Principal Commissioner Of Income Tax 1, Kolkata v. Sukhdham Infrastructures Llp

ITAT No. 164 of 2023IA NO:GA/1/2023IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOME TAX 1, KOLKATAVSSUKHDHAM INFRASTRUCTURES LLP BEFORE : THE HON’BLE CHIEF JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 14[th] August, 2023 Appearance :Mr. Vipul Kundalia, Adv.Mr. Prithu Dudhoria, Adv.… for the appellantMr. Abhratosh Majumder, Sr. Adv.Mr. Avra Majumder, Adv.Mr. Samrat Das, Adv.Mr. Suman Bhowmick, Adv.… for the respondent The Court : This appeal filed by the revenue under Section260A of the Income Tax Act, 1961 (the Act) is directed against theorder dated February 23, 2023, passed by the Income Tax AppellateTribunal, `B’ Bench, Kolkata (Tribunal) in ITA No.2611/Kol/2019 andITA No.148/Kol/2020, relating to the assessment year 2015-16. The revenue has raised the following substantial questions oflaw for consideration :- a) Whether on the facts and in the circumstances of the case theLearned Income Tax Appellate Tribunal was justified in law innot considering the fact that the case was converted fromLimited Scrutiny to Complete Scrutiny on approval of the Pr.CIT in writing and only thereafter the Assessment Order waspassed ? b) Whether on the facts and in the circumstances of the case theLearned Income Tax Appellate Tribunal was justified in law inquashing the order passed under Section 143(3) of the Actmerely due to the fact that the Assessing Officer had madeenquiries outside the specific issues before conversion of thecase into complete scrutiny ? c) Whether on the facts and in the circumstances of the case theLearned Income Tax Appellate Tribunal was justified in law innot considering the fact that the Assessing Officer had passedthe order under Section 143(3) of the Act, 1961 only uponapproval of the Pr. CIT in writing to perform a complete scrutinyand the Assessing Officer had in his possession records thatproved that the Unsecured Loans obtained by the assessee werebogus and should be added back to the income to the assessee? We have heard Mr. Vipul Kundalia, learned senior standingcounsel appearing for the appellant/revenue and Mr. Abhratosh Majumder, learned senior Advocate appearing for therespondent/assessee. The short question involved in this appeal is whether theAssessing Officer, which had initially issued notice under Section143(2) of the Act for a Limited Scrutiny of the return filed by theassessee on three aspects, could have expanded the scope prior toobtaining approval for a Complete Scrutiny by the appropriateauthority. It is an admitted fact that on 26[th] July, 2016 an order forLimited Scrutiny came to be passed. Subsequently, the AssessingOfficer expanded the scope on 20[th] February, 2017 and commencedcertain enquiries. The order granting approval for Complete Scrutinywas passed only on 14[th] December, 2017, that is, much after theenquiry was commenced by the Assessing Officer on 20[th] February,2017. The correctness of the same was tested by the assessee by filingan appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].The CIT(A) though noted the said issue did not render a specificfinding but went into the merits of the matter and granted relief to theassessee to the extent indicated in the said order. The assessee as wellas the revenue carried the matter on appeal to the Tribunal. Thelearned Tribunal examined the jurisdictional issue alone and notedthat the Assessing Officer had issued notice under Section 143(2),dated 28[th] July, 2016, for a Limited Scrutiny covering four issuesnamely, interest expenses, income from real estate business, sale turnover mismatch and other expenses claimed in the profit and lossaccount. Subsequently, by notice dated 20[th] February, 2017, issuedunder Section 142(1) of the Act, the Assessing Officer called forinformation on secured and unsecured loan deposits and this wasadmittedly prior to the Limited Scrutiny being converted into aComplete Scrutiny by order dated 14[th] December, 2017. The learnedTribunal while holding that such action of the Assessing Officer wasimpermissible referred to the Circular issued by the Circular issued bythe CBDT in Instruction no.5 of 2016, dated 14.7.2016. In the saidCircular/Instruction, it was clarified by the CBDT that in cases underLimited Scrutiny the scrutiny assessment proceedings would initiallybe confined only to issues under Limited Scrutiny and questionnaires,enquiry, investigation etc. would be restricted to such issues. Further,it has been stipulated that only upon conversion of case to a CompleteScrutiny after following the procedure as outlined in the CBDTInstruction, the