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Facts
The assessee, engaged in business, declared a total income of Rs. 10,88,280/-. The AO observed cash purchases of liquor amounting to Rs. 3,01,36,682/-, which were disallowed under Section 40A(3) of the Income Tax Act.
Held
The Tribunal condoned the delay in filing the appeal due to the assessee's husband's imprisonment. Considering the circumstances, the matter was restored to the AO for a de novo assessment.
Key Issues
Whether the disallowance under Section 40A(3) was justified without considering business expediency and the assessee's circumstances, and if the appeal delay should be condoned.
Sections Cited
250, 143(3), 40A(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘A’BENCH, LUCKNOW
A.Y. 2016-17 Seema, vs. Income Tax Officer-4(4), 349/276, Suppa House, Bazar Lucknow New Khala, Lucknow-226004 PAN:FTYPS6815K (Appellant) (Respondent) Assessee by: Sh. Saurabh Gupta, C.A. Revenue by: Sh. R.K. Agarwal, CIT DR Date of hearing: 30.07.2025 Date of pronouncement: 29.08.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), NFAC under section 250 of the Income Tax Act, 1961 on 14.09.2023, dismissing the appeal of the assessee, filed against the orders of the ld. AO passed under section 143(3), on 11.12.2018. The grounds of appeal are as under:-
1. That on the facts and circumstances of the case, the Order u/s 250 passed by the learned Commissioner of Income Tax, (Appeals) NFAC was passed without providing proper opportunity to the appellant, which is against the principles of natural justice and therefore, the same is void ab- initio and bad in law.
2. That the learned Commissioner of Income Tax (Appeals) NFAC has erred in law and on facts and circumstances of the case in confirming the disallowance made by the Ld Assessing Officer u/s 40(A)(3) of the Act amounting to Rs 3,01,36,682/- without appreciating the material on record and the facts of the case.
3. That the learned Commissioner of Income Tax (Appeals) NFAC has erred in law and on facts and circumstances of the case in confirming the disallowance under Section 40A(3) without giving due weightage to the totality of the circumstances and considerations of business expediency existing in the present case as contemplated in Section 40A(3) of the Act.
A.Y. 2016-17 Seema 4. That the order passed by the Ld Commissioner of Income Tax (Appeals) NFAC is against merits, circumstances and legal aspects of the case. 5. That the appellant craves leave to add, alter, amend or withdraw any or all the grounds of appeal on or before the hearing.”
2. At the very outset, it is observed that the appeal is delayed by 503 days. The condonation petition has been filed by the assessee pointing out that her spouse, who handled all her financial affairs, was imprisoned and was only released on 26.01.2024 from imprisonment. Since the assessee was totally dependent on her spouse for handling financial matters, she was completely unaware of any such income tax proceedings. Furthermore, the imprisonment of the spouse led to total dissaray in the family causing acute financial stress and this continued even after the release of her spouse from prison. However, once the assessee recovered from the same, then she contacted a new counsel for getting her appeal filed before the ITAT. It was for this reason that the appeal was delayed and it was prayed that since there was no deliberate delay, but the same was occasioned due to reasons beyond the control of the assessee, the delay deserved to be condoned for rendering substantial justice to the assessee. The assessee placed reliance on the following cases in support of her petition: - i. Vijay Vishan Meghani vs. DCIT (Bombay High Court) (2017) 398 ITR 250. ii. Just Steels vs. DCIT (2012) 74 DTR (MA) 86 iii. Oracle India Pvt. Ltd. vs. Deputy Commissioner of Income Tax (2008) 13 DTR 371 iv. Improvement Trust vs. Ujagar Singh (Supreme Court) v. Collector, Land Acqusition vs. MST. Katji & Ors. vi. CIT vs. S. Duraipandi & Ors vi. Kaikara Construction Co. vs. Jt. CIT, Kollam vii. Vedabai Aoias Vaijayanatabai Baburao Patil vs. Shantaram Baburao Patil viii. B. Badhuri Goud vs. B. Damodar Reddy (2012) 12 SCC 693.
We have duly considered the issue. In view of the circumstances enumerated by the assessee in her petition, in the interest of justice, we admit the case of the assessee to be taken up on its merits.
A.Y. 2016-17 Seema 4. The facts of the case are that the assessee derives income from business and profession as also income from other sources. She filed a return of income on 14.7.2016, declaring a total income of Rs.10,88,280/-. On perusal of her books of accounts, the ld. AO observed that the assessee had made cash purchases of liquor from three parties amounting to Rs.3,01,36,682/-. As he was of the belief that the assessee had violated the provisions of section 40A(3) of the Income Tax Act, he issued a show cause notice to the assessee asking why amounts so paid, should not be disallowed under section 40A(3). On the date fixed for compliance, neither was any request made nor was any submission received. Accordingly, the ld. AO made the disallowances and added the same to the income of the assessee.
Aggrieved by this disallowance, the assessee went in appeal to the ld. CIT(A). The ld. CIT(A) records that he provided several opportunities to the assessee and even sent an enabling communication email on 1.11.2022. However, the assessee responded only once on 12.12.2022 asking for a personal hearing. Subsequently, she did not respond to the notices for video conferencing that were sent to her. Therefore, the ld. CIT(A) did not deem it necessary to allow further opportunities to her. He took note of her submission in the statement of facts that since she was new to the trade, she had inadvertently violated the provisions of section 40A(3) and basing himself on this, he confirmed the disallowance in the hands of the assessee.
The assessee is aggrieved by this summary disposal of her appeal and has accordingly come before us. Sh. Saurabh Gupta, C.A. representing the assessee submitted that the assessee was prevented from making proper compliance before the ld. AO and the ld. CIT(A) for the same reason that she could not file the appeal on time i.e. the imprisonment of her husband who looked after all her financial affairs. It was prayed that the correct facts had not been brought on record and the disallowance had been made/confirmed without appreciating the materials on record and without giving due weightage to the totality of circumstances and the conditions of business expediency existing in the present case, as already A.Y. 2016-17 Seema contemplated in section 4A(3) of the Act. It was therefore, prayed that in the interest of justice, the matter may be restored to the file of the ld. AO, so that the assessee could bring the entire facts before the ld. AO and argue her case. Sh. R.K. Agarwal, ld. CIT DR pointed out that in her statement of facts before the ld. CIT(A), the assessee had already admitted to having violated the provisions of section 40A(3) and therefore, the addition deserves to be confirmed. However, he did not object to the complete facts being brought on record by the ld. AO, provided that the Tribunal issued directions to the assessee to make complete compliance before the ld. AO.
We have duly considered the facts and circumstances of the case. The facts of the case are not in dispute which are that the assessee had made payments of Rs.3,01,36,682/- in cash for purchase of liquor. The assessee claims that the addition has been made without appreciating the material on record and the facts of the case, which are permissible within the exceptions provided under section 40A(3). Considering the fact that her husband, who was looking after her financial affairs, was imprisoned during the course of earlier proceedings, we deem it appropriate in the interest of justice to restore the matter back to the file of the ld. AO, so that the assessee may elaborate upon the circumstances whereby she claims exemption from being hit by the provisions of section 40A(3). As the appeal is being restored to the file of the ld. AO for a de novo assessment, the appeal of the assessee is held to be allowed for statistical purposes.