Case Law Details
R. & H. Property Developer Pvt. Ltd. Vs PCIT (ITAT Mumbai)
Pr. CIT had held the order passed by the A.O under Sec. 143(3), dated 10.10.2016 as erroneous, in so far it was prejudicial to the interest of the revenue, for the reason, that he had failed to carry out proper investigation as regards the allowability of the expenditure claimed by the assessee to have been incurred for the purpose of its business. We are of a strong conviction that now when the case of the assessee was selected for limited scrutiny for the reason viz. “large investment in property (AIR) as compared to total income”, therefore, no infirmity could be attributed to the assessment framed by the A.O on the ground that he had failed to deal with other issues which did not fell within the realm of the limited reason for which the case of the assessee was selected for scrutiny assessment. In other words, the Pr. CIT in the garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment. To sum up, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the A.O while framing the assessment. 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 infirmity can be attributed to his order, for the reason, that he had failed to dwell 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 Pr. 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 ld. A.R on the merits of the case, which thus are left open.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax-11, Mumbai (for short ‘Pr. CIT’) under Sec.263 of the Income Tax Act, 1961 (for short ‘Act’), dated 12.03.2019. The assessee has assailed the impugned order on the following grounds of appeal:
“Being aggrieved by the order of the learned Pr. Commissioner of Income Tax-11, Mumbai, this appeal petition is submitted on the following grounds which it is prayed may be considered independently and without prejudice to one another:-
1. On the facts and circumstances of the case and in law, Ld. PCIT erred in setting aside the assessment order passed u/s. 143(3) by erroneously holding u/s. 263 that Ld. A.O has prima facie failed to carry-out proper investigation and failed to give a specific finding as regards appellant’s claim of expenditure for the purpose of business and hence, assessment order passed by A.O is erroneous and prejudicial to the interest of Revenue. Order passed u/s. 263 is bad in law and needs to be quashed.
2. On the facts and circumstances of the case and in law, inspite of details of expenses debited to Profit & Loss A/c were specifically called upon by Ld. A.O and was also submitted by the appellant during the assessment proceeding, Ld. PCIT erred in holding that assessee company has failed to furnish any documentary evidence in support of its claim that the expenditure is incurred for the purpose of the business. The order passed u/s. 263, is bad in law and needs to be quashed.
3. The appellant craves leave to add, to amend, alter/delete and/or modify the above grounds of appeal on or before the final hearing.”
2. Briefly stated, the assessee company which is engaged in the business of real estate development had e-filed its return of income for A.Y. 2014-15 on 22.09.2014, declaring a loss of Rs.69,59,128/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for “Limited scrutiny under CASS” and notice under Sec. 143(2) was served upon the assessee. The A.O while framing the assessment deliberated on the various aspects and accepted the returned loss of Rs.69,59,128/-, vide his order passed under Sec.143(3), dated 10.10.2016.
3. The Pr. Commissioner of Income Tax in exercise of the powers vested with him under Sec. 263 of the Act, called for the records of the assessee. On examination of the assessment records, it was observed by the Pr. CIT viz. (i) that, though the assessee had not carried out any business activity during the year, however, it had claimed deduction of business expenses amounting to Rs.30,76,083/-; and (ii) that, though the assessee had claimed to have transferred an asset i.e a shop from his investment account to fixed asset account during the year and had claimed depreciation @ 10% amounting to Rs.39,23,530/-, however, the facts as regards the ownership of the said asset and its having been put to use during the year was not examined by the A.O while framing the assessment. On the basis of his aforesaid observations, the Pr. CIT issued a „Show cause‟ notice under Sec.263, dated 28.01.2019 to the assessee, therein calling upon it to explain as to why the aforesaid expenses may not be disallowed. Insofar the claim of the assessee that the aforesaid expenditure of Rs.30,76,083/- was claimed to have been incurred for the purpose of its business, the same did not find favour with the Pr. CIT, for the reason, that the assessee had failed to furnish any documentary evidence in support of its contention that it had carried out any business activity during the year. Apart there from, it was observed by the Pr. CIT that there was also no evidence on record which would establish the nexus of the expenses claimed and the earning of the interest income disclosed by the assessee. Accordingly, the Pr. CIT being of the view that the assessment order passed by the A.O under Sec. 143(3), dated 10.10.2016 was erroneous in so far it was prejudicial to the interest of the revenue, therefore, set aside the said order and directed him to re-adjudicate the issue pertaining to allowability of the business expenses after giving sufficient opportunity of being heard to the assessee.