Assessing Officer may examine the additional issuesbesides the issue(s) involved in Limited Scrutiny. The learned Tribunalfound that the procedure adopted by the Assessing Officer was incomplete derogation to the Instruction issued by the CBDT. Thelearned Tribunal also took note of a decision of the co-ordinate Benchof the Delhi Tribunal in the case of Dev Milk Foods Pvt. Ltd. vs. Addl.CIT in ITA No. 6767/Del/2019, dated 12.06.2020, for the assessmentyear 2015-16. In the said decision, the learned Tribunal had takennote of the CBDT Instruction No.5 of 2016 and held that the procedure adopted by the Assessing Officer was unsustainable. Thelearned Tribunal in the case on hand after taking note of the decisionin Dev Milk Foods Pvt. Ltd. held that the CBDT has clarified that inLimited Scrutiny, the scrutiny assessment proceedings would initiallybe confined only to the issues and questionnaires, enquiry andinvestigation would be restricted to such issue under the LimitedScrutiny. Thus, the learned Tribunal dismissed the appeal filed bythe assessee. Mr. Kundalia, learned standing counsel appearing for theappellant, places reliance on the decision of the Hon’ble SupremeCourt in Venkataswamappa vs. Special Duty Commissioner (Revenue),(1997) 9 SCC 128. The said decision arose out of the case under theprovisions of the Land Acquisition Act, 1894. The question waswhether publication of the notification under Section 4(1) of the saidAct in the local newspaper earlier to the actual publication in theGazette was an illegality or mere irregularity. After taking note of theobject behind the procedure regarding publication of the notificationas mentioned in Section 4(1) of the Land Acquisition Act, the Hon’bleSupreme Court held that it is only mere irregularity and does notvitiate the validity of the notification published in the GovernmentGazette. In our view, the said decision can be of no assistance to the caseof the revenue, more particularly, having regard to the scheme ofassessment as provided for under Section 143 of the Income Tax Act, 1961. Reliance was also placed on the decision of the Hon’bleSupreme Court in Commissioner of Wealth Tax, Meerut vs. SharvanKumar Swarup & Sons, (1994) 6 SCC 623. In the said case, thequestion was whether the Rule 1-BB of the Wealth Tax Rule 1957 is aprovision which affects or alter the substantive rights or is merely aprocedural. In our view, the said decision can be of no assistance to the caseof the revenue, more particularly, having regard to the scheme ofassessment as provided for under Section 143 of the Income Tax Act, 1961. Reliance was also placed on the decision of the Hon’bleSupreme Court in Commissioner of Wealth Tax, Meerut vs. SharvanKumar Swarup & Sons, (1994) 6 SCC 623. In the said case, thequestion was whether the Rule 1-BB of the Wealth Tax Rule 1957 is aprovision which affects or alter the substantive rights or is merely aprocedural. While considering the said issue, the Hon’ble Supreme Courtnoted the distinction between the statutes affecting rights and thoseaffecting mere procedure. The revenue cannot rely upon the saiddecision as the scheme of assessment as provided under Section 143of the Act is a complete code by itself and the circumstances underwhich the power under sub-section (2) of Section 143 could beinvoked has been clearly spelt out and on a reading of sub-section (3)of Section 143, it is evidently clear that on the day specified in thenotice issued under sub-section (2), or as soon afterwards as may be,after hearing such evidence as the assessee may produce and suchother evidence as the Assessing Officer may require on specifiedpoints, and after taking into account all relevant material which hehas gathered, the Assessing Officer shall, by an order in writing, makean assessment of the total income or loss of the assessee, anddetermine the sum payable by him or refund of any amount due tohim on the basis of such assessment. Therefore, the question of part of the provision being proceduralis an incorrect interpretation of the scheme provided under Section 143 of the Act. Further, as noted above, the CIT(A) has examined themerits of the matter and after taking note of the facts granted relief tothe assessee to the extent indicated therein. Thus, for the above reasons, we find that the revenue has notmade out any case for interference of the order passed by theTribunal. Accordingly, the appeal fails and is dismissed. The substantial questions of law are answered against therevenue. The application for stay being GA 1 of 2023 is also dismissed. (T.S. SIVAGNANAM) CHIEF JUSTICE (HIRANMAY BHATTACHARYYA, J.)