The Pune bench of the Income Tax Appellate Tribunal (ITAT) held that the assessment cannot exceed the prescribed scope of the limited scrutiny invoking the revisionary jurisdiction under Section 263 of the Income Tax Act, 1961.
The assessee is a public charitable trust engaged in running and maintaining a marriage hall etc., and had filed its return of income declaring NIL income. The case of the assessee was subjected to limited scrutiny by service of notice under Section 143(2) of the Income Tax Act specifically to verify the claim of deduction made while computing the income under the head ‘Income from Other Source’.
The Assessing Officer culminated the assessment proceedings by disallowing 15% of cleaning and washing expenses owning to self-made vouchers in the absence of third-party evidences and further brought to tax the donation of ₹8,40,526/- received towards the building fund thus determining the taxable income to ₹6,98,991/- under Section 143(3) of the Income Tax Act.
The Principal Commissioner of Income Tax (PCIT) held the assessment order erroneous and prejudicial to the interest of the Revenue for failure on the part of the Assessing Officer and thus directed the Assessing Officer to reframe the assessment by bringing to tax escaped deemed rent of ₹48,37,592/-; disallow proportionate depreciation of ₹31,914/- on account of the reduced value of assets consequent to disallowance of sundry creditors; and to assess interest on refund of ₹7,607/- earned but remained unrecorded in the books of account of the assessee trust.
The Authorized Representative contended that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The Assessing Officer framed the assessment in consequence to a limited scrutiny under Computer-Assisted Scrutiny Selection (CASS), where his jurisdiction was only to verify ‘deduction from income from other sources’, therefore, enlargement of scrutiny was neither sighted to him nor was available without obtaining prior approval of higher authorities.
The Departmental Representative submitted that the very purpose of scrutiny in the present case was to verify the correctness of deductions claimed by the assessee under Section 57 of the Income Tax Act and while doing so the Assessing Officer was duty-bound to verify interwoven figures from which such deductions were claimed so has ensured the correctness of taxation.
In view of the ratio laid by Madras High Court in ‘CIT Vs Padmavati’, an assessment could not exceed the prescribed scope of ‘Limited Scrutiny’ except following due process of law, therefore the Revenue has missed the bus in original proceedings in extending the scope, which unfortunately cannot be done invoking revisionary jurisdiction under Section 263 of the Income Tax Act.
The Two-member bench comprising of S.S. Viswanethra Ravi (Judicial member) and G.D. Padmahshali (Accountant member) held that when the assessment is taken up for limited scrutiny; the CIT(E) cannot hold the assessment order as erroneous and prejudicial to the interest of revenue in respect of the issue which was not a reason for the selection of the case for limited scrutiny.
Therefore, the invocation of revisionary jurisdiction failed to satisfy the first and foremost of the twin conditions laid under Section 263 of the Income Tax Act, thus unsustainable in law, and therefore quashed. The appeal of the assessee was allowed.
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