4. The assessee being aggrieved with the order passed by the Pr. CIT under Sec. 263, dated 12.03.2019, has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee had raised multiple contentions in order to impress upon us that as the A.O after due application of mind had allowed the claim of the business expenses raised by the assessee, therefore, the Pr.CIT had exceeded his jurisdiction and in the garb of the revisional powers vested with him under Sec. 263, had factually sought to review the order passed by the A.O. Apart there from, the ld. A.R had assailed the validity of the order passed by the Pr. CIT under Sec. 263 of the Act. It was submitted by the ld. A.R that as the case of the assessee was selected for limited scrutiny under CASS for the reason viz. “large investment in property (AIR) as compared to total income”, therefore, the A.O was divested of his jurisdiction to have adverted to the other aspects except for those on the basis of which the case was taken up for scrutiny assessment. In order to fortify his aforesaid contention the ld. A.R had placed on record a „Snap shot‟ of the reason for selection of the case of the assessee for scrutiny assessment during the year under consideration. In fact, it was submitted by the ld. A.R that the fact that the case of the assessee was selected for limited scrutiny under CASS for the reason viz. “large investment in property (AIR) as compared to total income” was an admitted fact and had not been disputed by the Pr. CIT. In order to drive home his aforesaid contention the ld. A.R drew our attention to the order passed by the Pr. CIT under Sec. 263, wherein the aforesaid factual position was clearly discernible. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R, that in case of a limited scrutiny assessment the A.O is prohibited from adverting to the issues except for those on the basis of which the case had been selected for being scrutinized. In order to fortify his aforesaid claim the ld. A.R had relied on the order of the coordinate benches of the Tribunal viz. (i) Smt. Gurpreet Kaur Vs. ITO, ITA No. 87/ASR/2016, dated 24.03.2016; (ii) Shashi Bhushan Majoor Sahakari Sanstha Ltd. Vs. ITO,ITA No.1589/Pun/2018, dated 04.04.2019. It was thus the contention of the ld. A.R that now when it was forbidden for the A.O to have adverted to and therein adjudicated on the aspect of allowability of business expenses, as the same fell beyond the realm of the reason for which the case of the assessee was taken up for limited scrutiny, therefore, the Pr. CIT in the garb of powers vested with him under Sec. 263 could not have stretched the scope of the jurisdiction vested with the A.O. In sum and substance, it was the claim of the ld. A.R that the Pr. CIT had gravely erred in law in holding the assessment order passed by the A.O under Sec. 143(3), dated 10.10.2016 as erroneous on the ground that the latter had erred in not traversing beyond and adjudicating issues which fell beyond the realm of the „limited reason‟ for which the case was selected for scrutiny assessment.
5. Per contra, the ld. Departmental Representative (for short „R‟) vehemently objected to the contentions advanced by the counsel for the assessee. It was submitted by the ld. D.R that as the expenses aggregating to Rs.30,56,712/- claimed by the assessee in its „Profit and loss account‟ under the head “other expenses” mainly comprised of expenses pertaining to the property viz. (i) maintenance charges: Rs.21,48,531/-; (ii) M.M.C expenses: Rs.1,60,000/-; and (iii) property tax: Rs.5,59,158/-, therefore, the same clearly fell within the realm of the purpose for which the case of the assessee was selected for limited scrutiny viz. “Large investment in property (AIR) as compared to total income”. It was submitted by the ld. A.R that as the A.O had failed to consider the allowability of the aforesaid expenses in the course of the assessment proceedings, therefore, the Pr. CIT had rightly exercised his jurisdiction under Sec. 263 and directed him to readjudicate the said issue after affording a reasonable opportunity of being heard to the assessee. It was submitted by the ld. A.R that as the matter had merely been restored by the Pr. CIT to the file of the A.O, therefore, no prejudice would be cause to the assessee as he could substantiate the allowability of its aforesaid claim of expenses on the basis of supporting documentary evidence in the course of the „set aside‟ assessment proceedings. In the backdrop of his aforesaid contentions, it was submitted by the ld. D.R that as the appeal of the assessee was bereft of any force, therefore, the same did not merit acceptance and was liable to be dismissed.
6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the case of the assessee was selected for limited scrutiny under CASS for the reason viz. “large investment in property (AIR) as compared to total income”. Insofar the fact that the case of the assessee was selected for limited scrutiny for the aforesaid reason is concerned, the same as observed by us hereinabove is not disputed and is clearly discernible from the order passed by the Pr. CIT under Sec. 263 of the Act. We find that as per the CBDT guidelines/instructions bearing F. No. 225/26/2006, ITA-II(Pt.), dated 08.09.2010, scrutiny of cases selected on the basis of information received through AIR returns would be limited only to aspects of the information so received. In order to appreciate the issue under consideration, we deem it fit to cull out the CBDT instruction, dated 08.09.2010, which reads as under:
“ F.No.225/26/2006-ITA.II (Pt.)
Government of India,
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes,
New Delhi, dated the 8th September, 2010
To
All Chief Commissioners of Income Tax,
All Directors General of Income Tax,
Sir/Madam,
Subject: Selection of cases for scrutiny on the basis of data in AIR returns and subsequent assessment proceedings-regarding.
