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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee arises out of the order dated 25-03-2019 passed by the Pr. CIT(A)-2, Aurangabad u/s.263 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2011-12.
Briefly stated, the facts of the case are that the assessee is a land developer who filed his return on 31-03-2013 declaring total income of Rs.34,58,070/-. The assessment was completed u/s.143(3) on 21-03-2014 wherein the total income was assessed at Rs.39,65,910/-. Thereafter, the AO found that the assessee had paid purchase consideration in contravention of section 40A(3) of the Act. The case was re-opened by means of a notice u/s.148.
The assessment was completed u/s.143(3) r.w.s. 147 on 29-12-2016 determining total income of Rs.50,65,910/-. The ld. Pr. CIT observed that in the assessment made u/s.143(3) r.w.s.
147, the Assessing Officer (AO) did not disallow Rs.1,06,72,500/- u/s.40A(3) of the Act but settled the disallowance only at Rs.11.00 lakh. That is how, he opined that remaining cash payments also ought to have been disallowed.
He, therefore, invoked section 263 and passed the impugned order remitting the matter to the file of the AO for examining afresh the question of disallowance u/s.40A(3) of the Act. The assessee has come up in appeal before the Tribunal.
Having heard the rival submissions and perused the relevant material on record, it is observed that the AO initiated re- assessment proceedings on the strength of cash payments amounting to Rs.1,06,72,500/- made by the assessee in violation of section 40A(3) of the Act, as under :
Sr. Name of party Cash Actual Amount Balance cash No. payment as cash already payment per Notice payment disallowed allowed by AO u/s.263 by AO after verification of affidavits of payee, ID proofs 1 Hasan Md. 412500 412500 0 412500 Pathan, Pakahrsangvi 2 Rajan Jaganth 1600000 1600000 0 1600000 Sutar, Khandgaon 3 Kondabai 3230000 3230000 0 3230000 Dongare, Khandgaon 4 Sheelabai 1230000 1230000 0 1230000 Dongare & Others, Khandgaon 5 Sumanbai Raut 162500 330000 330000 0 & Others 6 Ramprabhu V. 130000 162500 162500 0 Dhumal & others 7 Ananat Gulabrao 302500 130000 130000 0 Salunke 8 Suryakant K. 1400000 302500 302500 0 Salunke 9 Dattatray B. 200000 0 0 0 Dongare, Khandgaon 10 Geeta Ananat 1500000 200000 0 200000 Salunke, Khandgaon 11 Chandrahagabai 1500000 1500000 0 1500000 Dongare, Khandgaon 12 Chandrakant G. 175000 175000 175000 0 More 13 Shivaji Salunke, 0 400000 0 400000 Khandgaon Total Rs. 11842500 9672500 1100000 8572500 Total wrongly 10672500 mentioned in Notice u/s.163
While finalizing the assessment u/s.143(3) rw.s.147, the AO disallowed the transactions at Sl. Nos. 5,6,7, 8 and 12 totalling to Rs.11.00 lakh only. The assessee stated before the ld. Pr.CIT that the remaining persons, to whom the cash payments were made, were residing in two villages, namely, (1) Pakahrsangvi and (2)
Khandgaon, which were not served by any bank. In support of this contention, the assessee produced certificates dated 22-12-2016 from Gram Panchayat (Local Govt. authority) to the effect these villages were not served by any bank. Copies of such certificates were also provided to the A.O. during the assessment proceedings. Section 40A(3) provides for disallowance where the assessee incurs any expenditure in respect of which payments are made otherwise than by an account payee cheque drawn on a bank or bank draft etc. in excess of Rs.10,000/-. Rule 6DD provides exceptions to the payments in certain circumstances in contravention of section 40A(3), in which the disallowance will not be made. Clause (g) of Rule 6DD provides that ; “Where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying of any business, profession or vocation, in any such village or town”. Thus, it is apparent that if the payment is made to a person otherwise than through the modes prescribed in the section and the recipient is residing in any village or town, not served by any bank, then no disallowance shall be made u/s.40A(3) of the Act. The assessee furnished certificates dated 22-12-2016 from Gram Panchayat (Local Govt. authority) that the two villages namely (1) Pakahrsangvi and (2) Khandgaon were not served by any bank. All the payments under consideration have been made to the residents of these villages as have been admitted by the ld. Pr.CIT as well. Not only such certificates were produced before the AO during the course of assessment proceedings on the basis of which he got satisfied and did not make any disallowance, these were also filed before the ld. Pr.CIT in the revision proceedings. He did not find anything amiss in them and still preferred to direct the AO to verify their veracity.
Under such circumstances, we fail to comprehend as to how the assessment order can be termed as erroneous and prejudicial to the interest of revenue. The position would have been different if the AO had accepted the contention of the assessee of being covered under rule 6DD(g) without any support of the certificates.
Here is a case in which the assessee furnished necessary certificates from Gram Panchayat (Local Govt. authority) indicating that the recipients under consideration were living in two villages which were not served by any bank and the AO accepted genuineness of the certificates. In that view of the matter, we do not find any infirmity in the order of the AO in not making disallowance in respect of the payments made to the residents of these two villages. The impugned order is set aside to this extent.
The only other issue on the basis of which the ld. Pr.CIT invoked his revisionary jurisdiction is non-verification of advances from the customers. He observed that the assessee claimed to have received advances from 66 customers totaling to Rs.89,60,500. As the AO did not examine the genuineness of the receipt of advances and their set off against the actual sales, the ld. Pr.CIT held the assessment order to be erroneous and prejudicial to the interests of Revenue. He, therefore, directed the AO to verify this aspect.
Having heard the rival contentions and perused the record, it is observed that the original assessment order in this case was passed on 21.03.2014. Thereafter, the AO issued notice u/s 148 of the Act on the ground that the assessee violated the provisions of section 40A(3) of the Act. This was the only subject matter of the re-assessment. In the assessment order passed u/s 147 of the Act, the AO made addition of Rs.11 lacs, being, the amount which, in his opinion, contravened the provisions of section 40A(3). Thus, it is apparent that the question of verification of advances from customer totaling to Rs.89,60,500 was not the subject matter of re-assessment concluded by means of an order on 29.12.2016. Once the issue of advances from customers is held to be not a part of re-assessment proceedings, naturally, it will pertain to the original assessment proceedings.
The limitation for revision is contained in sub-section (2) of section 263 of the Act, being, a period of two years from the end of financial year in which the order sought to be revised was passed. Thus, an order u/s 263 is required to be passed within a period of two years from the end of financial year in which the order sought to be revised is passed. The impugned order u/s 263 has been passed in this case on 25.03.2019. Though the re- assessment order was passed on 29.12.2016, the relevant assessment order for the purposes of advances from customers is the original assessment order, which was passed on 21.03.2014.
The period of two years from the end of financial year in which the order was passed, came to end on 31.03.2016. As the impugned order has been passed in the year 2019, it is therefore, held to be barred by limitation on the issue of advances from customers. We, therefore, set aside the impugned order on this score as well.
In the result, the appeal is allowed.
Order pronounced in the Open Court on 06th June, 2022.