The Orissa High Court (HC) CIT cannot travel beyond limited Scrutiny while exercising suo motu revisional power under section 263 of the Income Tax Act, 1961.
Shark Mines and Minerals Pvt, the petitioner challenged the order of ITAT which set aside an order dated 29th March 2019 passed by the Principal Commissioner of Income Tax (Pr. CIT), Cuttack under Section 263 of the Income Tax Act, 1961 (Act) for the said AY holding that the original Assessment Order dated 23rd November 2016 under Section 143(3) of the Act passed by the Assessing Officer (AO) under ‘limited scrutiny’ category was erroneous and prejudicial to the interest of Revenue.
The original assessment in the case of the Assessee came to be completed under Section 143(3) of the Act by the AO by the Assessment Order dated 23rd November 2016 in the ‘limited scrutiny’ category where the issue was “excess liability shown and disallowance under section 40A(3) of the Act.”
The Pr. CIT invoked the revisional jurisdiction under Section 263 of the Act and concluded that the Assessment Order was erroneous and prejudicial to the interest of Revenue. Further directed the AO “to modify his Assessment Order dated 23.11.2016 by making further addition of Rs.15,53,849/- under the head undervaluation to closing stock.”
It was pointed out that the said ‘limited scrutiny’ was in relation “to excess liability was shown and disallowance under Section 40A(3) of the Act.”
In the case of the Madras High Court, it was held that “while exercising suo motu revisional power under Section 263 of the Act, the CIT cannot travel beyond the scope of the issues which form part of the ‘limited scrutiny’ in the original Assessment Order.”
Justice M S Raman observed that if the AO has to go beyond the scope of the issues for which ‘limited scrutiny’ has to be undertaken by him, he has to seek prior permission from the superior officer in terms of the CBDT Instruction No.7/14 dated 26th September 2014 and Instruction No.20/15 dated 19th December 2015.
It was viewed that the limited scrutiny was in respect of excess disallowance under Section 40A(3) of the Act whereas the SCN under Section 263 was regarding the FIFO method of valuation of closing stock adopted by the Assessee Which was noted by the ITAT as unconnected issues. The Court upheld the order of ITAT and dismissed the appeal.
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