Case Law Details
Vijay Rajnikant Patel Vs PCIT (ITAT Ahmedabad)
The case of Vijay Rajnikant Patel Vs PCIT before the Income Tax Appellate Tribunal (ITAT) Ahmedabad concerns the interpretation of Section 263 revisionary powers under the Income Tax Act, 1961. The appellant, Vijay Rajnikant Patel, challenged the order dated 25.03.2023 passed by the Learned Principal Commissioner of Income Tax-3, Ahmedabad, under Section 263 of the Act.
The grounds of appeal raised by the assessee primarily questioned the legality of the revisionary order, contending that it was not justified in the context of the limited scrutiny assessment conducted under the e-assessment scheme for Assessment Year 2018-19.
The essence of the matter revolved around the revision initiated by the Principal Commissioner concerning the adequacy of agricultural expenses claimed by the assessee. Despite the assessment being conducted under limited scrutiny, the Principal Commissioner sought to revise the assessment order, asserting inadequacy in verifying agricultural receipts and expenses.
The appellant argued that the Principal Commissioner’s jurisdiction under Section 263 should be confined to issues considered in the limited scrutiny assessment, as per CBDT instructions. Several precedents were cited to support this contention, emphasizing the principle that revisionary powers cannot extend beyond the scope of issues addressed in limited scrutiny.
The Tribunal, after considering the submissions from both parties, concurred with the appellant’s stance. It reaffirmed the principle that the Principal Commissioner cannot delve into issues beyond those considered in the limited scrutiny assessment. As the assessment was conducted within the boundaries of CBDT instructions, any attempt to revise it based on unaddressed issues was deemed unjustifiable.
Therefore, the Tribunal allowed the appeal, quashing the revisionary order and upholding the validity of the original limited scrutiny assessment.
This ruling underscores the importance of adhering to the scope of scrutiny outlined by the CBDT and ensures that revisionary powers under Section 263 are exercised within their prescribed limits.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The instant appeal filed by the assessee is directed against the order dated 25.03.2023 passed by the Learned Principal Commissioner of Income Tax-3, Ahmedabad under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) whereby and where under the order dated 01.02.2021 passed under Section 143(3) of the Act for Assessment Year 2018-19 has been sought to be revised holding the same erroneous so far it is prejudicial to the interest of revenue.
2. The assessee has raised the following grounds of appeal:-
“1. That on the facts and in circumstances of the case the assessment order passed by the Ld. Pr. CIT u/s. 263 of the Act is bad in law in the facts and circumstances of the case and is prejudicial to the interests of the assessee.
2. That the learned PCIT erred in law where he did not invoke the explanation 2 to section 263 of the Act in the show cause notice dated 20.02.2023 but making reference of it while passing order under section 263.
3.That the Principal Commissioner erred in invoking provisions of section 263 of the Act on the issues other than those covered under limited scrutiny notice issued while completing original assessment under section 143(3) of the Act.
4. That the appellant craves leave to add/alter/delete/modify/substitute any or all of the grounds of appeal on or before date of hearing.”
3. The brief facts leading to the case is this that the appellant assessee, an individual and derived his income from business and profession and income from other sources too filed its return of income on 20.0.2018 declaring total income at Rs. 1,11,44,840/-. Upon selection of the case under the limited scrutiny assessment under the e-assessment scheme, 2019 the issue of deduction of interest under Section 57 of the Act has been finalized under Section 143(3) of the Act on 01.02.2020 upon determining total income at Rs. 1,64,05,002/- after making addition of Rs.52,60,162/- on account of disallowance under Section 57(iii) of the Act.
4. The Ld. PCIT after examination of the case records found that the assessee has claimed exempt agricultural income of Rs. 20,98,238/- and shown to have earned gross agricultural receipts of Rs.23,76,267/- in the return of income filed for the year under consideration. As the assessee has claimed expenditure to the tune of Rs.2,78,029/- only for earning the gross agricultural receipt of Rs.23,76,267/- which is just 11.7% of the gross agricultural receipts, relying upon the judgement passed by the Tribunal in the matter of the Dhirubhai L Nerula and others in ITA No. 2190 to 2192/Ahd/2004 dated 17.04.2004 particularly on the observation made therein that the agricultural expenses is 40% of the gross agricultural receipts in Gujarat, Rs.9,50,507/- (i.e. 40% of the gross receipt of Rs.23,76,267/-) same was required to be treated as expenses incurred to on agricultural income as opinion formed by the Ld. PCIT and in that view of the matter Rs.6,72,478/- was required to be treated as undisclosed income from the other sources and needed to be added to the total income of the assessee which has not been done by the Assessing Officer while finalising the assessment under Section 143(3) of the Act.
