CONSTITUTION OF INDIA, 1950

Article 226

Writ petition - Disallowance under section 40A(3) - Maintainability -

AO made 100% disallowance of expenditure in cash, in excess of a permitted limit. It was the case of assessee that cash payments related to purchase of fire wood and that the same were covered by provisions of rule 6 DD of the Income Tax Rules, 1962 which carve out certain exceptions to the rigour of section 40A(3) where the cash payments relate to specified categories. Reliance upon rule 6DD was rejected by AO quoting the procedure followed for purchase of firewood through open bidding system. Officer stated that no farmer sells firewood directly in the open market and hence the protection under Rule 6DD would not be available to assessee. In addition, certain credits appearing in bank accounts of assessee were disallowed under section 68. Held: Assessee was relegated to statutory appellate remedy. Order of assessment might be challenged by way of first appeal before CIT(A) within a period of three weeks. If appeal was filed within the period as aforesaid, the same should be taken on by CIT(A) and disposed on merits and in accordance with law, without reference to limitation. Since the powers of CIT(A) are co-terminus with that of AO, a proper enquiry be conducted as to veracity or otherwise of explanations tendered by assessee both in response to proposal under section 68 as well as the applicability of Rule 6DD to disallowance under Section 40A(3). Order of assessment should be passed de novo within a period of three months after hearing assessee.

REFERRED :

FAVOUR : Directions issued.

A.Y. : 2017-18

SUBSCRIBE FOR FULL CONTENT