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2015 (4) TMI 587 - AT - Income TaxRevision u/s 263 - disallowance under section 40A(2)(b) and section 40A(3) - Held that - A perusal of the correspondence relied upon by the Ld. Counsel reveals that the AO has not applied his mind on this aspect of the matter. A perusal of letter dated 13.10.11 placed on the paper book at Sl. No.G reveals that the AO had sought details of retiring partners Shri Ramnivas Ramratan Gupta and Shri Nikhil Ramnivas Gupta along with return of income, capital account and balance sheet of last three years. However, the said details had not been submitted by the assessee while replying to the said letter vide letter dated 18.10.11, copy of which has been placed at Sl. No. I of the paper book. Moreover, as observed above, we find that the issue relating to the applicability of section 40A has not been examined by the AO. There was sufficient material available on the file which was enough for the Ld. CIT to form the opinion that the AO had not applied his mind on this aspect of the matter. Hence, we do not find any infirmity in the order of the Ld. CIT while invoking provisions of section 263 on the issue of the application of provisions of section 40A(1) and (2). So far as the contention of the assessee regarding the application of provisions of section 40A(3) is concerned, we find that the said issue has also not been examined by the AO. The Ld. CIT has not made any addition but has only set aside the order of the AO on the above said two issues for examination afresh after giving opportunity of hearing to the assessee. Hence, the assessee will be at liberty to present its case before the AO.- Decided against assessee.
Issues Involved:
1. Disallowance under section 40A(2)(b) of the Income Tax Act. 2. Disallowance under section 40A(3) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance under section 40A(2)(b) of the Income Tax Act: The appeal was filed by the assessee against the order of the Commissioner of Income Tax (CIT) dated 27.03.2014 for the assessment year 2009-10. The CIT set aside the assessment order dated 26.12.11 under section 143(3) of the Income Tax Act to the extent of disallowance under section 40A(2)(b) and section 40A(3), directing the Assessing Officer (AO) to reassess these issues. The CIT observed that the assessee firm was reconstituted on 09.06.08, replacing two partners with Indorigin Electric Ltd. The firm purchased land from the erstwhile partners, making payments exceeding market rates. These partners were covered under section 40A(2)(b) as related persons. The tax audit report disclosed such transactions as 'nil'. Payments were made to the partners or through their constituted attorney before the reconstitution date, falling under section 40A(2)(b). The CIT noted that the AO did not consider this aspect during the assessment proceedings. The assessee contended that the land was purchased from erstwhile partners, and the AO had raised queries on this issue, which were properly addressed. The partnership deed was reconstituted on 09.06.08, effective from 01.04.08. The original agreement for land purchase was on 02.06.06 for Rs. 1,05,00,000/-, with no payment made until the reconstitution. The consideration was renegotiated to Rs. 5,25,00,000/- and paid after the reconstitution, thus, section 40A(2)(a) read with section 40A(2)(b) was not applicable. The tribunal found that the sale deed executed on 11.06.08 was in pursuance of the agreement dated 02.06.06, with the original consideration of Rs. 1,05,00,000/- increased to Rs. 5,25,00,000/-. The payment was made through cheques dated before the reconstitution. The tribunal held that the CIT's opinion that the assessment order was erroneous and prejudicial to the Revenue's interest was justified as the AO did not consider the applicability of section 40A. 2. Disallowance under section 40A(3) of the Income Tax Act: The CIT observed that the assessee made payments of Rs. 7,21,12,077/- through general entries to M/s. Shree Bal Properties & Finance Pvt. Ltd., which were not made through banking channels, violating section 40A(3). The assessee argued that the amount was shown as receivables for land improvements and not actual payments, thus, section 40A(3) was not applicable. The tribunal noted that the AO did not examine this issue. The CIT set aside the assessment order for fresh examination of these issues, allowing the assessee to present its case before the AO. Conclusion: The tribunal dismissed the appeal, upholding the CIT's order to reassess the issues under sections 40A(2)(b) and 40A(3). The tribunal emphasized that the AO should decide these issues afresh on merits, without being influenced by their observations, which were restricted to the validity of invoking section 263 by the CIT.
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