The Income Tax Appellate Tribunal (ITAT), Surat bench held that no revision order could be passed on issues raised by the PCIT outside the scope of limited scrutiny. Therefore, the bench quashed the revision order.
The assessee, Preetiben Chhatrasingh Chauhan, earned income from house property, business, agriculture income, and income from other sources during the year for assessment year 2018-19. After filing the return of income, the assessee’s case was selected for limited scrutiny assessment on the issue that the assessee had introduced capital during the year, which is very high compared to the profit after tax of the assessee.
Thereafter, the assessment order was revised by the PCIT under Section 263 of the Income Tax Act, holding that the assessment order was erroneous and prejudicial to the revenue based on the following observation: the assessee had shown the sale of shops and consequently business income out of such sale transactions. On the sale of shops, the assessee claimed business income; however, in the immediately preceding year, there was no stock of shops in the closing stocks.
Aggrieved by the order, the assessee filed an appeal before the tribunal.
During the proceedings, Hardik Vora, counsel for the assessee, argued that during the revision proceedings, the issue raised by the PCIT was different from the issue involved in the limited scrutiny. The scrutiny assessment was completed based on a selected issue, namely, “share capital/other capital.” Therefore, before the assessing officers in the limited scrutiny, the issue raised by the PCIT was not the subject matter of limited scrutiny; hence, the PCIT had gone beyond the scope of the ‘limited scrutiny.’
Airiju Jaikaran, counsel for Revenue, argued that the Assessing Officer had not converted ‘limited scrutiny’ into ‘complete scrutiny.’ Thus, the Assessing Officer had not applied his mind; therefore, the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of revenue.
The Tribunal, while considering the appeal, observed that the assessment order was passed by the Assessing Officer in the ‘limited scrutiny’ only to examine the items of ‘share capital and other capital.’ The scrutiny assessment was for a limited purpose to examine the issue of “share capital and other capital.” The Assessing Officer examined the ‘share capital and other capital’ in the scrutiny assessment and framed the assessment order under Section 143(3) of the Income Tax Act.
Further, it was observed that the PCIT had raised the issue, stating that there were sales of shops and computation of long-term capital gain, which was not the subject matter of ‘limited scrutiny.’ Therefore, the issue raised by the PCIT is outside the scope of limited scrutiny.
The assessee submitted that due to the buyer’s failure to deposit the checks it received as payment (the instruments were lost) and the buyer’s failure to issue additional checks, pay orders, or drafts against the checks, it has not received payments from the buyer and has not provided the same level of income during the year of sale.
After reviewing the facts and records, the two-member bench of Dr. A. L. Saini (Accountant Member) and Pawan Singh (Judicial Member) held that the order passed under Section 143(3) of the Act is neither erroneous nor prejudicial to the revenue, as it was passed after a detailed examination and proper verification of all documents of the subject matter of limited scrutiny.
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