ORDER
PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against revision order dated 15/03/2022 passed by the Ld. Commissioner of Income-tax (Exemption), Mumbai [in short 'the Ld. CIT'] for assessment year 2017-18, raising following grounds:
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1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Exemptions), Mumbai has erred in setting aside the Order passed u/s 143(3) of the Act by the Learned Assessing Officer, ITO(E), Ward 2(3) and thereby erred in passing an order under section 263 of the Act without appreciating that:
a. Despite the fact that the purpose of utilization of funds u/s 11(2) of the Act of Rs.2,50,00,000/ was amply clear, specific and also supported through its application of funds deployed in the current year, the Learned CIT(Exemptions), Mumbai erred in concluding that the purpose of "Development Fund"
is vague and not specific and does not have concrete plan for setting aside the amount as stated above.
b. The Appellant duly furnished all the requisite details that were sought by the Learned Assessing Officer and there was no notice that was unanswered by the Appellant. The Appellant had also explained the use of the term Development Fund and the rationale behind the same and that how the amount of Rs.2,50,00,000/- accumulated u/s 11(2) Act for AY 2015-16 is ultimately utilized in AY 2017-18 towards the various projects carried out by the Appellant. c. The reduction in block of assets with respect to the sale of flat of Rs. 34,70,955/- and sale of motor vehicle of Rs.8,48,026/- was duly explained to the Learned Assessing Officer during the course of assessment proceedings and only after due verification and perusal of all the documents and materials on record and after duly understanding the facts and rationale of the Appellant, did the learned Assessing Officer pass the order u/s 143(3) of the Act for AY 2017 18.
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d. (d) The Appellant had informed the Learned CIT (Exemptions), Mumbai that the reduction in CWIP is merely pertaining to accounting entries passed in the books of accounts for capitalization of assets and booking of bills under CWIP and nothing else. The Appellant explained the above facts along with the annexures in relation to reduction in CWIP to the Learned Assessing Officer during the course of assessment proceedings and only after due verification and perusal of all the documents and materials on record and only after duly understanding the facts of the Appellant, did the learned Assessing Officer pass the order u/s 143(3) of the Act for AY 2017-18.
2. The Learned CIT(Exemptions), Mumbai has erred in not appreciating that all the documentary evidences w.r.t all three issues have been submitted by the Appellant to the Learned Assessing Officer. The Assessing Officer, only after taking into consideration the submissions filed by the Appellant, has accepted the returned income and such a view, being a plausible view cannot be considered as erroneous or prejudicial to the interest of the revenue by any stretch of imagination and hence the inference drawn by the Learned CIT(Exemptions) deserves to be "Dismissed" in liminee.
2. The assessee has further raised additional ground vide letter dated 06/07/2022, which are reproduced as under:
3. The learned CIT(E), Mumbai has failed to appreciate that the learned Assessing Officer has passed the order u/s 143(3) only
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after verification of the issue of payment made to specified person in the limited scrutiny category under CASS.
4. The learned CIT(E), Mumbai has erred in not referring to the submission dated 20/02/2019 of the Appellant wherein the issue of payment made to specified person [(Question No. 16 of Notice u/s 142(1)] is already been verified and examined by the learned AO.
5. Without prejudice to the above, the learned CIT(E), Mumbai has passed order u/s 263 of the Act for aspects other than that covered under the scope of limited scrutiny and thereby ignoring CBDT Instruction No. 7/2014, 20/2015 and 5/2016 and CBDT letter dated 30/11/2017 which is self-explanatory.
2.1 We have heard submission of rival parties on admissibility of additional ground. In view of settled law in the case of NTPC Ltd.
229 ITR 283 (SC) being the issue of legal native and no fresh investigation of facts required, the additional ground is admitted for adjudication.
3. In the grounds raised, the assessee is agitated by action of the Ld. CIT in terms of section 263 of the Income-tax Act , 1961 (in short 'the Act') for holding the assessment order dated 16/11/2019
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passed by the Assessing Officer as erroneous insofar as prejudicial to the interest of the Revenue.