Reference is invited to Board‟s letter of even number dated 23rd May, 2007 regarding scope of enquiry in the scrutiny cases selected only on the basis of information received through the AIR returns.
2. The above mentioned guidelines have been reconsidered by the Board and it has been decided that the scrutiny of such cases would be limited only to the aspects of information received through AIR. However, a case may be taken up for wider scrutiny with the approval of the administrative Commissioner, where it is felt that apart from the AIR information there is a potential escapement of income more than Rs. 10 Lacs.
3. It has also been decided that in all the cases which are picked for scrutiny only on the basis of AIR information, the notice u/s 143(2) of Income Tax Act 1961 should clearly be stamped with “AIR Case”.
This should be immediately brought to the notice of all the officers working in your region.
Yours faithfully,
(AjayGoyal)
Director (ITA.II)”
Now, the case of the assessee before us was selected for limited scrutiny, for the reason, that there was viz. “large investment in property (AIR) as compared to total income”. A perusal of the queries raised by the A.O in the course of the assessment proceedings reveals, that though he had queried the assessee as regards justifiability of certain expenses etc., which though did not form part of the reason for which the case was selected for limited scrutiny, but then, no addition/disallowance on those issues was made by him while framing the assessment vide his order passed under Sec. 143(3), dated 10.10.2016. Accordingly, it can safely be concluded that the assessment framed by the A.O fell within the realm of the limited purpose for which the case of the assessee was selected for scrutiny assessment viz. “large investment in property (AIR) as compared to total income”.
7. As observed by us hereinabove, as per the CBDT Instruction F. No.225/26/2006-ITA-II (Pt.), dated 08.09.2010, in a case which had been selected for scrutiny assessment on the basis of information received through the AIR returns, the scrutinising of such case would be limited only to the aspects of the information received through AIR. However, the case may thereafter be taken up for wider scrutiny with the approval of the administrative commissioner, where it is felt that apart from the AIR information there is potential escapement of income of more than Rs.10,00,000/-. Accordingly, the CBDT had in clear and unequivocal terms clarified that for broadening the scope of a case selected for limited scrutiny as per AIR information, the approval of the administrative commissioner would be required. In the case of before us, it is an admitted fact that the case of the assessee was selected for “limited scrutiny” for the reason viz. “large investment in property (AIR) as compared to total income”. In fact, it is neither a fact nor the case of the revenue that the said case was thereafter taken up for wider scrutiny with the approval of the administrative commissioner. In the backdrop of the aforesaid facts, we are of the considered view that as the scope of the assessment framed by the A.O under Sec.143(3), dated 10.10.2016 was circumscribed by the limited reason for which the case of the assessee was selected for scrutiny assessment, therefore, he was absolutely divested of his powers from traversing on issues which did not fall within the realm of the limited purpose for which the said case was selected for scrutiny assessment. As regards the contention advanced by the ld. D.R, that the expenses booked under the head “other expenses” of Rs.30,56,712/- primarily comprised of expenses incurred by the assessee in context of the property under consideration viz. (i) maintenance charges: Rs.21,48,531/-; (ii) M.M.C expenses: Rs.1,60,000/-; and (iii) property tax: Rs.5,59,158/-, therefore, the same fell within the realm of the scope of the limited purpose for which the case of the assessee was selected for scrutiny assessment, we are afraid that the said contention does not find favour with us. In our considered view making of an “Investment” and “incurring of expenses” are two different aspects and the same are not found to be either overlapping or interchangeable. We are of a strong conviction that the A.O in the garb of scrutinising the investment made by the assessee in property for which limited purpose its case was selected for scrutiny assessment, could not have traversed beyond that and adverted to issues pertaining to incurring of the expenses in respect of the said property, for the reason, that the same could also be construed as a part of the investment made by the assessee in the aforesaid property.
8. We shall now in the backdrop of our aforesaid observations deliberate on the validity of the order passed by the Pr. CIT under Sec. 263. As observed by us hereinabove, the Pr. CIT had held the order passed by the A.O under Sec. 143(3), dated 10.10.2016 as erroneous, in so far it was prejudicial to the interest of the revenue, for the reason, that he had failed to carry out proper investigation as regards the allowability of the expenditure claimed by the assessee to have been incurred for the purpose of its business. We are of a strong conviction that now when the case of the assessee was selected for limited scrutiny for the reason viz. “large investment in property (AIR) as compared to total income”, therefore, no infirmity could be attributed to the assessment framed by the A.O on the ground that he had failed to deal with other issues which did not fell within the realm of the limited reason for which the case of the assessee was selected for scrutiny assessment. In other words, the Pr. CIT in the garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment. To sum up, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the A.O while framing the assessment. 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 infirmity can be attributed to his order, for the reason, that he had failed to dwell 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 Pr. 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 ld. A.R on the merits of the case, which thus are left open.
9. The appeal of the assessee is allowed in terms of our aforesaid observations.
Order pronounced in the open court on 30.07.2019
