Case Law Details
Epimoney Private Limited Vs ITO (Chennai ITAT)
ITAT Clarifies: No Section 263 Revision for Non-Limited Scrutiny Issues in Limited Scrutiny Cases
In a recent decision by the Income Tax Appellate Tribunal (ITAT) Chennai, the case of Epimoney Private Limited Vs Income Tax Officer (ITO) was heard. The appeal was directed against the order of the Principal Commissioner of Income Tax-Chennai 3, Chennai, dated 30.03.2023, relevant to the assessment year 2018-19, passed under section 263 of the Income Tax Act, 1961.
Background: Epimoney Private Limited had filed its return of income for the assessment year 2018-19, claiming a total loss. The assessment under section 143(3) r.w.s. 143(3A) & 143(3B) of the Act was completed, accepting the loss claimed by the assessee. Subsequently, the Principal Commissioner of Income Tax (PCIT) issued a show-cause notice under section 263, contending that an amount debited by the assessee was not an allowable expenditure and needed to be disallowed.
Tribunal Proceedings: The appeal by the assessee was initially delayed by 11 days, but the delay was condoned by the ITAT. The crux of the matter was whether the assessment order was erroneous and prejudicial to the interest of Revenue, justifying the PCIT’s revision under section 263.
The assessee argued that the assessment was conducted under “Limited Scrutiny,” focusing on unsecured loans and share capital/other capital. The Assessing Officer completed the assessment after considering all details furnished by the assessee.
The PCIT, however, identified a different issue related to the provision on non-performing assets and directed disallowances. The ITAT emphasized that the assessment order was under section 143(3) r.w.s. 143(3A) & 143(3B) and not under section 147 r.w.s. 144, as stated by the PCIT in the notice under section 263.
Tribunal’s Decision: The ITAT ruled that when the Assessing Officer conducts a limited scrutiny in accordance with the law, examines details, and completes the assessment, the subsequent identification of issues beyond the scope of limited scrutiny does not render the assessment erroneous or prejudicial to the interest of Revenue. The Tribunal highlighted that the PCIT cannot go beyond the scope of limited scrutiny.
Consequently, the revision order passed by the PCIT was deemed not in accordance with the law, and the ITAT quashed the revision order.
Conclusion: This ITAT decision sets a precedent clarifying that issues beyond the scope of limited scrutiny cannot be a basis for invoking section 263. Assessments conducted under limited scrutiny should be evaluated based on the issues identified during the limited scrutiny process. This ruling provides guidance on the limitations of the PCIT’s revisionary powers in such cases.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax-Chennai 3, Chennai, dated 30.03.2023 relevant to the assessment year 2018-19 passed under section 263 of the Income Tax Act, 1961 [“Act” in short].
2. The appeal filed by the assessee is delayed by 11 days in filing the appeal, for which, the assessee has filed petition in the form of an affidavit for condonation of the delay, to which; the ld. DR has not raised any serious objection. Consequently, since the assessee was prevented by sufficient cause, the delay in filing of the appeal stands condoned and the appeal is admitted for adjudication.
3. Brief facts of the case are that the assessee had filed its return of income for the assessment year 20 18-19 on 29.09.20 18 claiming a total loss of ₹.3,58,59,222/-. The assessment under section 143(3) r.w.s. 143(3A) & 143(3B) of the Act was completed on 03.02.2021 accepting the loss claimed by the assessee.
4. Subsequently, by observing that the Assessing Officer has not examined the return of income filed by the assessee, the ld. PCIT issued show-cause notice under section 263 of the Act dated 10.03.2023 for the following reason:
“On perusal of the ITR, it is noticed that you have debited an amount of ₹.54,46,185/- in the profit and loss account towards other provisions. However, the same is not in an allowable expenditure being contingent liability. Hence, the same has to be disallowed and added back to the total income, which will result in reduction of loss claimed by you for the A.Y. 2018-19.”