4. Briefly stated facts of the case are that :
(i) the assessee is a registered charitable trust and for the year under consideration filed return of income on 26/10/2017 declaring Nil income, along with income and expenditure account, balance sheet and audit report in Form No. 10B of the Income-tax Rules, 1962. The return of income filed by the assessee was selected for limited scrutiny for verification of payment made to be specified persons. The Assessing Officer accordingly issued notice under section 143(2) of the Act, which was duly served upon the assessee. Thereafter the Assessing Officer issued notice under section 142(1) dated 8/02/2019 calling for detailed information from the assessee. The assessee filed reply of the queries asked
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vide letter dated 20/02/2019. After considering the submission of the assessee the Assessing Officer, accepted the returned income, vide assessmentorder dated 16/11/2019 passed under section 143(3) of the Act.
(ii) Subsequently, the Ld. CIT called for the record and after examination and verification of the records, he was of the opinion that the assessment order dated 16/11/2019 framed by the Assessing Officer was erroneous insofar as prejudicial to the interest of the Revenue within the meaning of section 263 of the Act. Accordingly issued a show cause notice to the assessee observing that he was of prime facie view that assessment order was erroneous insofar as prejudicial to the interest of the Revenue in view of the followings:
(a) the Assessing Officer has allowed deduction of ₹6,75,25,296/- towards the object of the trust under section 11 of the Act, without any enquiry.
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(b) The assessee set-aside ₹2,50,00,000 /- in the assessment year 2015-16 under section 11(2) of the Act for the purpose of "development fund".
According to Ld. CIT, the purpose of said development fund is vague and not a specific and not a concrete reason for setting aside the amount. He further observed that during the year under consideration, the assessee claimed utilization of said accommodated fund and the Assessing Officer called for details with documentary evidence with respect to the above fund, but the assessee neither replied nor submitted documentary evidence. The Assessing Officer has also not verified the same. According to the Ld. CIT same is not allowable under section 11(3) of the Act.
(c) From the statement of the fixed asset, it is seen that there is a reduction of ₹43,18,981/- in tangible
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assets and ₹40,39,390/- from capital work in progress. According to The Ld. CIT the assessee has not offered the income on sale of the assets in the return of income furnished and the issue of sale of assets has not been examined by the Assessing Officer in assessment proceedings.
(iii) After considering submission of the assessee, the Ld. CIT vide impugned order dated 15/03/2022 held the order of the Assessing Officer as erroneous insofar as prejudicial to the interest of the Revenue on the ground of non- verification of the utilization of the accumulated amount and non-verification of reduction in fi xed asset and capital work in progress, which translated into income for the year under consideration.
5. Aggrieved, the assessee is in appeal before the Tr ibunal raising the grounds as reproduced above.
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6. Before us the assessee has filed a paperbook (pages 1 to 113) containing interalia, notices issued by the Assessing Officer during assessment proceedings, reply of the same by the assessee, notices issued in proceeding under section 263 of the Act and reply of the assessee by the same.
7. We have heard rival submission of the parties and perused the relevant material on record. With reference to additional ground that under the limited scrutiny assessment, the Assessing Officer was authorized only to examine the limited issue of verification of payment to specified persons in terms of section 13 of the Act. The Ld. counsel referred to the query No. 16 issued vide notice u/s 142(1) dated 08/02/2019 (PB- 14). In response, the assessee filed reply at serial No. 15 of reply dated 20/02/2019(PB-18). Thus according to the Ld. counsel of the assessee, the limited point on which the case was selected for scrutiny, was duly verified by the Assessing Officer during scrutiny proceedings.
