Case Law Details
Samastha Gujarathi Samaj Vs CIT (ITAT Pune)
Introduction: In a recent decision, the Income Tax Appellate Tribunal (ITAT) Pune addressed the critical issue of whether an assessment conducted under the banner of “limited scrutiny” could be expanded beyond its prescribed scope, especially when invoking revisionary jurisdiction under Section 263 of the Income Tax Act. This case revolves around the matter of Samastha Gujarathi Samaj and the Commissioner of Income Tax (Exemption), Pune.
Detailed Analysis:
1. Background of the Case: The case pertains to Samastha Gujarathi Samaj, a public charitable trust involved in managing and maintaining a marriage hall, among other activities. The trust filed its Income Tax Return (ITR) for the assessment year 2014-15, declaring zero income. The assessing officer subjected the trust’s case to a limited scrutiny primarily to verify the correctness of the deduction claimed under the head ‘Income From Other Sources.’
2. Assessment Under Limited Scrutiny: During the limited scrutiny, the assessing officer focused on examining the deduction of expenses claimed under Section 57 of the Income Tax Act. The assessment was conducted within the confines of the limited scrutiny notice, which did not include the examination of other aspects of income chargeable under Section 56 of the Act.
3. Limited Scope of Limited Scrutiny: The key contention in this case was whether the scope of verification, limited to specific deductions, could be expanded to cover aspects unrelated to the limited scrutiny notice.
4. Revisionary Jurisdiction Invoked: Subsequently, the Commissioner of Income Tax (Exemption) exercised revisionary jurisdiction under Section 263 of the Act, contending that the assessment order was both erroneous and prejudicial to the interests of the Revenue. The primary reason cited was the failure of the assessing officer to examine certain income items falling under Section 56 of the Act.
5. Assessee’s Argument: The assessee, in response, argued that the limited scrutiny notice confined the assessing officer’s jurisdiction to verify specific deductions, and there was no valid reason to expand the scope of assessment beyond what was initially specified. The assessee cited various decisions and co-ordinate bench rulings to support this argument, emphasizing that the assessment could not be declared erroneous and prejudicial merely due to the absence of an examination that was never within the scope of limited scrutiny.
6. Revenue’s Counter-Argument: The Revenue, on the other hand, contended that the purpose of limited scrutiny was to verify the correctness of deductions claimed by the assessee under Section 57 of the Act. During this process, the assessing officer was duty-bound to verify interconnected figures, including those related to income chargeable under Section 56 of the Act. Failure to do so rendered the assessment erroneous and prejudicial to the Revenue’s interests, justifying the invocation of revisionary jurisdiction.
7. ITAT Decision: The ITAT examined the facts and legal precedents. It concluded that the jurisdiction of the assessing officer was confined to verifying the deductions claimed under Section 57 of the Act. The assessment order was not found erroneous within this limited scope, as no potential escapement of income was identified during this examination. The ITAT highlighted that had there been an indication of potential income escapement, the assessing officer should have converted the limited scrutiny into a complete scrutiny. In the absence of such a conversion, the assessment could not be declared erroneous and prejudicial by the revisionary authority. The ITAT’s decision was consistent with relevant legal principles and supported by decisions such as ‘CIT Vs Padmavati.’
Conclusion: The ITAT Pune’s decision underscores the importance of maintaining the integrity of limited scrutiny assessments. It firmly established that the scope of limited scrutiny cannot be arbitrarily expanded to include matters outside the initial notice. An assessment can only be declared erroneous and prejudicial to the Revenue’s interests if it exceeds the prescribed scope of limited scrutiny, following due process of law. In this case, the attempt to invoke revisionary jurisdiction beyond the limited scrutiny parameters was deemed unsustainable and was consequently quashed.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal of the assessee is directed against the revisionary order of Commissioner of Income Tax (Exemption), Pune [‘CIT(E)’ hereinafter] dt. 30/03/2019 passed u/s 263(1) of the Income-tax Act, 1961 [‘the Act’ hereinafter] for the assessment year 20 14-15 [‘AY’ hereinafter].
2. Pithily stated the facts borne out of case records are;
The assessee is a public charitable trust engaged in running & maintaining marriage hall etc., had filed its return of income [‘ITR’ hereinafter] declaring NIL income for the AY. The case of the assessee was subjected to limited scrutiny by service of notice u/s 143(2) of the Act specifically to verify the claim of deduction made while computing the income under the head ‘Income From Other Source’.
2.1 After verification of relevant books of account, supporting bills and vouchers, the Ld. AO culminated the assessment proceedings by disallowing 15% of cleaning and washing expenses owning to self-made vouchers in the absence of third party evidences and further brought to tax the donation of
3. During the course of physical hearing, the Ld.AR contended that, the assessment order is neither erroneous nor prejudicial to the interest of the The Ld. AO framed the assessment in consequence to a limited scrutiny under CASS, where his jurisdiction was only to verify ‘deduction from income from other sources’, therefore, enlargement of scrutiny was neither sighted to him nor was available without obtaining prior approval of higher authorities. When the subject matter fell outside the jurisdiction of scrutiny, by no means same can be pulled to enlarge the scope of assessment in 263 proceedings, such action is impermissible in of law, and therefore the direction of Ld. CIT (E) being contra legem deserves to be quashed. To drive this contention the Ld. AR placed strong reliance on various decisions such as; ‘PCIT Vs Naga Dhunseri Group Ltd.’ Reported in 146 taxmann.com 424 (Calcutta), ‘PCIT Vs Shark Mines And Minerals’ reported in 151 taxmann.com 71 (Orissa) and also the decisions of coordinate bench rendered in ‘Sagar Uttam Murhe Vs DIT (ITA No. 1615/Pun/2018)’, and ‘M/s Organica Vs PCIT (ITA no. 465/PUN/2021).’