For the above reasons, the ld. PCIT has called for explanation from the assessee and accordingly, the assessee filed its detailed written submissions dated 27.03.2023. By considering the reply of the assessee, the ld. PCIT passed order under section 263 of the Act dated 30.03.2023 holding that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue and set aside the same with a direction to the Assessing Officer that (i) the amount of ₹.43,10,484/- relating to provision on non-performing assets shall be disallowed, (ii) shall verify whether the amount of ₹.11,35,701/- have been disallowed under section 43A & 43B of the Act as claimed by the assessee and if not, the same shall be allowed. In case of disallowance, if any, as per the direction at (ii) above, the Assessing Officer shall do the same after giving reasonable opportunity to the assessee.
5. On being aggrieved, the assessee carried the matter in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the show cause notice dated 10.03.2023, wherein, the ld. PCIT has noted that the assessment order dated 11.02.2021 for AY 2018-19 was erroneous and prejudicial to the interest of Revenue is not correct and the ld. PCIT, without considering the assessment order passed under section 143(3) r.w.s. 143(3A) & 143(3B) of the Act dated 03.02.2021, passed the revision order under section 263 of the Act is not correct. By referring to the reply dated 24.03.2023 to the show-cause notice, the ld. Counsel has specifically brought to the notice of the ld. PCIT the apparent mistake in the notice issued under section 263 of the Act and the ld. PCIT has not responded in his revision order. He further pointed out that the return filed by assessee was selected for “Limited Scrutiny” under E-assessment Scheme, 2019 to verify the issues of (i) unsecured loans and (ii) share capital/other capital through notice under section 143(2) of the Act as per paper book page 1. By referring to paper book pages 6 to 8, the ld. Counsel has submitted that various details were asked by issuing notices under section 143(2) & section 142(1) of the Act in respect of scrutiny of unsecured loans and share capital/other capital and vide paper book page 9 to 13, the assessee has furnished all the details as per paper book page 9 to 13. After considering the details filed by the assessee, the Assessing Officer has completed the assessment under section 143(3) r.w.s. 143(3A) & 143(3B) of the Act dated 03.02.2021 and thus, the ld. Counsel has submitted that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue.
6. On the other hand, the ld. DR strongly supported the order passed by the ld. PCIT.
7. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The return of income filed by the assessee was selected for “Limited Scrutiny” to examine unsecured loans and share capital/other capital. The Assessing Officer issued notice under section 143(2) of the Act dated 28.09.2019 as per paper book page 6. Other relevant details were also called for vide notice under section 142(1) of the Act dated 23.10.2020 with questionnaire as per paper book page 7 & 8 and the assessee has furnished all details before the Assessing Officer as per paper book page 9 to 11. Accordingly, after examining the details, the Assessing Officer has completed the assessment under section 143(3) r.w.s. 143(3A) & 143(3B) of the Act dated 03.02.2021.
8. However, the ld. PCIT was of the opinion that the assessment order passed after limited scrutiny for which the return selected was erroneous and prejudicial to the interest of Revenue. The issues which are not arising out “Limited Scrutiny” and subsequently came to the notice of the PCIT are relating to provision on non-performing asset to be disallowed under section 43A & 43B of the Act. We also notice that the assessment order passed by the Assessing Officer was under section 143(3) r.w.s. 143(3A) & 143(3B) of the Act dated 03.02.2021 and not under section 147 r.w.s. 144 of the Act dated 11.02.2021 as mentioned by the ld. PCIT in the notice under section 263 of the Act.
9. Admittedly, the case of the assessee was selected for “Limited Scrutiny”. After issuing various notices under section 143(2) as well as 142(1) of the Act calling for various details and after examining all the details furnished by the assessee, the Assessing Officer passed the assessment order. Therefore, when the Assessing Officer has to do under “Limited Scrutiny” in accordance with law, he has already carried out and discharged his dues and completed the assessment. Therefore, the assessment order passed by the Assessing Officer under section 143(3) of the Act dated 03.02.2021 cannot be held as erroneous and prejudicial to the interest of the Revenue. In so far as the issue identified by the ld. PCIT is not subject matter of assessment under “Limited Scrutiny” and therefore, when the Assessing Officer cannot go beyond the scope of limited scrutiny, the ld. PCIT cannot be held that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Therefore, the revision order passed by the ld. PCIT is not in accordance with law and the same is quashed.
10. In the result, the appeal filed by the assessee is allowed.
Order pronounced on 10th November, 2023 at Chennai
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