The Pune bench of the Income Tax Appellate Tribunal (ITAT) quashed the revision order on the ground of deduction made towards the remuneration of partners which was not covered within the scope of limited scrutiny.
The assessee 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). The Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act, 1961.
The espoused by the Chief Commissioner of Income Tax (CCIT) is that the assessee wrongly claimed a deduction towards remuneration to partners amounting to Rs.22.50 crore with reference to Long-term capital gain offered on the sale of debentures, which was not allowable in terms of Section 40(b)(v) of the Income Tax Act.
The case of the assessee was selected for Limited scrutiny (CASS) and the reason assigned for such scrutiny, as reproduced in the notice under Section 143(2) of the Income Tax Act by the Assessing Officer, is: “Whether capital gains/loss is genuine and has been correctly shown in the return of income”.
The computation of income deciphers the determination of income under the head “Long term capital gain” by showing the sale consideration of unlisted debentures/bonds at Rs.157.00 crore with the cost of acquisition at Rs.56.00 crore, giving the net figure of taxable capital gain at Rs.101.00 crore. The Assessing Officer accepted the returned income as such.
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 Two-member bench comprising of R.S. Syal (Vice-President) and Partha Sarathi Chaudhury (Judicial member) held that the scope of the Assessing Officers verification did not cover the issue of remuneration to partners. The CCIT did not make any case of converting ‘limited scrutiny’ into ‘complete scrutiny’ as a ground for revision. It is, therefore, held that the CCIT was not justified in branding the assessment order erroneous and prejudicial to the interest of the Revenue. Thus, the appeal was allowed.
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