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Income Tax Appellate Tribunal, JAIPUR BENCH ‘A’, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 649/JP/2019
This appeal by the assessee is directed against the revision order dated 18th March, 2009 passed by the ld. Principal CIT-2, Jaipur under section 263 of the IT Act for the assessment year 2014-15. The assessee has raised the following grounds of appeal :-
“ 1. In the facts and circumstances of the case and in law the ld. PCIT has erred in law and on facts in issuing notice and passing the order u/s 263, more so when the assessment order passed under section 143(3) is neither erroneous nor prejudicial to the interest of Revenue.
2. In the facts and circumstances of the case and in law, the ld. PCIT has erred in making addition of Rs. 8,36,000/- by disallowing u/s 40A(3) of the Income Tax Act. The action of the ld. PCIT is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the disallowance made.
3. In the facts and circumstances of the case and in law, the ld. PCIT has erred in making addition of rs. 100000/- by disallowing deductions u/s 80C of the Income Tax Act. The action of the ld. PCIT is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the disallowance made.
4. The assessee craves its right to add, amend or alter any of the grounds on or before the hearing.”
The assessment in the case of the assessee was completed under section 143(3) of the IT Act on 26.12.2016 at the total income of Rs. 59,33,000/- as against the returned income of Rs. 6,64,126/-. Subsequently, the ld. PCIT on examination of the assessment record noted that the assessee derives income from business of real estate and paid cash payment of Rs. 6,82,000/- for purchase of plot No. A-123, Sitaram Vihar Vistar, Village Ramsinghpura, Tehsil Sanganer, Jaipur. Similarly, in other case the assessee has paid the purchase consideration in cash. Accordingly the cash payment made by the assessee towards purchase of stock-in-trade during the year under consideration was found to be hit by the provisions of section 40A(3) of the IT Act but the AO has not invoked the said provision. The ld. PCIT also noticed that the deduction under section 80C to the extent of Rs. 1,00,000/- for tuition fee paid for self was claimed in the return of income and was allowed by the AO. Accordingly the ld. PCIT issued show cause notice under section 263 of the IT Act on 15.02.2019 requiring the assessee to explain as to why the assessment order erroneous and prejudicial to the interests of the revenue and consequently set aside.
In response to the show cause notice, the assessee filed the reply. The ld. PCIT was not convinced with the reply filed by the assessee as well as the argument advanced during the hearing and consequently the assessment order passed under section 143(3) was held as erroneous in so far as prejudicial to the interests of the revenue as it was passed in routine manner without conducting any enquiry about the applicability of section 40A(3) as well as without verification of deduction under section 80C of the IT Act. Hence the assessment order passed by the AO was set aside with the direction to the AO to redo afresh after examination of the applicability of section 40A(3) as well as the claim of deduction under section 80C.
Ground no. 1 is regarding validity of exercise of jurisdiction under section 263.
Before us, the ld. A/R of the assessee has submitted that while passing the assessment order under section 143(3) of the IT Act, the AO has gone through the books of account, sales and purchases made by the assessee and also examined the relevant record. Therefore, the AO has applied his mind on all the transactions and after his full satisfaction, the AO passed the assessment order. Once the AO was satisfied with the claim and taken a possible view, then the ld. PCIT cannot exercise jurisdiction under section 263 merely on the ground that he did not agree with the view of the AO. In support of his contention, he has relied upon the decision of Hon’ble Supreme Court in case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC). The ld. A/R has also relied upon the decision of Hon’ble Bombay High Court in case of CIT vs. Gabriel India Ltd., 203 ITR 108 (Bombay) and submitted that the Hon’ble High Court has held that the power under section 263 is to be exercised in case of no enquiry and not in case of inadequate or lack of enquiry. He has also relied upon the decision of Hon’ble Supreme Court in case of CIT vs. Max India Ltd., 295 ITR 282 (SC) and submitted that the Hon’ble Supreme Court has held that the phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with the expression “erroneous” order passed by the AO. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. If the AO adopts one of the two courses permissible in law and if it has resulted in loss of revenue or where two views are possible and the AO has taken one view which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the revenue. Thus the ld. A/R has submitted that the ld. PCIT has wrongly and illegally invoked the provisions of section 263 and held that the assessment order is erroneous and prejudicial to the interests of the Revenue.
On the other hand, the ld. D/R has submitted that the AO has not conducted any enquiry on both the issues which were taken up in the revision proceedings. It is a case of complete lack of enquiry on the part of the AO while passing the assessment order. The assessee has not disputed the fact that she has made the payment of purchase consideration in cash in respect of stock-in-trade which is not permissible under section 40A(3) of the Act and, therefore, non-examination of the applicability of the provisions of section 40A(3) on the part of the AO renders the assessment order erroneous in so far as prejudicial to the interests of the Revenue.
The ld. D/R has further contended that the AO has also allowed the claim of deduction under section 80C without verification of the correctness of the claim as the assessee claimed the said deduction in respect of tuition fee paid for herself.
Therefore, it is apparent from the record that the AO has allowed the claim which is not permissible as per the provisions of section 80C and there is a lack of enquiry on the part of the AO. He has supported the impugned order of the ld. PCIT.
