arise. The case before us is a case where notice under section 143(2)(i) was only issued to examine and verify the assessee's claim of deduction on account of interest and penalty on sales tax and firm's income-tax, and then to allow or reject the said claim specified in the said notice issued under section 143(2)(i) and to make an assessment determining the total income or loss accordingly under section 143(3)(i) of the Act. In other words, the impugned assessment order made by the Assessing Officer is under section 143(3)(i) and not under section 143(3)(ii) of the Act. It is, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m or matter other than the items specified in the notice issued under section 143(2)(i) could be dealt with or examined or verified or adjudicated upon by the Assessing Officer while passing the order under section 143(3)(i) of the Act. In the present case, the Assessing Officer's power to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner as contemplated under clause (ii) of sub-section (2) of section 143 was never assumed and exercised by the Assessing Officer, and as such any question to look into the matters covered under a comprehensive scrutiny contemplated under clause (ii) of sub-section (2) of section 143 did or could not arise while passing the assessment order under section 143(3)(i) of the Act. The learned CIT by his impugned order under section 263 of the Act has directed the Assessing Officer to examine and look into such matters which could only be dealt with by the Assessing Officer by assuming jurisdiction conferred upon him under clause (ii) of section 143(2) of the Act. As stated above herein, the notice under clause (ii) of sub-section (2) of section 143 of the Act can only b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) was not in accordance with the provisions contained in section 143(3)(i), it would be an erroneous order in law and could be set aside by the CIT by exercising the revisionary jurisdiction under section 263 of the Act. That is not the case here. The items specified by the learned CIT in his notice under section 263 of the Act are not covered by the clause (i) of sub-section (2) of section 143 of the Act but are of such a nature that can only be examined or enquired into in the course of making comprehensive scrutiny as contemplated under clause (ii) of sub-section (2) of section 143 and then in making assessment under clause (ii) of sub-section (3) of section 143 of the Act after issuing notice under section 143(2)(ii) of the Act. The grounds on which the assessment made by the Assessing Officer under section 143(3)(i) has been set aside by the learned CIT are in our considered opinion, not permitted or covered while making an assessment on limited issues envisaged under section 143(3)(i) of the Act. However, if the Assessing Officer's order were under section 143(3)(ii), in course of which if the Assessing Officer were failed to examine the case in its entirety or were faile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his direction given in the impugned order made under section 263 of the Act on 24-5-2004, which in our considered opinion is not the intent and purpose of exercising jurisdiction conferred upon CIT under section 263 of the Act. The Assessing Officer's decision not to initiate the comprehensive scrutiny of the return furnished by the assessee by issuing a notice under section 143 (2)(ii) of the Act cannot be a basis or reason to render the assessment order made by the Assessing Officer under section 143(3)(i) as erroneous and in so far prejudicial to the interest of revenue. Non-initiation of comprehensive scrutiny by issuing notice under section 143(2)(ii) by the Assessing Officer cannot be a subject-matter of revisional power of the CIT under section 263 in the matter of an assessment completed by the Assessing Officer under section 143(3)(i) on limited issues as envisaged under section 143(2)(i). 16. It is by now well settled as held in number of decisions that the Commissioner can exercise his power of revision conferred upon him under section 263 of the Act if following two pre-requisites are satisfied: - (i) Firstly, the order passes by the Assessing Officer is erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment under section 143(3)(ii) accordingly by the Assessing Officer is dependent upon the guidelines of the C.B.D.T. issued and in force at the relevant point of time. The C.B.D.T. has itself limited the scope of scrutiny to utilize its resources for scrutiny of few cases that are to be selected as per its guidelines. The guidelines given by the C.B.D.T. for selecting the cases for scrutiny are to be followed by all the concerned Department personnels either for obtaining or giving the approval for scrutiny. Thus Assessing Officer's decision not to select the present case for comprehensive scrutiny in the light of guidelines given by the C.B.D.T. is otherwise also Officer has selected the present case only for limited scrutiny under section 143(2)(i) and not under section 143(2)(ii), to examine or verify the assessee's claim of deduction of payment of interest and penalty on sales tax and firm's income-tax, and has recorded the reasons therefor and then accordingly obtained the prior approval of his Addl. CIT before issuing notice for limited scrutiny under section 143(2)(i) of the Act in the light of C.B.D.T. instruction dated 28-6-2002 containing guidelines in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue. 18. Before parting with the case, it may be stated that in support of the assessee's contention that the learned CIT has no jurisdiction to set aside the assessment completed under section 143(1) of the Act putting reliance by the learned Counsel for the assessee on the Circular issued by the Directorate of Inspection (I.T. and Audit), New Delhi, F.No. RAI/86-87/IT dated 26-8-1987 is out of context inasmuch as the assessment order made by the Assessing Officer is not under then section 143(1) but is under the new scheme of limited scrutiny assessment provided under section 143(3)(i) as introduced by the Finance Act, 2002 with effect from 1-6-2002, which was in force at the time when the impugned assessment order was made by the Assessing Officer on 28-2-2003. We have already stated herein before that if it is found that the limited scrutiny assessment completed by the Assessing Officer under section 143(3)(i) is not in accordance with the provisions contained in section 143(3)(i), it would be an erroneous order in law and can be set aside by the CIT by exercising the revisionary jurisdiction under section 263 of the Act. Hence, this contention of the learned Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X
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