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7.1 The Ld. counsel of the assessee referred to instruction No. 7 of 2014 dated 26/09/2014 issued by the Central Board of Direct Taxes (CBDT) for restricting the scope of the enquiry during assessment proceedings to verification of particular aspects on the basis of the which the case was selected for scrutiny (PB:42-43). The CBDT further issued clarification vide letter dated 29/12/2015 in respect of the instruction No. 7/2014 which is placed on paperbook page 48-49. Further, the CBDT issued instruction on 14/07/2016 vide instruction No. 5/ 2016 in respect of the cases selected through Computer Assisted Selection of Scrutiny (CASS ) cycle 2015 and 2016 (PB-50-51). The Ld. counsel referred to procedure laid down for converting a limited scrutiny case to complete scrutiny case mentioned in clause 2 to 6 of said Instruction. The Ld. counsel also referred to letter of DG Vigilance dated 30/11/2017 advising the Assessing Officers to comply with the instruction of the CBDT for restricting in making enquiry in limited scrutiny cases and for
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following the procedure for converting a limited scrutiny case into a complete scrutiny case (PB:52-51).
7.2 The Ld. counsel submitted that the Ld. CIT has held the assessment order as erroneous insofar as prejudicial to the interest of the revenue for non-verification of utilisation of accumulative fund and non-verification of reduction in sale of assets and work in progress. According to him, these issues were not included in the verification of limited scrutiny and limited scrutiny was never converted into complete scrutiny, therefore the Ld. CIT has exceeded his jurisdiction in holding that no enquiry was made by the Assessing Officer. Accordingly, the order of the Ld. CIT deserve to be quashed. In support of the contention, the Ld. counsel relied on the decisions of the ITAT Delhi bench in the case of Balvinder Kumar Vs PCIT reported in (2021) 125 taxmann.com 83 (Delhi) and Gift and Handicrafts Vs CIT in ITA No 2898/Del/2005 reported in (2008) 19 SOT 5.
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7.3 The Ld. counsel further submitted that for assessment year 2016-17 also the Ld. CIT issued notice for proceeding under section 263 of the Act on the ground for non-verification of the utilization of the accumulated fund and held the order of the Assessing Officer as erroneous insofar as prejudicial to the interest of the Revenue vide order dated 11/03/2021. In consequent assessment order passed under section 143 (3) read with section 263 of the Act dated 26/03/2022, no addition was made by the Assessing Officer on the issue of utilization of the accumulated fund. The Ld. counsel submitted that order passed by the CIT dated 11/03/2021 has been accordingly quashed by the ITAT vide order dated 05/05/2022 in ITA No. 686/Mum/2021.
8. The Ld. DR on the other hand submitted that the CBDT instructions referred by the assessee for verification of the limited scrutiny cases and converting of limited scrutiny case to complete scrutiny case relates to CASS cycle 2015 and 16 only and no
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instruction has been filed by the assessee relevant to the selection of the instant case, which falls in CASS cycle 2017 & 2018, therefore Ld. CIT is justified in holding that no enquiry was made by the Assessing Officer on the issues other than the issues under the limited scrutiny reasons.
8.1 In the rejoinder, the Ld. counsel filed a copy of the instruction issued with regard to CASS Cycle 2017 and 2018 for scope of enquiry in limited scrutiny cases.
9. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. In the case, return of income filed by the assessee for year under consideration was selected for limited scrutiny for verification of payment made to the specified persons. The Ld. counsel has referred to the query issued by the Assessing Officer vide notice under section 142 (1) of the Act dated 08/02/2019, which is placed on page 12-14 of the
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paperbook. The relevant query raised by the Assessing Officer is reproduced as under:
"16. Details of any amount paid during the previous year to any person referred to in Sub-section (3) of section 13."
9.1 The Ld. counsel has referred to the reply submitted by the assessee in response of the above query, which is placed on page 18 of the paperbook. The relevant reply is reproduced as under:
"15. no amount has been paid by 'A' to any person referred u/s 13(3) of the I.T. Act."
9.2 Thus it is evident that the Assessing Officer has carried out the enquiry on the issue of verification of limited scrutiny reason.
