SHRI JITENDRA P.VAGHELA,,AHMEDABAD vs. THE PR. CIT-3,, AHMEDABAD

(Applicant) (Respondent) Assessee by : Shri Jaimin Shah, A.R Revenue by : Ms Rita Dokania, CIT.D.R सुनवाई क� तार�ख/Date of Hearing : 22/07/2019 घोषणा क� तार�ख /Date of Pronouncement: 14/10/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the Assessee against the order of the Principal Commissioner of Income Tax-3, Ahmedabad [Ld.CIT in short], dated 23/02/2015 arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (here-in- after referred to as "the Act") relevant to Assessment Year (AY) 2008-09.

The assessee has raised the following grounds of appeal:

2. That the order passed by learned CIT-3 is not erroneous and.thereby it is not prejudicial to the interest of revenue.

3. That the learned CIT-3 has not granted an opportunity to the appellant before passing order U/s 263 of the l.TAct 1961 and therefore it deserves to be cancelled. 4. That the power U/s 263 may not be invoked to correct a mere error of an A.O. based upon an incorrect assumption of facts. 5. On facts and circumstances of the case of the appellant, the order passed by learned A.O. is not erroneous, even the reply dated 2.1.2015 filed by the appellant have not been considered before passing order U/s 263 of the l.T.Act 1961 on the ground only the order requires to be cancelled. 6. That the order passed by learned A.O. U/s 143(3) r.w.s. 147 after collecting information, proper verification of same and thereafter giving show cause notice and considering submissions of the appellant and making agreed to the appellant and therefore assessment order is not erroneous and prejudicial to the interest of revenue and hence order passed by the CIT-3 deserves to be cancelled. 7. Your appellant craves leave to add, to alter to amend any of the grounds till the appeal is finally heard and decided.

The only grievance of the assessee is that the learned CIT erred in holding the order of the AO passed under section 143(3) of the Act dated 22nd Mar- 2012 as erroneous in sofar prejudicial to the interest of the revenue under section 263 of the Act.

2.1 After that, the learned CIT under section 263 of the Act found the assessment order framed by the AO as erroneous insofar prejudicial to the interest of revenue by observing that the assessee has made the payment in cash amounting to Rs. 1,34,075/- violating the provisions of section 40A(3) of the Act. But the AO has not made the disallowance of such cash payment in the assessment proceedings framed under section 143(3)/147 of the Act vide order dated 22nd March 2012. Accordingly, the learned CIT issued a show cause notice to the assessee vide letter dated 30th Jan, 2014.

2.2 The assessee in response to the show cause notice has inter-alia submitted that it has claimed the Land Puran expenses in its profit and loss account to the tune of Rs. 5,25,085/- being one and half of the total expenses. But the AO in the assessment proceedings has already disallowed the expense of Rs. 9,21,200.00 only. Thus there is reason to disallow part of the expenses again.

2.3 However, the learned CIT disagreed with the submission of the assessee by observing that the share of expenses qua the land puran expenses incurred by the assessee as co-owner, was not verified by the AO during the assessment proceedings. Accordingly, the learned CIT held that the order of the AO as erroneous insofar prejudicial to the interest of Revenue on account of non-verification of the impugned expenses. Accordingly, the learned CIT restored the matter & the file to the AO for fresh assessment after carrying out the necessary verification.

Being aggrieved by the order of the learned CIT, the assessee is in appeal before us.

5.1 However, on perusal of the order of the AO framed under section 147/143(3) of the Act, we note that the AO has carried out the necessary verification of the expenses claimed by the assessee. This fact can be verified from the order of the AO as reproduced under:

From the above, it is clear that the AO has carried out the necessary verification regarding the land Puran expenses claimed by the assessee.

5.2 However we note that there was no discussion whether the assessee has violated the provisions of section 40A(3) of the Act by making cash payment exceeding the specified limit.

In view of the above, we note that the AO has verified the expenses claimed by the assessee regarding the Land Puran expenses but without ensuring the applicability of the provisions of section 40A(3) of the Act. Thus in our considered view the order of the AO can be held as erroneous insofar prejudicial to the interest of revenue to the extent of the expenses incurred by the assessee in violation of the provision section 40A(3) of the Act.

5.3 However, before parting we also note that the assessee brought to the notice to the ld. CIT during the hearing the fact that he has claimed an expense of rupees 5,25,085/- under the land puran expenses but the AO disallowed the same by the amount of Rs. 9,21,200.00 only. As such, there is no finding to the effect of the submission made by the assessee in the order of ld. CIT. In our considered view, the learned CIT was under the obligation to give the finding while rejecting the submission of the assessee about the disallowance of the expenses of Rs. 9,21,200/- though the actual expenses claimed is of Rs. 5,25,085/- only based on cogent reasons in his order but he failed to do so. Thus it is inferred that the assessee claimed only a sum of Rs. 5,25,085.00 in the profit & loss account which was disallowd by the AO for Rs. 9,21,200 during the assessment proceedings.

5.4 Thus, the second condition i.e. the order passed by the AO is erroneous insofar prejudicial to the interest of revenue was not satisfied. Thus the assessment order at the most can be held as erroneous but there cannot be prejudice to the Revenue in the given facts & circumstances. As the assessee has claimed an expense of Rs. 5,25,085/- though the AO has made the disallowance of Rs. 9,21,200 which is much more than the actual expenses incurred by the assessee. Therefore we are of the view there can be an error in the order of the AO but there was no prejudice to the interest of the revenue. Therefore we cannot hold that the order passed by the learned AO was erroneous insofar prejudicial to the interest of revenue.

5.5 After considering the facts in totality as discussed above, we are not inclined to approve the finding of the learned CIT under section 263 of the Act. Accordingly, we hold that the order passed under the provision of section 263 of the Act is not sustainable. Hence the ground of appeal of the assessee is allowed.

Order pronounced in the Court on 14/10/2019 at Ahmedabad.