INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Erroneous and prejudicial order - Lack of enquiry on AO's part -

Pr. CIT treated order passed by AO as erroneous and prejudicial to the interest of revenue on the ground that assessee had incurred fuel expenses of Rs. 8,74,864, vehicle running expenses of Rs. 8,55,750 and kitchen expenses of Rs. 5,17,760 and out of all these expenses totaling to Rs. 22,48,374, a sum total of Rs. 11,70,515 had been paid in cash exceeding Rs. 20,000 in a day which was to be disallowed being in contravention of section 40A(3) by AO passed the assessment order without making enquiries and verification which should have been made. Held: AO had recorded a finding in the assessment order that in respect of kitchen, vehicle running and building repair expenses, assessee had produced self-made vouchers and which could not be relied upon in toto and thereafter, he has estimated and disallowed 15% of kitchen expenses and 20% of vehicle running and building repair expenses. However, no finding was recorded by AO regarding fuel expenses. Further, there was nothing on record that fuel expenses were examined by AO and any information/documentation was called for and responded by assessee during the course of assessment proceedings, where more than 50% of these expenses i.e., kitchen expenses, vehicle expenses and fuel expenses had been incurred in cash exceeding Rs. 20,000 per day, section 40A(3) was clearly attracted and AO was expected to verify these expenses not just applying the test of genuineness and whether the expense have been incurred for the purposes of assessee's activities as so claimed and purposes for which it was claimed to be incurred but also the necessity of payment been made in cash on a recurring basis and applicability of section 40A(3). Therefore, assessment order was rightly treated as erroneous and prejudicial.

Relied:Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) : 2000 TaxPub(DT) 1227 (SC), Rampyari Devi Sarogi v. CIT (1967) 67 ITR 84 (SC) : 1968 TaxPub(DT) 135 (SC) and Smt. Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC) : 1973 TaxPub(DT) 389 (SC)Distinguished:J.K. Construction Co. v. ITO (2007) 162 Taxmann 46 (Jod-Trib) : 2006 TaxPub(DT) 1459 (Jod-Trib)

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2015-16

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