9.3 Further, on perusal of the impugned order of the Ld. CIT, we find that he has nowhere stated that no verification or any further verification has not been done by the Assessing Officer on the issue of scrutiny for which the case was selected as limited scrutiny case. The Ld. CIT has held the order of the Assessing Officer as erroneous on the ground of no enquiry on other issues i.e. the issue of non-
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verification of utilization of the accumulated fund and non- verification of reduction in tangible assets and capital work-in- progress.
9.4 As far as scope of verification in limited scrutiny cases is concerned the CBDT in instruction No. 7/2014 vide letter dated 26/09/2014 has specified that scope of enquiry in limited scrutiny cases should be limited to verification of those particular aspects only and therefore the Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only on the specific points on the basis of which the particular return has been selected for scrutiny. It is further provided that if there's a potential escapement of the income then Assessing Officer may convert the case into detail scrutiny after prior approval of the higher authorities. The relevant clause of the Instruction No. 7/2014 (supra) is reproduced as under:
"4. In case, during the course of assessment proceedings, it is found that there is potential escapement of income exceeding ₹10 lakhs
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(for non-metro charges, the monetary limit shall be ₹5 lakhs) on any other issue(s) apart from the AIR/CIB/26AS information based on which the case was selected under CASS requiring substantial verification, the case may be taken up for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned. However, such an approval shall be accorded by the Pr. CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. Cases so taken up for detailed scrutiny shall be monitored by the Jt. CIT/Addl. CIT concerned."
9.5 Regarding the scope of enquiry in limited scrutiny cases, the CBDT vide letter dated 29/12/2015 has further clarified as under:
"3. As far as the returns selected for scrutiny through CASS -2015 are concerned, two type of cases have been selected for scruti ny in the current Financial Year-- one is 'Limited Scrutiny' and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under:
a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned.
b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny.
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Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues.
c. These cases shall be completed expeditiously in a limited number of hearings.
d. During the course of assessment proceedings in 'Limited Scrutiny cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by the by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating Complete Scrutiny' in that particular case Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a). (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad)."
9.6 For cases selected through CASS cycle 2015 and 2016 the CBDT has further emphasized that scrutiny proceeding in limited scrutiny should be restricted to the relevant parameters which formed the basis for selecting the case for the scrutiny and the Assessing Officer shall not proceed to make other inquiries except
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with the prior approval of the higher authorities. The relevant clauses of the instruction are reproduced as under:
"INSTRUCTION NO.5/2016 IF.NO.225/269/2015-ITA.111, DATED 14-7-2016
vide Instruction No. 20/2015 dated 29.12.2015 in File of even number, Board has laid down Standard Operating Procedure for handling of cases under 'Limited Scrutiny' which were selected through Computer Aided Scrutiny Selection in 'CASS Cycle 2015'. in these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny. However, in revenue potential cases, it was further provided that 'Complete Scrutiny' could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr.DIT/DIT.
2. In order to ensure that maximum objectivity is maintained in converting a case falling under 'Limited Scrutiny' into a 'Complete Scrutiny' case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up 'Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer ('AO') shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under Complete Scrutiny'. In this regard, the monetary limits and equirement of administrative approval from Pr. CIT/CIT/Pr.IT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 9.12.2015, shall continue to remain applicable.
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3. Further, while forming the reasonable view, the Assessing Officer would ensure that:
a. there exists credible material or information available on record for forming such view;
b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and
c. there must be a direct nexus between the available material and formation of such view.
4. It is further clarified that in cases under 'Limited Scrutiny', the scrutiny assessment proceedings would initially be confined only to issues under 'Limited Scrutiny' and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to 'Complete Scrutiny' after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in 'Limited Scrutiny'. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting 'Complete Scrutiny' in such cases.
5. It is also clarified that once a case has been converted to 'Complete Scrutiny', the AO can deal with any issue emerging from ongoing scrutiny proceedings notwithstanding the fact that the reason for such issue have not been included in the Note.
6. To ensure proper monitoring in cases which have been converted from 'Limited Scrutiny' to 'Complete Scrutiny', it is suggested, that provisions of section 144A of the Act may be invoked in suitable cases. To prevent possibility of fishing and roving enquiries in such cases, it is desirable that these cases
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should invariably be picked up while conducting Review or Inspection by the administrative authorities.
