2020 (10) TMI 1015 - AT - Income Tax

Revision u/s 263 - Assessment u/s 153A - As per CIT no enquiry/verification was conducted by Ld.AO, in respect of expenditure incurred in cash and applicability of provisions of section 40A(3) - HELD THAT - Applicability of principle of merger do not arise since Ld.AO had not considered the issue of expenditure made in cash by assessee and applicability of section 40A (3) of the Act u/s 143(3) r.w.s 153A. On an appeal by assessee before Ld.CIT (A), we note that assessee challenged only disallowances made by Ld.AO, under the head capital gains. CIT on perusal of assessment records held that Ld.AO, did not make any inquiries or called for any information/evidences in respect of such huge expenditure in cash, and that assessment order; do not reveal that, Ld.AO considered all aspects of the case, including huge expenditure incurred by assessee in cash. Even before us, Ld.AR could not establish the fact that, any query was raised and/or enquiries conducted by way of documentary evidences on this aspect. AO failed to apply his mind to this issue and therefore order passed by him was erroneous in sofar as it was prejudicial to the interests of the revenue. We therefore do not find any infirmity in the order passed by Pr.CIT and the same is upheld. - Decided against assessee.

Summary

Issues Involved:
1. Validity of the order passed under Section 263 of the Income Tax Act, 1961.
2. Condonation of delay in filing the appeal.
3. Applicability of Explanation 2 to Section 263(1) of the Income Tax Act, 1961.
4. Examination of payments made in cash and applicability of Section 40A(3) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Order Passed Under Section 263 of the Income Tax Act, 1961:
The assessee challenged the order passed by the Principal Commissioner of Income Tax (Central) under Section 263, arguing that the assessment order dated 29/12/2016 was not erroneous or prejudicial to the interest of revenue. The Tribunal upheld the Principal Commissioner's order, stating that the Assessing Officer (AO) failed to make necessary inquiries regarding cash payments for land purchases, which prima facie attracted the provisions of Section 40A(3). The Tribunal cited the Hon'ble Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which stated that an order is erroneous if it is passed without proper inquiry or verification.

2. Condonation of Delay in Filing the Appeal:
The assessee filed the appeal with a delay of 13 days, citing the reason that the delay was caused due to the assessee being busy with getting admission to an MBBS course. The Tribunal condoned the delay, referring to the Hon'ble Supreme Court's decision in Collector, Land Acquisition vs. Mst. Katji & Ors, which emphasized a liberal, pragmatic, justice-oriented approach in considering applications for condonation of delay.

3. Applicability of Explanation 2 to Section 263(1) of the Income Tax Act, 1961:
The assessee argued that Explanation 2 to Section 263(1), which deems an order erroneous if passed without making necessary inquiries, was applicable only from 01/06/2015 and thus not relevant to the assessment years under consideration (2011-12 to 2014-15). The Tribunal dismissed this argument, stating that Explanation 2 is clarificatory in nature and applicable to all assessments, as it merely specifies circumstances under which the Principal Commissioner can invoke Section 263.

4. Examination of Payments Made in Cash and Applicability of Section 40A(3) of the Income Tax Act, 1961:
The Principal Commissioner noted that the AO did not examine the cash payments made by the assessee for land purchases, which should have been scrutinized under Section 40A(3). The assessee contended that these payments were made on banking holidays or due to business expediency and thus should not attract disallowance under Section 40A(3). The Tribunal held that the AO's failure to examine these payments rendered the assessment order erroneous and prejudicial to the interest of revenue. The Tribunal emphasized that the AO must collect facts, give the assessee an opportunity to explain, and apply the correct legal provisions.

Conclusion:
The Tribunal dismissed the appeals for the assessment years 2011-12 to 2014-15, upholding the Principal Commissioner's order under Section 263. The Tribunal found that the AO's failure to make necessary inquiries regarding cash payments made the assessment orders erroneous and prejudicial to the interest of revenue. The Tribunal also condoned the delay in filing the appeals and clarified the applicability of Explanation 2 to Section 263(1).