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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. RAVISH SOOD & Dr. M. L. MEENA
ORDER
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by Commissioner of Income Tax (Appeals)-II, [for short CIT(A)], Jalandhar dated 03.06.2018, which in turn arises from the order passed by the Assessing Officer u/s.154 of the Income Tax Act, 1961 (for short ‘Act’) dated 07.03.2017 for Assessment Year 2013-14.
The assessee has assailed the impugned order on the following grounds of appeal before us.
“1. That the order passed by the Hon’ble CIT(A) dated 03.06.2018 is against the law and facts of the case.
2. That having regard to the facts and circumstances of the case, Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned order u/s 154 and without complying with the mandatory conditions u/s. 154 as envisaged under the Income Tax Act, 1961.
That having regard to the facts and circumstances of the case, Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. Assessing Officer in making disallowance of Rs. 2,47,380/-, on account of bonus paid by invoking provisions u/s 40A(3), without considering the submissions of the assessee and without observing the principles of natural justice.
That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs.2,47,380/- without considering the Audited Balance Sheet which clearly states that there is no amount inadmissible u/s 40A(3), is bad in law and against the facts and circumstances of the case.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
3. Controversy in the present appeal lies in a narrow compass, i.e., as to whether or not the Assessing Officer, vide his order passed u/s.154 of the Act, dated 07.03.2017, was justified in law and on the facts of the case in disallowing u/s. 40A(3) of the Act the assessee’s claim for deduction of bonus paid to the employees? Original assessment in the case of the assessee was framed by the AO vide his order passed u/s. 143(3), dated 03.03.2016 determining her income at Rs.9,45,965/-. Observing, that the assessee had paid bonus of Rs.2,47,380/- in cash exceeding Rs.20,000/- in contravention of Section 40A(3) of the Act, the AO issued a notice u/s. 154 of the Act, dated 16.12.2016, therein calling upon the assessee to explain as to why the aforementioned amount may not be disallowed. In reply, it was the claim of the assessee that no disallowance was called for in her hands u/s.40A(3) of the Act. However, the AO not finding favour with the claim of the assessee, therein, vide his order u/s. 154 of the Act, dated 07.03.2017 made an addition/disallowance u/s.40A(3) of Rs.2,47,380/- to the income that was originally assessed by him vide his order passed u/s.143(3), dated 03.03.2016.
4. Aggrieved, the assessee carried the matter before the CIT(A). However, the CIT(A) not finding any infirmity in the view taken by the AO, therein, upheld his order and dismissed the appeal.
5. The assessee being aggrieved by the order of the CIT(A) has carried the matter before us.
6. At the very outset, it was submitted by the Ld. Authorized Representative (for short “AR”) for the assessee, that as the Assessing Officer had traversed beyond the scope of the jurisdiction that was vested with him u/s.154 of the Act, therefore, the disallowance u/s.40A(3) of Rs.2,47,380/- so made by him could not be sustained and was liable to be struck down. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that as the disallowance of the aforesaid amount in question u/s.40A(3) of the Act was not in the nature of a mistake which was glaring, patent, obvious and apparent from record, but in fact an issue which was clearly debatable, therefore, the same was by no means in the nature of a mistake that was rectifiable u/s.154 of the Act. Backed by his aforesaid contention, it was submitted by the Ld. AR that the order passed by the AO u/s.154 of the Act was not sustainable in the eyes of law and was liable to be vacated.
Per contra, the Ld. Departmental Representative (for short “DR”) relied upon the orders of the lower authorities.
We have heard the Ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record. As is discernible from the orders of the lower authorities, we find that the AO had invoked his powers u/s.154 of the Act for disallowing u/s.40A(3) of the Act the assessee’s claim for deduction of bonus of Rs.2,47,380/- that was stated to have been paid in cash, i.e., in excess of the prescribed limit of Rs.20,000/-. In our considered view, as stated by the AR, and rightly so, the disallowance of an amount u/s.40A(3) by no means can be brought within the realm of a mistake which could be held as being in the nature of a mistake which is glaring, patent, apparent and obvious from record, therein rendering the assessment order passed by him u/s.143(3) of the Act amenable for rectification under section 154 of the Act. As held by the Hon’ble Supreme Court in the case of T.S. Balaram, ITO, Company Circle-IV, Bombay vs. Volkart Brothers and Ors. (1971) 82 ITR 50 (SC), it is only a mistake apparent from the record, i.e., one which is obvious and patent and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions that can be rectified within the meaning of Section 154 of the Act. At this stage, we may herein observe, that though Section 40A(3) contemplates disallowance of certain expenditure which is incurred by an assessee in cash beyond the prescribed limit, however, Rule 6DD of the Income Tax Rules, 1962 carves out a set of exceptions wherein the payments despite having been made in cash beyond the aforesaid prescribed limit are not to be disallowed. In the backdrop of our aforesaid observations, we are of a strong conviction, that no disallowance u/s.40A(3) of the Act, even in a case where the payments had been made by the assessee in cash beyond the prescribed limit could validly be made by invoking the provisions of Section 154 of the Act. In our considered view, as the AO had grossly erred in invoking the provisions of Section 154 of the Act for the purpose of disallowing the aforementioned amount u/s. 40A(3) of the Act, therefore, the order therein passed by him cannot be sustained and is accordingly liable to be vacated. We, thus, not being able to persuade ourselves to subscribe to the view taken by the lower authorities set aside the order passed by the CIT(A) and quash the order passed by the AO u/s.154 of the Act. The Grounds of Appeal Nos.1 to 4 are allowed in terms of our aforesaid observations.
The Ground of appeal No.5 being general is dismissed as not pressed. 9.
Resultantly, the appeal filed by the assessee is allowed in terms of our observations recorded hereinabove. Order pronounced in the open court on 24th December, 2021.