PCIT Cannot Enlarge Scope Of Limited Scrutiny By Invoking Sec 263: Chennai ITAT
Pankaj Bajpai
15 March 2024 6:00 PM IST
Finding that the case of assessee was selected for limited scrutiny by the AO, the Chennai ITAT ruled that the PCIT cannot enlarge the scope of limited scrutiny u/s 263 of the Income tax Act.The Bench of V. Durga Rao (Judicial Member) and Manjunatha, G. (Accountant Member) observed that “it is not a fit case to invoke the provisions of section 263 of the Act and pass revision order, where...
Finding that the case of assessee was selected for limited scrutiny by the AO, the Chennai ITAT ruled that the PCIT cannot enlarge the scope of limited scrutiny u/s 263 of the Income tax Act.
The Bench of V. Durga Rao (Judicial Member) and Manjunatha, G. (Accountant Member) observed that “it is not a fit case to invoke the provisions of section 263 of the Act and pass revision order, where the case of the assessee was picked up for limited scrutiny”. (Para 8)
As per the brief facts of the case, assessee company filed its return declaring NIL income after adjusting the brought forward loss of ₹.2,85,98,668/-. The case was selected for limited scrutiny for verification of (i) duty drawback, (ii) unsecured loans & (iii) disallowance u/s. 40A (7) and Gratuity Provision. Although the returned income has been accepted. Later, the PCIT observed that while computing the profit before tax of ₹.3,63,80,762/-, the assessee had debited to profit and loss account a sum of ₹.24,48,406 towards provision for bad and doubtful debts which is not an allowable expenditure and the same was not added back while computing the total income. Thus, by invoking the provisions of section 263, the PCIT proposes for revision.
The Bench found that during the revision proceedings, the assessee has submitted that the bad debts had actually be written off in the books, which is evidenced by the fact that debtors account had been duly credited with this sum and if at all the said sum is added, no prejudice will cause to the Revenue.
From the income computation, the Bench found that if at all the disallowance of provisions for bad and doubtful debts of ₹.24,48,406/- is added, the brought forward losses of earlier years in the sum of ₹.5,59,54,365/- is adjusted to the extent of the current year's income under the head “income from business or profession” ₹.3,10,47,074/- and balance loss of ₹.2,49,07,291/- will have to be carried forward to future years thereby, the total income of the assessee would be NIL and whatever TDS collected are refundable.
Thus, the ITAT quashed the revision order u/s 263 and allowed the assessee's appeal.
Counsel for Appellant/ Assessee: N. Quadir Hoseyn
Counsel for Respondent/ Revenue: Nilay Baran Som
Case Title: Cholan Paper and Board Private Limited Verses Principal CIT
Case Number: I.T.A. No.679/Chny/2023
