Limited Scrutiny applicable only in cases where AO seeks to do Comprehensive Scrutiny to Find if there is Potential Escapement of Income: Kerala HC [Read Judgment]

The Kerala High Court held that Limited Scrutiny was applicable only in cases where the Assessing Officer needs to take the case of the assessee for a comprehensive scrutiny on a finding that there is potential escapement of income on other issues.

The petitioner, Sunrise Academy of Medical Specialties (India) Pvt. Ltd. is a company incorporated under the companies act. The petitioner filed the return for the assessment year 2015-’16 disclosing nil income. During the relevant year, the petitioner has received in the form of share premium a sum of Rs.2,13,92,000/- on allotment of shares of face value of Rs.100/- each at a premium of Rs.291/- per share. The return filed by the petitioner was taken up for limited scrutiny and the petitioner was issued notice under Section 143(2) of the Income Tax Act. In terms of Ext.P1 notice, the petitioner was informed that the issue identified for scrutiny is whether the funds received by the petitioner in the form of share premium are from disclosed sources and whether the same have been correctly offered for tax to which the petitioner replied positively. Later, the petitioner was issued with another notice by the assessing officer stating that the fair market value of the share of the petitioner can only be Rs.100/- and that therefore, the share premium received by the petitioner amounting to Rs.2,13,92,000/- is liable to be assessed as income from other sources as provided under Section 56(2)(viib) of the Income Tax Act. the petitioner was also called upon to furnish objections, if any, against the said proposal and after affording the opportunity to do so, another order was passed to revise the assessment. This order was challenged in this case here by the petitioners seeking clarity on the jurisdiction of such order being issued.

Justice P.B. Suresh Kumar while adjudging the matter where quoted saying, “In the said view of the matter, the writ petition is without merits and the same is accordingly, dismissed without prejudice to the right of the petitioner to challenge the order in the appeal under the statute.”