The Pune Bench of Income Tax Appellate Tribunal (ITAT) held that the case of the assessee was selected for Limited scrutiny (CASS) and the scope of verification was confined only to the genuineness of capital gain and its correct reflection in the return of income therefore the AO did not examine the issue of deduction towards remuneration to partners in the assessment order.
The assessee Bharatnagar Buildcon LLP e-filed its return declaring total income at Rs.78,29,61,960/-. The return was selected for Limited scrutiny through Computer Aided Scrutiny Selection (CASS). After certain notices and compliance by the assessee, the Assessing Officer (AO) completed the assessment under Section 143(3) of the Income Tax Act,1961 at the returned income.
On perusal of the assessment record, the Chief Commissioner of Income Tax (CCIT) held the assessment order to be erroneous and prejudicial to the interest of the Revenue on two scores viz.,
(1) the issue of cost of acquisition of the debentures transferred by the assessee was not looked into by the AO and
(2) that the assessee wrongly claimed deduction towards the Remuneration to partners anent to its income from long term capital gain.
Eventually, he set-aside the assessment order and directed the AO to make the assessment afresh. Aggrieved thereby, the assessee filed an appeal before the Tribunal.
With regards to the issue that the assessee wrongly claimed deduction towards remuneration to partners amounting to Rs.22.50 crore with reference to Long term capital gain offered on sale of debentures, which was not allowable in terms of Section 40(b)(v) of the Income Tax Act.
The CCIT has not disputed the correctness or genuineness of the income from “Long term capital gain” at Rs.101.00 crore. His entire focus has been on the grant of deduction towards remuneration to partners at Rs.22.50 crore, which, in his opinion, was not deductible in view of income under the head “Profits and gains of business or profession” being Nil.
The Departmental Representative (DR) pointed out that since inception from A.Y. 2012-13, the assessee did not carry out any business activity till the assessment year under consideration. This decodes that the assessee was not engaged into any business activity and claimed remuneration to partners with reference to the income shown as “Long term capital gains”.
The DR strenuously argued that the AO ought to have converted ‘limited scrutiny’ into ‘complete scrutiny’ to cover the aspect of remuneration to partners and this act of non-conversion per se made the assessment order erroneous and prejudicial to the interest of the Revenue.
The Bench relied on the decision of Supreme Court in Malabar Industrial Company Limited Vs. CIT where it was held that if two legally sustainable views exist on a point and the AO adopts one of such views, the CIT cannot revise the order on such a debatable issue.
It was noticed that the case of the assessee was selected for Limited scrutiny (CASS) and the scope of verification was confined only to the genuineness of capital gain and its correct reflection in the return of income.
Notwithstanding the fact that the AO did not examine the issue of deduction towards remuneration to partners in the assessment order because the same was not covered within the scope of limited scrutiny, it is vivid that the issue of remuneration to partners, being, confined only to the income under the head `Profits and gains of business or profession’ is debatable and hence falls outside the ambit of the scope of revision under Section 263 of the Insome Tax Act.
The Tribunal conceded that the CCIT in his order under Section 263 of the Income Tax Act, did not touch upon the issue of converting ‘limited scrutiny’ into ‘complete scrutiny’.
The bench stated that the scope of arguments by the DR is restricted to the issues decided in the impugned order. He cannot travel beyond such issues and step into the shoes of the authority(ies) which passed the order(s). Further on the Revision, the DR cannot characterize the assessment order to be erroneous and prejudicial to the interest of the Revenue on a new count other than those taken note of in the revisionary order.
The Two Member Bench comprising of R. S. Syal, Vice President and Partha Sarathi Chaudhury, Judicial Member held that as the CCIT did not make out any case of converting ‘limited scrutiny’ into ‘complete scrutiny’ as a ground for revision, the contention of the DR on this score cannot be entertained. Therefore the CCIT was not justified in branding the assessment order erroneous and prejudicial to the interest of the Revenue.
Hence, the appeal was allowed.
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