7. The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are pending scrutiny cases as well as cases selected/being selected under the CASS 2016.
8. The contents of this Instruction may be brought to the notice of all for necessary compliance."
10. In respect of cases selected under CASS cycle 2017 and 2018, the CBDT issued instruction vide letter dated 28/11/2018, wherein the Assessing Officer directed to comply the earlier instruction issued for scope of enquiry in limited scrutiny cases and further directed that in case of any information of tax evasion received from the Enforcement Agencies, then the Assessing Officer may examine that information with the prior approval of the concerned of higher authorities. For ready reference, the relevant instruction is reproduced as under:
"To All Principal Chief-Commissioners of Income-tax/All Principa l Director- Generals of Income-tax
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Sir/Madam, Subject: Scope of enquiry in Limited Scrutiny cases selected under CASS cycles 2017 and 2018 in the context of information provided by any law -enforcement/ intelligence/regulatory authority or agency redg.-
Under CASS cycles 2017 and 2018, some of the cases were selected for scrutiny as a "Limited Scrutiny" case. It Limited Scrutiny' cases, Assessing Officer cannot travel beyond the issues) for which the case was selected. The idea behind such a stipulation is to enforce checks and balances upon powers of an Assessing Officer to do fishing and roving enquiries in cases under 'Limited Scrutiny'.
2. In this regard, several representations have been received in the Board from the field authorities that in several cases under 'Limited Scrutiny', information pointing out specific tax-evasion for the relevant year, given by any law- enforcement/intelligence/regulatory authority or agency is available with the concerned Assessing Officer, however, in view of the restrictive nature of enquiry/investigation which can be made in 'Limited Scrutiny" cases, the same presently cannot be acted upon.
3. The matter has been considered by the Board. In order to enable proper enquiry/ investigation in pending 'Limited Scrutiny' cases which were selected through CASS cycles of 2017 and 2018, where credible material or information has been/is provided by any law-enforcement/intelligence/regulatory authority or agency regarding tax-evasion by an assessee, it has been decided by the Board that issues arising from such information can also be examined during the course of conduct of assessment proceedings in such "Limited Scrutiny' cases with prior administrative approval of the concerned Pr. CIT/CIT.
4. It is pertinent to mention that unlike CASS 2015 and 2016 cycles, where consideration of any additional issue lead to the conversion of case to
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"Complete Scrutiny" as laid down in Instruction No. 5/2016 dated 14.07.16. the pending 'Limited Scrutiny' cases of CASS 2017 and 2018 cycles would not be taken up for "Complete Scrutiny" as the present directive is only to facilitate consideration of those issues wherein specific information Therefore, in such of tax-evasion has been furnished by any law-
enforcement/intelligence/regulatory authority or agency. 'Limited Scrutiny' Assessing Officer shall not expand the scope enquiry/investigation beyond the issue(s) on which the case was flagged for Limited Scrutiny' & issue arising from nature of information mentioned in para 2 and 3. Above.
5. The following procedure shall be adopted while examining the additional issue:
i. The Assessing Officer shall duly record the reasons for expanding the scope of 'Limited Scrutiny" to the extent mentioned in para 2 and 3, above;
ii. The same shall be placed before the Pr. CIT/CIT concerned and upon his approval, further issue can be considered during the assessment proceeding:
iii. The Assessing Officer shall issue an intimation to the assessee concerned that additional issue would also be considered during the course of pending assessment proceeding:
iv. To ensure proper monitoring in these cases, provisions of section 144A of the Income-tax Act, 1961 may be invoked in suitable cases. Further, to prevent fishing and roving enquiries in these cases, it is desirable that these cases are invariably picked up for Review/Inspection by the administrative authorities.