We have considered the rival submissions as well as the relevant material on record. The ld. A/R of the assessee has raised various legal contentions against the impugned order and supported the same with the binding precedents. There is no quarrel on the legal aspect of the matter that if the AO has conducted an enquiry and taken one of the possible views on an issue, then the ld. PCIT is not permitted to invoke the provisions of section 263 merely on the ground that he does not agree with the view taken by the AO. The second aspect as raised by the ld. A/R of the assessee is regarding lack of enquiry on the part of the AO. It is also settled proposition of law that if the AO has conducted some enquiry and all relevant records are available on the assessment record, then the case would not fall in the category of complete lack of enquiry rendering the order passed by the AO as erroneous in so far as prejudicial to the interests of the revenue. Thus the contentions raised by the ld. A/R of the assessee on the legal aspects are not in dispute but the fact remains whether the AO has conducted an enquiry on these two issues i.e. applicability of provisions of section 40A(3) as well as allowability of deduction under section 80C of the IT Act. The assessee has not disputed the payment of purchase consideration in cash. Therefore, the provisions of section 40A(3) are clearly applicable subject to the exception as provided under Rule 6DD of the IT Rules. We find that though the AO has passed a very lengthy order running into 43 pages, however, the issue of applicability of section 40A(3) as well as the correctness of the claim of deduction under section 80C were not taken up for verification by the AO. Thus the assessment order is completely silent on these issues and there is nothing on record to suggest that the AO has even raised any query on these two issues. Thus, the case of the assessee falls in the category of complete lack of enquiry on these two issues. Therefore, we do not find any merit or substance in ground no. 1 of the appeal of the assessee. The lack of enquiry on the part of the AO renders the assessment order erroneous in so far as prejudicial to the interests of the revenue. Accordingly, the exercise of jurisdiction under section 263 of the IT Act is valid and proper.
Ground No. 2 is regarding the observation of the ld. PCIT on account of disallowance under section 40A(3) of the IT Act in respect of the payment made in cash of Rs. 8,36,000/-.
The ld. A/R of the assessee has submitted that the case of the assessee is covered under section 44AD of the Act as the turnover of the assessee is Rs. 85 lacs which is not exceeding the limit provided under section 44AD. The ld. A/R further submitted that the assessee has declared profit of Rs. 7.64 lacs which is 8.99% of the turnover. Therefore, even if there is a payment in cash which is hit by the provisions of section 40A(3), once the case of the assessee is covered under section 44AD and assessee has declared more than 8% of profit on the said turnover, then no further disallowance is called for. Alternatively he has contended that the payment in cash was made to the land owners due to business exigencies, therefore, the same is an allowable expenditure. In support of his contention, he has relied upon the decision of the Coordinate Bench of this Tribunal in case of M/s.
A. Daga Royal Arts, Jaipur vs. ITO in and submitted that when the AO has examined the record of the assessee and has not found any discrepancy, then the payment made in cash due to business expediency would not attract the provisions of section 40A(3) of the Act.
On the other hand, the ld. D/R has submitted that the assessee has not filed the return of income under section 44AD of the Act but the income declared in the return of income as per the books of account maintained by the assessee.
Therefore, the assessee cannot take the plea of section 44AD even if the turnover of the assessee is less than the limit provided under the said provision. He has further submitted that the assessee has not raised this issue before the ld. PCIT and further this plea of the assessee is also required to be verified whether the assessee has declared the income which is more than the 8% of the turnover provided under section 44AD of the Act. He has relied upon the impugned order of the ld. PCIT.
We have considered the rival submissions as well as the relevant material on record. In reply to the show cause notice, the assessee has contended that the transactions are done during the year under consideration and were examined by the AO and, therefore, the AO applied his mind while passing the assessment order.
Further, the assessee submitted that the payments were made for purchase of plots and the genuineness of the transactions were not doubted by the AO. Thus the assessee pleaded that once the transaction is genuine, then the provisions of section 40A(3) cannot be applied. Before the Tribunal, the assessee has taken a new plea that the provisions of section 44AD are applicable in the case of the assessee though the assessee has declared the income under the normal provisions of the Act based on the books of account. Once the assessee has filed the return of income declaring the income based on the business results shown in the books of account then the AO is required to examine the correctness of the return of income and claim of the assessee in the context of business results shown as per the books of account. The assessee did not claim the applicability of the provisions of section 44AD either before the AO or before the ld. PCIT. Even otherwise, this plea of the assessee is also required to be verified based on the relevant facts as recorded in the books of account. Therefore, merely because the turnover of the assessee for the year under consideration is less than the limit provided under section 44AD, would not preclude the ld. PCIT to exercise his jurisdiction under section 263 regarding violation of provisions of section 40A(3) of the Act. The payment of cash for purchase of plots of land shown as stock-in-trade is not in dispute, therefore, the explanation furnished by the assessee are required to be examined in the light of the relevant provisions of the Act and Rules. Though the ld. PCIT has observed that the cash payment is not allowable under section 40A(3), however, we direct the AO to verify the explanation of the assessee and then decide the issue of disallowance under section 40A(3) of the Act.
Ground No. 3 is regarding disallowance of deduction under section 80C of the Act.
The ld. A/R of the assessee has submitted that the AO has allowed the claim of deduction under section 80C when he was satisfied with the claim. He has further submitted that even otherwise the assessee has paid a premium of Rs. 1,00,000/- to M/s. Birla Sun Life Insurance. In support of his contention he has filed a copy of the bank account of the assessee reflecting the payment to M/s. Birla Sun Life Insurance. He has also filed a copy of the receipt of the payment of premium of Rs. 1,00,000/- and submitted that the claim of deduction under section 80C is otherwise allowable against the Life Insurance Premium paid by the assessee.
On the other hand, the ld. D/R has submitted that the assessee did not claim the deduction under section 80C regarding the premium paid for life insurance but it was claimed regarding the tuition fee for herself. Even no documentary evidence was produced either before the AO or before the ld. PCIT.
We have considered the rival submissions as well as the relevant material on record. Since the assessee has now filed the receipt of payment of premium towards Life Insurance which was not filed either before the AO or before the ld. PCIT, therefore, we direct the AO to consider the claim of deduction under section 80C after verification of the payment of life insurance premium. Accordingly the impugned order of the ld. PCIT is modified.
In the result, appeal of the assessee is partly allowed.