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2023 (6) TMI 661 - AT - Income TaxRevision u/s 263 - Cash payments towards purchase of capital goods - Violation of the provisions of section 40A(3) - HELD THAT - The provisions of section 40A(3) of the Act will not apply to repayment of loans or payment towards the purchase price of capital assets such as, plant and machinery not for resale. In light of the Circular No. 34 dated 05.05.1970 issued by the CBDT though the ld. PCIT in his order mentioned that he has perused the record, ledger account filed during the assessment proceedings, but had he appreciated this ledger account in true perspective, he would have come to know that all the payments have been made for purchase of capital assets on which subsequently, depreciation was claimed as is evident from the depreciation chart. PCIT himself could have examined the impugned transactions and if he had done so, he would have come to know that the payments have been made for purchase of capital goods and disallowance could not have been made u/s 40A(3) of the Act as per the CBDT Circular - Thus we set aside the order of the PCIT and restore that of the AO framed u/s 143(3) of the Act. Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act, 1961. 2. Erroneous and prejudicial assessment order. 3. Examination of cash payments under Section 40A(3) of the Act. 4. Application of CBDT Circular No. 34 dated 05.05.1970. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 263 of the Income-tax Act, 1961: The primary grievance of the assessee was that the Principal Commissioner of Income Tax (PCIT) erred in assuming jurisdiction under Section 263 of the Act. The PCIT issued a show cause notice based on the assessment order dated 14.12.2017, which was framed under Section 143(3) of the Act. The PCIT believed that the assessment order was erroneous and prejudicial to the interest of the Revenue due to non-examination of certain cash payments. 2. Erroneous and prejudicial assessment order: The PCIT held that the assessment order was erroneous as it did not consider the cash payments made by the assessee, which were in violation of Section 40A(3) of the Act. The PCIT argued that the Assessing Officer (AO) failed to make necessary enquiries or verification regarding these payments, thus making the order prejudicial to the interest of the Revenue. The PCIT set aside the assessment order and directed the AO to verify the information of cash payments and pass a consequential order. 3. Examination of cash payments under Section 40A(3) of the Act: The PCIT's show cause notice highlighted cash payments totaling Rs. 11,65,000 made by the assessee, which were not added back to the taxable income as required under Section 40A(3). This section disallows deductions for expenses exceeding Rs. 35,000 made otherwise than by an account payee cheque/draft. The PCIT asserted that these payments were not scrutinized by the AO, rendering the assessment order erroneous. 4. Application of CBDT Circular No. 34 dated 05.05.1970: The Tribunal noted that the PCIT did not consider the CBDT Circular No. 34/1970, which clarifies that Section 40A(3) does not apply to payments for the purchase of capital assets like plant and machinery. The Tribunal observed that the payments in question were for capital assets on which depreciation was subsequently claimed. The Tribunal cited the Delhi High Court's judgment in DG Housing Project and Sunbeam Auto Ltd., emphasizing that an order cannot be termed erroneous merely due to inadequate inquiry if some inquiry was indeed conducted. Conclusion: The Tribunal concluded that the PCIT should have examined the transactions himself rather than remanding the matter to the AO. The Tribunal set aside the PCIT's order dated 30.03.2021 and restored the AO's assessment order framed under Section 143(3). The appeal of the assessee was allowed. Judgment Pronouncement: The order was pronounced in the open court on 16.11.2022.
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