6. The above directive shall be applicable from the date of its issue and shall apply to the pending "Limited Scrutiny' cases which were selected under the CASS 2017 and 2018 cycles. It is reiterated that the grounds mentioned in para 3 above are the only grounds on which a 'Limited Scrutiny' case of CASS 2017
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and 2018 cycles can be expanded in its scope and that too only to the extent of the issues referred to by the law-enforcement/intelligence/regulatory authority or agency.
7. It may be brought to the notice of all for necessary compliance."
10.1 In view of above instruction of the CBDT, it is evident that Ld. Assessing Officer was not authorized to travel beyond the enquiry on the issue for which case was selected for scrutiny and enquiry on the issues as observed by the Ld. CIT in order under section 263 of the Act on the issue of non-verification of utilization of the accumulated fund and reduction in sale of asset and capital work in progress, were beyond the scope of the limited scrutiny. The Ld. DR has not brought before us whether any permission was sought by the Assessing Officer for converting the limited scrutiny case into a completely scrutiny case.
10.2 Further, we find that Tribunal in the case of Balvinder Kumar (supra) after analyzing CBDT instructions on the issue of the scope of limited scrutiny held that it would not be open for the PCIT to
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pass revisionary order under section 263 in the case of limited scrutiny, where the Assessing Officer could not go beyond reason for which matter was selected for limited scrutiny. The relevant finding of the Tribunal (supra) is reproduced as under:
"8. We have gone through the record in the light of the submissions made on either side. There is no dispute that the case of the assessee was picked up for scrutiny under the category of limited scrutiny. This fact is established from the assessment order and also the notice issued under section 143(2) of the Act. It is also not in dispute that the CBDT issued the instructions relied upon by the assessee and for the sake of convenience we extract the relevant portions thereof hereunder: -
"CBDT Instruction No. 7/2014 The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice u/s 143(2), after generation from AST, is issued to the taxpayer with the remark ".Selected under Computer Aided Scrutiny Selection (CASS)". The functionality in AST is being modified suitably to flag the reasons for scrutiny selection in AIR/CIB/26AS cases. This functionality is expected to be operationalized by 15th October, 2014. Further, the Assessing Officer while issuing not ice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verify only the specific aspects requiring examination/verification. In such cases, all efforts would be made to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date. CBDT Instruction No. 20/2015
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3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Yearone is'Limited Scrutiny' and other is Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under:
(a) ....
(b) The Questionnaire under section 142(1) of the Act in 1Limited Scrutiny * cases shallre nut in confined only to the specific reasons/issues for which case has been picked upforscrutiny.Further, the scope of enquiry shall be restricted to the Limited Scrutiny' issues.
CBDT Instruction No. 5/2016
"4. It is further clarified that in cases under 'Limited Scrutiny \ the scrutiny assessment proceedings would initially be confined only to issues under 'Limited Scrutiny' and Questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon comers ion of case to 'Complete Scrutiny' after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in 'Limited Scrutiny'. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting 'Complete Scrutiny' in such cases." CBDT Letter dated 30.11.2017 J Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited scrutiny cases by initiating inquiries on new issues without complying with manda tory requirements of the relevant CBDT Instructions dated 26-9-2014, 29 -12-2015 and 14-7-2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with
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examination of assessment records on receipt of a I lee at ions of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for the conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions."
9. The above CBDT instructions and the letter clearly establish that it's not open for the learned Assessing Officer to travellers beyond the reason for selection of the matter for limited scrutiny and on that aspect the assessment order in this case is in accordance with the instructions governing the field. In such circumstances it has to be seen whether the Ld. PCIT is justified in holding the assessment order to be erroneous insofar as it is prejudicial to the interest of the Revenue for the learned Assessing Officer not considering the aspects which are beyond the purview of limited scrutiny.