5. The Ld. PCIT formed an opinion that the assessee has not been able to establish the genuineness of the agricultural receipts as well as the adequacy of claim of agricultural expenses. The AO has neither considered this particular aspect of the matter and passed an assessment order without making enquiries or verification which should have been done and therefore finally set aside the issue to the file of the Ld. AO with a direction upon him to pass a fresh assessment order as per law after considering the submission to be filed by the assessee during the fresh assessment proceeding.
6. On this available fact the crux of the submission made by the Ld. A.R. is this that the Ld. PCIT is not justified in invoking jurisdiction under Section 263 of the Act by directing the fresh assessment when the earlier assessment as assessed under Section 143(3) of the Act has been covered under “limited scrutiny” category and the Ld. Assessing Officer has passed the order in conformity with the CBDT instructions applicable for limited scrutiny considering all the relevant facts available on the matter. It was further contended by the Ld. AO that as per the CBDT circular in the case of a limited scrutiny, questionnaire and proceeding shall be confined to only specific reasons/issues for which case has been picked up for scrutiny. According to the Ld. A.R. as the Ld. PCIT in the impugned order, observed that due to limited scrutiny assessment, issue of genuineness of gross agricultural receipts and the issue of adequacy of agricultural expenditure were not verified and therefore the assessment order dated 01.02.2021 passed under Section14 3(3) of the Act is erroneous insofar as it is prejudicial to the interest of the Revenue but in the present case the original assessment was passed under Section 143(3) of the Act being under limited scrutiny. In that event the powers of the Ld. PCIT for revision under Section 263 of the Act would be limited to the issues which has been considered in the limited scrutiny assessment only and the revisional powers cannot be allowed to travel beyond the issues considered in such limited scrutiny. In this regard, he has relied upon very many judgements as follows by filing a written notes of submissions:-
“That reliance can be placed on decision of Co-ordinate Bench of Chennai Bench of Tribunal in case of Smt. Padmavathi vs ITO in ITA No. 1306/Chny/2019 for AY 2014-15 order dated 02.12.2019 reported in (2019) 177 TAXLOK.COM (IT) 652 (ITAT- Chennai) wherein it has been held as follows:
“it is settled position of law that while completing assessment order under limited scrutiny, the Assessing Officer cannot look beyond the issue for which the case was selected for scrutiny. It is beyond the power of the Assessing Officer to look into any other issue which has come to his notice during the course of assessment proceedings. Then the issue that comes up for consideration is whether the Ld. PCIT could exercise the power of revision to look into any other issue which the Assessing Officer himself could not look. In our considered opinion, the answer is an emphatic No”.
Further the said order of the Tribunal has been upheld by the Hon’ble Madras High Court in CIT vs Smt. Padmavathi (2020) 182 TAXLOK.COM (IT) 328 (Mad) / (2020) 120 taxmann.com 187(Mad.)
That similar view has been taken by the Delhi Bench of this Hon’ble Tribunal in case of Balvinder Kumar Vs Pr. CIT reported in (2020) 183 TAXLOK.COM (IT) 349 (ITAT- Delhi) / (2021) 125 taxmann.com 83 (Delhi-Tri), wherein the Hon’ble Tribunal vide Para 11 of the said judgment has held as follows:
Similarly, is the view taken consistently by the benches of this Tribunal in the other two cases also, relied upon bu the assessee in the circumstances, in view of the consistent view taken in similar matters, we are of considered opinion that when the AO is bound to follow the CBDT instructions and while following such instruction and after verification of the material furnished by the assessee on the aspect covered by the limited scrutiny, is not open for the Id. Pr. CIT to sau that not adverting to the other aspects of the competition would render the assessment order erroneous and prejudicial to the interest of revenue. With this view of matter, we find that the impugned order cannot be sustained and therefore, the same is liable to be quashed. We accordingly quash the same.
