SURYAKANT DNYANESHWAR KATALE,LATUR vs. PR. COMMISSIONER OF INCOME-TAX-2, AURANGABAD

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.

2 ITA No. 231/PUN/2020 Suryakant D. Katale

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.

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 :

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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

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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

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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)

6 ITA No. 231/PUN/2020 Suryakant D. Katale

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.

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.

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

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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.

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

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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.

Order pronounced in the Open Court on 06th June, 2022.

Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT

पुणे Pune; �दनांक Dated : 06th June, 2022 Satish

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “B” / 3. DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 4.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

9 ITA No. 231/PUN/2020 Suryakant D. Katale

Date 1. Draft dictated on 06-06-2022 Sr.PS 2. Draft placed before author 06-06-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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