2019 (9) TMI 1005 - AT - Income Tax

Revision u/s 263 - violation of provisions of section 40A(3) - HELD THAT - AO has made enquiries on the cash payments made by the assessee and after eliciting the explanation of the assessee and after going through the records had partly accepted the assessee s contention, therefore, the AO s action cannot be termed as erroneous for want of enquiry. On this issue since we have made a finding that this was not a case of lack of enquiry on the part of the AO, the Ld. Pr. CIT if he wanted to interfere ought to have himself enquired on the facts of this issue and should have recorded a factual finding to upset the decision of the AO to allow as allowable expenditure and thereby not hit by sec. 40A(3) of the Act. Since in this case, the Ld. Pr. CIT has not been able to upset the finding of the AO who has made enquiry, the action of the AO cannot be termed on this issue as a case of no enquiry . Thus the action of the AO on this issue cannot be termed as erroneous for lack of enquiry. The AO s action is based on a plausible view in the light of the judicial precedents cited before us. Therefore, the action of AO does not satisfy the twin conditions for invoking revisional jurisdiction u/s. 263 in the light of the ratio of the decision of Hon ble Supreme Court in Malabar Industrial Co. Ltd 2000 (2) TMI 10 - SUPREME COURT . The view of the AO in the light of the facts discussed at any rate cannot be termed as unsustainable in law and, therefore, on this issue the AO s action cannot be faulted with for invocation of sec. 263 jurisdiction by Pr. CIT. Excess claim under the head purchase of paddy - HELD THAT - Assessment order framed by the AO is neither erroneous nor prejudicial to the interest of the revenue and therefore, the Ld. Pr. CIT s impugned action of interfering with the order of AO invoking the revisional jurisdiction under section 263 of the Act is without jurisdiction and, therefore, null in the eyes of law and so it is quashed. Appeal of assessee is allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of expenses under Section 40A(3) of the Income Tax Act.
3. Invocation of revisionary jurisdiction under Section 263 by the Principal Commissioner of Income Tax (Pr. CIT).
4. Excess claim under the head purchase of paddy.

Issue-wise Detailed Analysis:

1. Condonation of Delay:
The appeal was time-barred by 50 days. The assessee filed a condonation of delay petition, citing that the working partner was bedridden and unable to instruct the counsel. A medical certificate was provided. The Tribunal found the delay unintentional and condoned it, admitting the appeal for hearing.

2. Disallowance of Expenses under Section 40A(3):
The assessee, engaged in running a rice mill, disclosed a taxable income of ?17,64,000/-. The AO noted that most payments for paddy purchases were made in cash, exceeding ?20,000/- in a single day, and disallowed ?14,08,50,854/- under Section 40A(3). The assessee argued that the payments were made to suppliers who collected paddy from farmers, insisting on cash due to lack of banking facilities. The AO partially accepted the explanation, disallowing only the amount paid to suppliers, not directly to farmers.

3. Invocation of Revisionary Jurisdiction under Section 263:
The Pr. CIT issued a show-cause notice, expressing the desire to revise the AO's order for not disallowing the entire cash payment of ?26,75,14,300/-. The Pr. CIT found the AO's enquiry inadequate, resulting in under-assessment. The assessee contended that the AO made a proper enquiry and partially accepted their explanation, which should not be termed erroneous. The Tribunal held that the AO's action was based on a plausible view, and the Pr. CIT's invocation of Section 263 was without jurisdiction, as the AO's order was neither erroneous nor prejudicial to the interest of the revenue.

4. Excess Claim under the Head Purchase of Paddy:
The Pr. CIT found a discrepancy of ?12,14,512/- in the purchase ledger. The assessee explained that this was due to inadvertently debiting other allowable expenses to the purchase account. The AO accepted this explanation during the assessment, finding no infirmity. The Tribunal noted that the AO had made enquiries and accepted the explanation, and the Pr. CIT's assumption of lack of enquiry was incorrect. The Tribunal held that the AO's order was not erroneous, and the Pr. CIT's action was without jurisdiction.

Conclusion:
The Tribunal quashed the Pr. CIT's order under Section 263, holding that the AO's order was neither erroneous nor prejudicial to the interest of the revenue. The appeal of the assessee was allowed.