2023 (1) TMI 367 - AT - Income Tax

Condonation of delay in filling the appeal - whether CIT (A) erred by his action as condoned the delay but he has recorded just one line in his order that the delay is not condoned without any speaking order - HELD THAT - The income of the assessee should not be over assessed even there is a mistake of the assessee. As such the legitimate deduction for which the assessee is entitled should be allowed while determining the taxable income. As decided in the case of Vareli textile industry versus 2006 (2) TMI 102 - GUJARAT HIGH COURT as equally well-settled that where a cause is consciously abandoned (as in the present case) the party seeking condonation has to show by cogent evidence sufficient cause in support of its claim of condonation. The onus is greater. One of the propositions of settled legal position is to ensure that a meritorious case is not thrown out on the ground of limitation. Therefore, it is necessary to examine, at least prima facie, whether the assessee has or has not a case on merits. We are of the view that it is a fit case where the delay in filing the appeal by the assessee before the learned CIT-A deserves to be condoned. Accordingly, we proceed to decide the issue raised by the assessee on merit. Disallowance on account of cash payment u/s 40A(3) - Return of the assessee for the year under consideration was selected for limited scrutiny to verify the genuineness of cash in hand - Conversion of Limited Scrutiny into Complete Scrutiny - HELD THAT - On perusal of notice under section 143(2) of the Act, we note that the notice for Limited Scrutiny was issued for examination of cash in hand . There was no mentioning/whisper about examination of the fact with regard to cash payment in violation of section 40A(3) of the Act. Further, there no whisper in the order of the authority below that the limited scrutiny was converted into complete scrutiny. DR before us has also not brought anything on record justifying that the Limited Scrutiny was converted by the Assessing Officer under normal scrutiny after obtaining necessary approval from the appropriate authority. Accordingly, we hold that the AO has exceeded his jurisdiction by making disallowances of cash payment as per the provision of section 40A(3) of the Act. The right course of action for the AO was to take the approval from the competent authority for expanding the scope of Limited Scrutiny to the regular assessment but he failed to do so. Thus, in our considered view inaction of the AO should not cause any inconvenience to the assessee. In holding so we draw support and guidance from the case of Rajesh Jain 2005 (4) TMI 629 - ITAT CHANDIGARH . We are not convinced with the finding of the authorities below. As such the entire issue should have been limited to the extent of the dispute raised in the notice issued under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus, we hold the addition made by the AO without having valid jurisdiction cannot be sustained. - Assessee appeal allowed.

Summary

Issues Involved:
1. Whether the delay in filing the appeal by the assessee can be condoned.
2. Whether the disallowance of Rs. 7,54,700/- under Section 40A(3) of the Income Tax Act, 1961, was justified.

Issue-Wise Detailed Analysis:

1. Delay in Filing the Appeal:

The first issue raised by the assessee was regarding the delay in filing the appeal, which the learned CIT(A) refused to condone. The assessee's appeal was delayed by 556 days. The learned CIT(A) decided the issue on merit despite stating that the delay was not condoned. The Tribunal observed that if the appeal was not maintainable due to the delay, it should have been dismissed without considering the merits. The Tribunal noted that the learned CIT(A) implicitly condoned the delay by addressing the merits but did not provide a detailed order for the delay. Citing the Hon'ble Gujarat High Court's judgment in S.R. Koshti Vs. CIT, the Tribunal emphasized that legitimate deductions should be allowed even if there is a mistake by the assessee. The Tribunal concluded that the delay in filing the appeal should be condoned and proceeded to decide the issue on merits.

2. Disallowance under Section 40A(3):

The second issue involved the confirmation of disallowance of Rs. 7,54,700/- by the learned CIT(A) under Section 40A(3) due to cash payments exceeding Rs. 20,000/- in a day. The assessee, engaged in trading wheat and other allied businesses, made cash payments to M/s Showman Project, which were disallowed by the AO under Section 40A(3). The assessee argued that the case was selected for limited scrutiny to verify the genuineness of "cash in hand" and that the AO exceeded his jurisdiction by making disallowances under Section 40A(3) without converting the limited scrutiny to regular scrutiny with appropriate approval.

The Tribunal referred to the CBDT instructions which mandate that in cases of limited scrutiny, the AO can only examine the specific issues for which the case was selected unless there is approval from higher authorities for a complete scrutiny. In this case, the AO did not obtain such approval. The Tribunal held that the AO exceeded his jurisdiction by making disallowances under Section 40A(3) without converting the limited scrutiny to complete scrutiny. Consequently, the disallowance made by the AO was not sustainable.

Conclusion:

The Tribunal condoned the delay in filing the appeal and allowed the appeal on merits, holding that the AO exceeded his jurisdiction by making disallowances under Section 40A(3) without converting the limited scrutiny into complete scrutiny. The appeal filed by the assessee was allowed.