Avinash Chalana and Company Vs PCIT (ITAT Indore)
Conclusion: An issue which was not a point in limited scrutiny under CASS could not be taken up in the proceeding u/s 263 as an appropriate remedy for such an issue was either the AO would have obtained the approval of the competent authority for expanding the limited scrutiny to the full scrutiny or the remedy if possible available u/s 147/148.
Held: Assessee-partnership firm had filed its income tax return declaring income. The case was selected for limited scrutiny, focusing on the issues such as investment in immovable property and share capital/other capital. The assessment was completed under sections 143(3) read with 143(3A) and 143(3B) of the Act. CIT later found that some issues were not reviewed by AO. Therefore, CIT initiated proceedings under section 263 and issued show cause notices. Since the assessee did not respond, CIT canceled the AO’s assessment order and ordered a new assessment, giving the assessee a chance to be heard. Assessee being aggrieved by the impugned order filed an appeal before the tribunal. Tribunal noted that assessee had filed its return of income ( ROI ) which was selected for limited scrutiny under the Computer Assisted Scrutiny Selection ( CASS ) and e-assessment scheme 2019. AO had mentioned the issues taken up for limited scrutiny. Further, it noted that assessee had clarified that its partners, who were regular taxpayers, provided returns, bank statements, and capital account details. The capital introduced into the firm mainly came from the sale of shares in M/s Som Distilleries and Breweries Ltd., which was confirmed by the partners’ Dmat accounts. AO was satisfied with this evidence, including the partners’ returns and the exempt long-term capital gains. No new evidence was presented by the AO or CIT to dispute the authenticity of the transactions. It was observed that CIT passed an ex-parte order without considering the assessee’s replies to the notices issued, including a response dated 13.02.2023 and another dated 21.02.2023. AO had conducted a thorough inquiry into the introduction of capital by the partners and was satisfied with the transactions. When AO had thoroughly examined and accepted the assessee’s claim regarding the introduction of capital by the partners, it reflected a logical and reasonable conclusion. Therefore, the case did not fall under the lack of inquiry by the AO. Consequently, CIT could not invoke section 263 merely because he disagrees with the AO’s view. Once the assessee had provided adequate evidence for the partners’ identity, creditworthiness, and transaction genuineness, and no defects were found by AO or Pr. CIT, setting aside the assessment under section 263 and ordering a fresh assessment was not legally justified and should be quashed. An issue not part of the limited scrutiny under CASS could not be raised in section 263 proceedings. The correct steps would have been for AO to expand the scrutiny or use sections 147/148. Thus, CIT order was not valid and was set aside.
