Limits of Revisional Jurisdiction under Section 263 in Limited Scrutiny Cases

Aryadeep Complex Pvt. Ltd. vs. Pr. Commissioner of Income Tax, Bilaspur

Introduction

The case of Aryadeep Complex Pvt. Ltd. versus the Principal Commissioner of Income Tax, Bilaspur before the Income Tax Appellate Tribunal (ITAT) Raipur Bench, adjudicated on significant issues surrounding the extent of revisional jurisdiction under Section 263 of the Income Tax Act, 1961, especially in contexts where cases are subjected to limited scrutiny under Computer Aided Scrutiny Selection (CASS). The matter stems from the assessment year 2015-16, where the assessee company contested the Principal Commissioner’s decision to set aside the Assessing Officer’s (AO) assessment order under Section 263.

Summary of the Judgment

Aryadeep Complex Pvt. Ltd. challenged the Principal Commissioner’s (Pr. CIT) order dated March 31, 2020, which set aside the AO’s assessment order under Section 143(3) for the assessment year 2015-16. The Pr. CIT had identified deficiencies in the AO's assessment, particularly the lack of verification concerning the investments in unquoted equity shares and the claimed losses from derivatives. Aryadeep Complex contended that the case was under limited scrutiny through CASS, focusing specifically on high investments and low income, and that the Pr. CIT had overstepped by addressing issues outside this scope. The Tribunal upheld Aryadeep Complex’s appeal, asserting that the revisional authority cannot exceed the limited scope defined under CASS, thereby quashing the Pr. CIT’s order and restoring the AO’s original assessment.

Analysis

Precedents Cited

The Tribunal referred to M/s Su-Raj Diamond Dealers Pvt. Ltd vs. Pr. CIT (2020) 203 TTJ 137 (Mum.), where it was held that the scope of scrutiny under CASS is confined to the specific issues for which the case was selected. Moreover, it referenced the Central Board of Direct Taxes (CBDT) Instruction No. 20/2015 dated December 29, 2015, which delineates the boundaries of limited and complete scrutiny under CASS.

Legal Reasoning

The core legal contention revolves around the extent of revisional jurisdiction under Section 263. Aryadeep Complex argued that since their case was selected for limited scrutiny focusing on high investments and low income, the revisional authority could not examine issues outside this defined scope, such as the verification of losses from derivatives. The Pr. CIT’s intervention was seen as exceeding jurisdiction, as the AO had not been assigned responsibilities beyond the limited scrutiny parameters.

The Tribunal held that the AO’s jurisdiction was confined to the reasons for which the case was selected for scrutiny under CASS, namely large expenses and high investments relative to income. The issues raised by the Pr. CIT, specifically the lack of verification on derivative losses and investment details beyond the assessed amounts, fell outside this defined scope. The Tribunal emphasized that any attempt to broaden the scope of scrutiny would require explicit approval from higher authorities, as per CBDT instructions.

Impact

This judgment underscores the importance of adhering to the prescribed scope of scrutiny under CASS. It reinforces that revisional authorities cannot arbitrarily expand the ambit of their review beyond the initial selection parameters unless explicitly authorized. This decision provides clarity to both taxpayers and tax authorities on the boundaries of limited scrutiny, ensuring that assessments are conducted within a well-defined framework, thereby promoting procedural fairness and limiting unnecessary disputes.

Complex Concepts Simplified

Section 263 of the Income Tax Act: This section allows revisional authority (such as the Principal Commissioner) to set aside an order passed by the Assessing Officer if it is deemed erroneous and against the revenue’s interest.

Computer Aided Scrutiny Selection (CASS): A system used by tax authorities to select cases for detailed examination based on specific parameters like income levels, investments, or discrepancies in financial declarations.

Limited Scrutiny: A focused review process under CASS that targets specific areas of concern, limiting the assessment to predefined issues rather than a comprehensive audit.

Revisional Jurisdiction: The authority granted under Section 263 to review and potentially overturn previous assessments or orders issued by lower tax authorities.

Conclusion