4. Per contra, the Ld. DR Mr Kesari referring to page 71 of paper book submitted that, the very purpose of scrutiny in the present case was to verify the correctness of deductions claimed by the assessee u/s 57 of the Act and while doing so the Ld. AO was duty bond to verify interwoven figures from which such deductions were claimed so has ensure the correctness of taxation, i.e. more precisely the sums falling u/s 56 of the Act remained to be verified and was Consequently assessment rendered erroneous and prejudicial to the interest of the Revenue, hence the action of Ld. CIT(E) in directing to verify connected income chargeable u/s 56 of the Act was well within jurisdiction
5. We have heard the rival contentions of both parties; subject to provisions of rule 18 of Income Tax Appellate Rules, 1963 [‘ITAT Rules’ hereinafter] perused material placed on records, case laws relied upon by both the parties and duly considered facts of the case in light of settled legal position, which are forewarned to rival parties for appropriate rebuttal.
6. In the extant case, the issue of adjudication seeks to answer a bullet question, as to whether scope of verification of income chargeable u/s 56 of the Act is embedded within the scope of limited scrutiny notice set in motion for examining solitary item of ‘Deduction from income from Other Sources’ e. examination in context of section 57 of the Act.
7. In the present case, we note that, the return of the appellant was subjected to limited scrutiny to examine the correctness of ‘deduction claimed under the head income from other sources’ and more precisely the jurisdiction of scrutiny assessment was directed towards examination of deduction of expenditure claimed u/s 57 of the Act as against income chargeable u/s 56 of the Act and while vouching so the Ld. AO did neither noticed any probable escapement of income so as to set in motion a process for converting the scope of limited scrutiny into complete scrutiny, nor could such observation is emanating from the body of assessment. In the absence of any finding of potential escapement while vouching the correctness of expenditure claimed u/s 57 of the Act, the Ld. AO culminated the assessment proceedings strictly in tune with the scope of 143(2) notice. Whereas the Ld. CIT(E) held the assessment as erroneous and prejudicial to the interest of the Revenue for assessing officer’s failure to examine certain income chargeable to tax u/s 56 of the Act that has escaped assessment.
8. In our view, the jurisdiction of the Ld. AO was restrictive to examine all such transaction vis-à-vis expenditure relating to claim for deductions u/s 57 of the Act, therefore examination of an item outside the provisions of section 57 of the Act was extra-territorial to the Ld. AO unless authorised by necessary prior The issue of examination of transaction of income falling u/s 56 of the Act remained outside the scope of assessment proceeding for the buckshot reasons that no potential escapement came to the notice of Ld. AO, thus triggered no approval process for extending the scope. Had this potential escapement came to knowledge of Ld. AO, then the culmination of proceedings without first converting the same into complete scrutiny would have rendered the assessment erroneous and not otherwise. During the revisionary exercise, the potential escapement of deemed rent, interest on refund and incorrect allowance of depreciation etc., come to the notice of the Ld. CIT (B), however at this stage the revisionary authority cannot substitute his view sitting into the chair of Ld. AO for not extending the scope of limited scrutiny into complete scrutiny and hold the order of assessment erroneous. If this is permitted now, then it shall amount to travelling beyond the scope of limited scrutiny which is forbidden by law and we find this view has been fortified in ‘PCIT Vs Shark Mines and Minerals’ (supra).
9. In view of ratio laid by Hon’ble Madras High Court in ‘CIT Vs Padmavati’ reported in 120 taxmann.com 187, an assessment could not exceed prescribed scope of ‘Limited Scrutiny’ except following due process of law, therefore the Revenue has missed the bus in original proceedings in extending the scope, which unfortunately cannot be done invoking revisionary jurisdiction u/s 263 of the Act.
10. We further hold that when the assessment is taken up for limited scrutiny; Ld. CIT(A) 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 and we observed that similar view also found in the decision of co-ordinate benches in ‘Deccan Paper Mills Co. Ltd. Vs CIT vide ITA 1013/Pun/2014’, ‘Aggarwal Promoters Vs PCIT vide ITA No. 1708/Chd/2017’, ‘Sanjeev Khemka Vs PCIT vide ITA No. 1361/Kol/2016’, and ‘ R & H Property Developer Pvt.Ltd. Vs PCIT vide ITA No. 1906/Mum/2019’.
11. In view of the aforestated discussion and judicial precedents, we see the invocation of revisionary jurisdiction failed satisfy the first and foremost of twin condition laid in s/s (1) of section 263 of the Act, thus unsustainable in law, therefore quashed.
12. In result, the appeal of the assessee is ALLOWED.
U/r 34 of ITAT Rules, order pronounced in open court on this Friday, 01st day of September, 2023.
