2014 (11) TMI 547 - AT - Income Tax

Condonation of delay delay of 50 days - Chartered Account filed an affidavit stating the reasons for delay Held that - The assessees are laymen and not acquainted with the intricacies of Income-tax Law and the delay was caused due to misunderstanding of CIT order by the Chartered Accountant in Kewalkumar Jain vs. ACIT 2014 (11) TMI 526 - ITAT PUNE - assessee misconstrued law by assuming that since matter was remitted back to AO, he could agitate consequential order to be passed by AO in appeal proceedings before CIT(A) only - Thus assessee entertained a belief that as original assessment had been set aside, there was no necessity of challenging revisional order of Commissioner before Tribunal the delay is condoned and appeal admitted for adjudication on merit. Validity of revision order u/s 263 Disallowance u/s 40A(3) in respect of cash payments Held that - The AO was fully aware of the survey operations and the income was estimated on the basis of loose slips and purchase and sale documents during the post survey proceedings itself - The estimate was not based on any books of account but the income was admitted on the basis of loose slips and the assessees paid taxes as agreed - The AO accepted the incomes returned as the assessee had admitted the incomes and declared in the sworn statements during the post survey proceedings - The AO had fully applied his mind and accepted the incomes returned and passed orders u/s 143(3) of the Act - the CIT is no justified in assuming jurisdiction u/s 263 - invoking the provisions of section 40A(3) on advances is not correct under the facts of the case. The CIT came to a wrong conclusion that the assessees had violated the provisions of s. 40A(3) - the AO asked for cash-flow statement and on the basis of such statements the assessees admitted income - Since the issue of purchases did not arise in the course of survey nor anything is identified that the assessees had paid any amount in violation of provisions of s. 40A(3), the AO did not invoke the provisions of that section and accepted the admitted incomes - the CIT without any basis on record invoked the provisions of s. 40A(3) and that too included certain amounts which cannot be disallowed u/s. 40A(3) - the orders of the CIT per se are not correct on facts - the AO applied his mind to the facts of the cases and the assessees made sworn statements and admitted the income - Taxes thereon were also paid - the CIT is not correct in assuming jurisdiction u/s. 263 of the Act thus, the order of the CIT(A) passed u/s. 263 of the Act is set aside Decided in favour of assessee.

Issues Involved:
1. Condonation of delay in filing the appeals.
2. Validity of the CIT's order under section 263 of the Income-tax Act.
3. Application of section 40A(3) to cash payments.
4. Treatment of advances and purchases in the context of section 40A(3).

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeals:
The appeals were delayed by 50 days. The Chartered Accountant filed an affidavit explaining the delay, citing a misunderstanding of the CIT's order under section 263. The Tribunal considered the precedent set by the Pune Bench in the case of Kewalkumar Jain vs. ACIT, where a similar delay due to misconstruction of the law was condoned. The Tribunal found the explanation genuine and not mala fide, hence condoned the delay and admitted the appeals for adjudication on merit.

2. Validity of the CIT's Order under Section 263:
The CIT assumed jurisdiction under section 263, directing the Assessing Officer (AO) to apply the provisions of section 40A(3) to certain cash payments. The Tribunal noted that the AO had completed the assessment under section 143(3) based on the income declared by the assessees during post-survey proceedings, which was derived from loose slips and cash-flow statements. The Tribunal held that the AO had fully applied his mind and accepted the incomes returned by the assessees. The CIT's assumption of jurisdiction under section 263 was deemed unjustified as the AO's order was not erroneous or prejudicial to the interests of the Revenue.

3. Application of Section 40A(3) to Cash Payments:
The CIT directed disallowance of cash payments under section 40A(3), including repayments of advances. The Tribunal observed that the CIT did not examine whether the amounts were indeed purchases or advances. The Tribunal highlighted that section 40A(3) pertains to disallowance of cash payments exceeding a certain limit, but the CIT included amounts that were not purchases. The Tribunal found that the AO did not invoke section 40A(3) during the assessment as there was no evidence of violation, and the income was estimated based on loose slips and cash-flow statements post-survey.

4. Treatment of Advances and Purchases in the Context of Section 40A(3):
The Tribunal noted that the CIT included advances in the list of disallowances under section 40A(3), which was incorrect. Advances are not subject to disallowance under this section. The Tribunal emphasized that the AO had accepted the income declared by the assessees during the survey, which included both purchases and advances. The Tribunal concluded that the CIT's direction to disallow the entire amount was erroneous as it included amounts that were not purchases and were not examined in detail.

Conclusion:
The Tribunal set aside the orders of the CIT passed under section 263 and upheld the order of the AO. The Tribunal found that the AO had applied his mind to the facts of the cases, and the income was admitted and taxes paid based on the sworn statements during the post-survey proceedings. The ground taken by the assessees in all the appeals was answered in their favor, and the appeals were allowed.

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