That Hon’ble Cuttack bench of this Hon’ble Tribunal in case Shark Mines & Minerals Private Limited rs Pr. CTT (TTAT- Cuttack) reported in (2022) 193 TAXLOK.COM (IT) 848 has also taken similar view. Relevant extract of the said judgment is re-produced herein below for your ready reference:
“In the present case, the limited scrutiny was in relation to excess liability shown in respect of trade payables and second issue was disallowance u/s 4oA(3) of the Act. The show cause notice in respect of 263 shows that the issue was in respect of adoption of FIFO method of valuation of its closing stock. The issue is nowhere connected to the issue of excess liability shown or disallowance u/s 4oA(s) of the Act. This is absolutely fresh unconnected issues, which the Pr. CIT has picked up. A revision u/s 263 is permissible when an assessment order is shown to be erroneous and prejudicial to the interest of revenue. Both the conditions are compulsorily to be there. In the present case, admittedly, the assessment order is a limited scrutiny issues have been pointed out by the Pr. CIT for the purpose of invoking the powers u/s 263 of the Act. On this ground itself, the order passed by the Pr. CIT u/s 263 is liable to be quashed and we do so.”
Similarly, Delhi Bench of this Hon’ble Tribunal in case of Rajani Venkata Naga Annavarapu Narayana v. Pr. CIT in ITA No. 1871/Del/2020 reported in [2021] 186 TAXLOK.COM (IT) 556 (ITAT- Delhi) vide Para 12 has held as follows:
“12. We find that the Id. PCIT has also mentioned at para no. 2 that the case has been selected for limited scrutiny under CASS. On going through order u/s 263, we find that the order u/s 263 passed by the Id. PCIT dwelled into the issue of re-computation of capital gain which is beyond the mandate of the limited swutiny issued by the CBDT. Hence, the directions of the Id. PCIT which are beyond the selection criteria of scope of scrutiny for the instant year cannot be held to be legally valid.”
3.11 Further, apart from the above referred rulings, various benches of this Hon’ble Tribunal has consistently held that when assessment u/s 143(3) of the IT Act has been taken up under limited scrutiny, then while invoking powers u/s 263 of the IT Act PCIT/ CIT cannot look into any other issue which the assessing officer himself could not look i.e. in other words while invoking powers u/s 263 of the IT Act PCIT/ CIT can-not dwelled into the issue which are beyond the mandate of limited scrutiny issued by the CBDT at the time of original assessment u/s 143(3) of the IT Act. List of those rulings are as follows:
i) Deccan Paper Mills Co. Ltd. v. CIT [1013 & !O35/Pun/2Oi4- order dated 10.10.2017] – [2017] 164 COM (IT) 406 (ITAT-Pune);”
7. The Ld. D.R. has not been able to controvert such submissions made by the Ld. A.R. particularly on this ground that the PCIT can at all travel beyond the jurisdiction envisaged under Section 263 of the Act in considering a fresh the issues which were not finalised and / or raised in the limited scrutiny.
8. We have heard the rival submissions made by the respective parties, we have also perused the relevant materials available on record including the order passed by the authorities below. Relying upon the facts available before us as already narrated hereinbefore, we find that the assessment was finalised under Section 143(3) of the Act by the Ld. Assessing Officer under limited scrutiny scheme wherein the assessment was related to allowability of deduction of interest, claimed under Section 57 of the Act and the Ld. Assessing Officer while conducting limited scrutiny in accordance with the above mentioned CBDT circular as argued by the Ld. A.R. and relied upon, considered all facts and only thereafter disallowed the deduction under Section 57 of the Act as claimed by the assessee. In that view of the matter, the order passed by the Assessing Officer cannot be said to be erroneous so as to prejudicial to the interest of Revenue. We note that when the Ld. A.O. has exercised its jurisdiction within the boundary of the CBDT circular, verified the issues raised in a limited scrutiny and only upon due application of mind finalised the issue upon making disallowance under Section 57 of the Act, the PCIT cannot exercise the revisional jurisdiction conferred upon him under Section 263 of the Act beyond the issues which were raised and finalised under such limited scrutiny. On this aspect we have considered the judgement passed by different coordinate benches and the higher forums as relied upon by the Ld. A.R.
9. It is a settled principle of law the PCIT cannot exercise the power of revision to look into any other issue which the assessing officer himself could not look into under the limited scrutiny proceeding. In other words the powers of the PCIT for revision under Section 263 of the Act would be limited to the issues which has been considered in the limited scrutiny assessment; the revisionary powers under Section 263 cannot frame beyond the issues considered in the limited scrutiny. In that view of the matter as observed by the Ld. PCIT that since the agricultural receipts and the issue of adequacy of agricultural expenditure were not verified by the assessing officer, the order dated 01.02.2021 passed under Section 143(3) of the Act is erroneous insofar as prejudicial to the interest of Revenue is palpably bad, not sustainable in the eye of law and therefore quashed.
10. In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 31/01/2024
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