Introduction

The case of Subbunadar Chandra Sekar vs. ITO (ITA No.612/Chny/2021) adjudicated by the Income Tax Appellate Tribunal (ITAT) 'C' Bench, Chennai, on December 6, 2022, addresses the boundaries of revisional jurisdiction in the context of limited scrutiny assessments under the CASS (Computer Assisted Scrutiny Selection) cycles of 2017-2018. The core issue revolves around whether the Principal Commissioner of Income Tax (Pr. CIT) exceeded their jurisdiction by expanding the scope of scrutiny beyond the initially designated parameters without credible external information.

Summary of the Judgment

In this judgment, the assessee challenged the revisional authority's decision to include additional issues—specifically cash deposits and agricultural income—in the assessment order, which were beyond the scope of the initial 'limited scrutiny' aimed at verifying capital gains/losses. The ITAT upheld the assessee's contention, ruling that in the absence of credible information from law enforcement or regulatory agencies, the revisional authority lacked the jurisdiction to expand the scope of scrutiny. Consequently, the Tribunal quashed the revisional order, thereby allowing the appeal of the assessee.

Analysis

Precedents Cited

The Tribunal referenced several important precedents and directives that influenced its decision:

• Mr. Yuvaraj v. ITO (ITA No.1722/Chny/2019): This case reinforced the limitation of the Assessing Officer's (AO) authority in limited scrutiny assessments, emphasizing that without credible external information, the AO cannot expand the scope of scrutiny.
• Binod Kumar Mahato v. Pr. CIT (ITA No.2173/Kol.2018): Echoed the sentiment that revisional authorities cannot overstep their remit in limited scrutiny cases without valid grounds.
• M/s Sahayamatha Salterns Pvt. Ltd. v. DCIT (ITA No.1498/Chny/2019): Differentiated the present case by highlighting that additional information from other Income Tax Authorities justified the revisional authority's expanded scrutiny in that instance.
• CBDT Instruction No. F.No.225/402/2018/ITA.II dated 28.11.2018: Provided guidelines on handling limited scrutiny cases, especially concerning the expansion of issues based on credible external information.

Legal Reasoning

The Tribunal meticulously analyzed whether the revisional authority had the jurisdiction to expand the scope of assessment beyond capital gains verification. It concluded that:

• The initial 'limited scrutiny' under CASS 2017-2018 was strictly confined to verifying capital gains/losses.
• Expansion to include cash deposits and agricultural income was unwarranted without credible information from external agencies.
• The revisional authority failed to provide such credible information, rendering the expanded scrutiny jurisdictional overreach.

Furthermore, the Tribunal highlighted that recent directives explicitly prevent the conversion of 'limited scrutiny' cases into 'complete scrutiny' unless substantiated by credible external information, ensuring checks against arbitrary enlargements of assessment scopes.

Impact

This judgment reinforces the boundaries of limited scrutiny assessments, ensuring that tax authorities adhere to predefined scopes unless compelling external information necessitates otherwise. It safeguards taxpayers from potential overreach by tax authorities, promoting fairness and adherence to procedural norms. Future cases involving limited scrutiny will likely cite this judgment to challenge unwarranted expansions of assessment scopes by revisional authorities.

Complex Concepts Simplified

Limited Scrutiny Under CASS

The Computer Assisted Scrutiny Selection (CASS) system allows for the selection of cases for audit based on specific algorithms. 'Limited Scrutiny' refers to a focused examination targeting specific areas, such as verifying capital gains, without delving into other income sources or financial activities.

Revisional Jurisdiction Under Section 263

Section 263 of the Income Tax Act empowers higher tax authorities to revise any order passed by a lower tax authority if they find it erroneous or prejudicial to the revenue. However, this power is not absolute and is bound by the scope of the original assessment.

Credible Material or Information

Refers to reliable and verifiable information provided by law enforcement or regulatory agencies that indicates potential tax evasion or discrepancies. Such information can justify expanding the scope of a limited scrutiny assessment.

Conclusion

The Subbunadar Chandra Sekar v. ITO judgment marks a significant affirmation of procedural boundaries within income tax assessments. By underscoring the constraints of revisional jurisdiction in limited scrutiny cases and the necessity of credible external information for any expansion, the Tribunal ensures a balanced approach between revenue protection and taxpayer rights. This decision not only reinforces existing legal frameworks but also serves as a protective measure against potential excesses in tax administration.