2018 (1) TMI 180 - AT - Income Tax

Revision u/s 263 - disallowance u/s 40A(3) - Held that - On verification of the cash book and ledgers of the assessee, the ld AO had disallowance u/s 40A(3) of the Act for making payments exceeding ₹ 20,000/- otherwise than by an account payee cheque or account payee bank draft. This has been done by the ld AO after verifying the transactions in all the parties account as could be evident from the list furnished in the assessment order by him. Hence the entire aspect of purchases had been duly verified by the ld AO from all angles and the ld AO had taken one of the plausible views on the said issue. Admittedly, the assessee had challenged the said disallowance u/s 40A(3) of the Act before the ld CITA which is pending. We hold that the very same issue cannot be the subject matter of revision proceedings u/s 263 of the Act looking the same from different perspective. This in our considered opinion, only tantamounts to ld CIT trying to substitute his own opinion, in the opinion already framed by the ld AO, which is not permissible u/s 263 of the Act. Moreover, we find that the ld CIT had not brought on record how the order passed by the ld AO was erroneous. He had only directed the ld AO to make further enquiries by expanding its scope, to find out whether error had crept in in the earlier order. This, in our considered opinion, is not permissible in the revisionary proceedings u/s 263 of the Act by the ld CIT. - Decided in favour of assessee

Issues Involved:
1. Justification for invoking revisionary jurisdiction under Section 263 of the Income Tax Act.
2. Examination of cash payments exceeding ?20,000 under Section 40A(3) of the Act.
3. Discrepancies in replies to notices issued under Section 133(6) of the Act.
4. Differences in purchase figures as per profit and loss account and party list.
5. Interest-free advances to partners and their financing from sundry creditors.
6. Whether the issue of disallowance under Section 40A(3) can be the subject of revision when it is pending appeal.

Detailed Analysis:

1. Justification for Invoking Revisionary Jurisdiction under Section 263:
The only issue to be decided in this appeal is whether the CIT was justified in invoking revisionary jurisdiction under Section 263 of the Act. The assessee argued that the AO had already conducted thorough enquiries on the purchases and sundry creditors during the assessment proceedings, and thus, the order could not be construed as erroneous. The CIT, however, believed that the AO failed to make complete and full enquiries, particularly at the micro-level, which warranted further examination.

2. Examination of Cash Payments Exceeding ?20,000 under Section 40A(3):
The AO observed that the assessee had made cash payments exceeding ?20,000 on a single day, contravening Section 40A(3) of the Act, and disallowed ?1,44,52,154. The CIT directed the AO to re-examine these transactions at the micro-level to ensure compliance with Section 40A(3). The assessee contended that this issue was already under appeal and could not be revisited under Section 263.

3. Discrepancies in Replies to Notices Issued under Section 133(6):
The CIT noted that in 5 cases, no replies were received to notices issued under Section 133(6), and in 3 cases, there were discrepancies in the closing balances. The assessee provided explanations and reconciliations for these discrepancies, but the CIT found them insufficient and directed the AO to re-examine these issues.

4. Differences in Purchase Figures:
The CIT observed differences in purchase figures between the profit and loss account (?4,66,29,230) and the party list (?4,73,29,301). The assessee explained that the difference was due to TCS amount and credit notes, which were not considered in the profit and loss account. The CIT directed the AO to re-examine these discrepancies with supporting evidence.

5. Interest-Free Advances to Partners:
The CIT observed that the assessee had given interest-free advances of ?1,46,06,233 to its partners, financed from the sundry creditors. The CIT believed that if the creditors were genuine, the assessee would have repaid them instead of advancing funds to partners. The CIT directed the AO to examine the genuineness and existence of these creditors.

6. Issue of Disallowance under Section 40A(3) Pending Appeal:
The assessee argued that the disallowance under Section 40A(3) was already under appeal and could not be revisited under Section 263. The Tribunal agreed, stating that the same issue could not be the subject of revision proceedings when it was already under appeal. The Tribunal also noted that the CIT had not brought on record how the order passed by the AO was erroneous and had only directed further enquiries.

Conclusion:
The Tribunal held that the CIT erred in invoking revisionary jurisdiction under Section 263, as the AO had already made adequate enquiries during the assessment proceedings. The Tribunal quashed the CIT's order, stating that the action was not in accordance with law. The appeal of the assessee was allowed.

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