10. In the Deccan Paper Mills Co. Ltd. vs. CIT in ITA 1013 AND 1635/PUN/2015, Pune Bench of the Tribunal held, that,
"40. Now, coming to the aspect of book profits which was considered by the Commissioner and the order of the Assessing Officer was held to be erroneous and prejudicial to the interest of revenue. In this regard, it may be pointed out that the case of assessee was picked up for scrutiny under CASS for the limited purpose of verifying the Chapter VI-A deduction. Once the case is picked up for specific purpose under CASS, then it is outside the purview of the Assessing Officer to look into any other aspect other than the aspect for which it is picked up. Hence, the Assessing Officer has not formed any opinion in respect of computation of book profits in the hands of assessee. Once, no such opinion has been formed by the Assessing Officer, the Commissioner has erred in holding the order of the Assessing Officer to be erroneous and prejudicial to the interest of revenue in this regard.
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Accordingly, we reverse the findings of the Commissioner. Accordingly, we hold that the order passed by the Commissioner under section 263 of the Act is invalid and the same is quashed for both the assessment years."
In M/s R.H. Property vs. PCIT, ITA No. 1906/Mum/2019 it was held that,-
"As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A.O had aptly confined himself to the issue for which the case of the assessee was selected for limited scrutiny, therefore, no infjrmity can be attributed to his order for the reason. that he had failed to dwell upon certain other issues which were clearly beyond the realm of the reason for which the case of the assessee was selected for limited scrutiny as per the AIR information. We thus not being able to concur with the view taken by the f J r. CIT that the order passed by the A.O under Sec. 143(3), dated 10.10.2016is erroneous, therefore, set aside his order and restore the order passed by the A.O. As wehave quashed the order passed by the Pr. CIT under Sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the Id. A. Ron the merits of the case, which thus are left open." 11. Similarly, is the view taken consistently by the benches of this Tribunal in the other two cases also, relied upon by the assessee. In the circumstances, in view of the consistent view taken in similar matters we are of the considered opinion that when the assessing officer is bound to follow the CBDT instructions and while following such instructions and after verification of the material furnished by the assessee on the aspect covered by the limited scrutiny, is not open for the Ld. PCIT to say that not adverting to the other aspects of the competition would render the assessment order erroneous and prejudicial to the interest of the Revenue. With this view of the matter we find that the impugned order cannot be sustained and, therefore, the same is liable to be quashed. We accordingly quash the same."
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10.3 Further, the Tribunal in the case of Gift and Handicrafts (supra) has held as under:
"17. With regard to allowing deduction under section 80HHC in spite of there being a loss as defined under clause (baa) of Explanation to section 80HHC, it is seen that provisions of section 80HHC(3) have been amended retrospectively with effect from 1-4- 1992 and in the light of the a foresaid amendment the claim of the assessee is in accordance with law. Even otherwise as already held by us, the claim for deduction under section 80HHC was never the subject-matter of the limited scrutiny assessment and therefore the Assessing Officer could not have considered the same. The CIT in exercise of the jurisdiction under section 263 could not, therefore, hold the order of the Assessing Officer as erroneous on this ground. It is further seen that the Assessing Officers passed the orders of assessments in the case of present assesses on 10-4-2003, 8 -9-2003 and 29-12-2003 respectively. The decision of the Hon'ble Supreme Court in the case of IPCA Laboratory case (supra) was rendered much later in point of time. Prior to the said decision there was a considerable debate, on this issue. As already stated, the subsequent statutory amendment with retrospective effect also supports the claim of the assessee. Exercise of jurisdiction under section 263 on this ground cannot be sustained."
10.4 Respectfully following the above decision of the Tribunal, we hold that in the instant case the Assessing Officer was not authorized to carry out enquiry beyond the scope of the reasons for
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which the case was selected under limited scrutiny and therefore the Ld. CIT is not justified in directing the Assessing Officer to carry out the enquiry on the issues other than the issues for which case was selected for limited scrutiny and holding the order as erroneous insofar prejudicial to the interest of the revenue. The additional ground No. 3 of the appeal is accordingly allowed.
11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court in 19/09/2022. Sd/- Sd/-
(KULDIP SINGH) (OM PRAKASH KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 19/09/2022
Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy// (Sr. Private Secretary) ITAT, Mumbai
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