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2015 (2) TMI 1315 - AT - Income TaxRevision u/s 263 - Disallowance under section 40A(3) - no opportunity to assessee to explain before the A.O. whether the cash payments are coming within the exceptions provided under Rule 6DD - HELD THAT:- CIT was not justified in directing the A.O. to apply section 40A(3) to the cash payments made by assessee straightaway. Assessee deserves an opportunity to explain before the A.O. whether the cash payments are coming within the exceptions provided under Rule 6DD. The decisions relied upon by A.R. also say section 40A(3) has to be looked into in conjunction with Rule 6DD. We, therefore, direct the A.O. to examine whether the cash payments are coming within exceptions of Rule 6DD of the Rules and only thereafter, may decide whether to apply section 40A(3) to such cash payments. The A.O. must afford reasonable opportunity of being heard to the assessee in the matter. CIT herself has admitted the fact that as far as interest to the creditors are concerned, most of the creditors were brought forward from earlier years. Even in respect of balance two creditors assessee has not only established the identity but has also furnished confirmation letters and it is also fact that the credits are through regular banking channel. Without bringing some material on record to show that these two creditors are not genuine or they do not have creditworthiness, CIT cannot hold the assessment order to be erroneous and prejudicial to the interest of Revenue. As it appears from record at the time of assessment proceedings, assessee has also produced confirmation letters from creditors. Therefore, it cannot be said that the A.O. has not examined the credits. In these circumstances, the assessment order passed cannot be held to be erroneous and prejudicial to the interests of Revenue. Similarly, in so far as cash deposits made to the S.B. Account is concerned, it is manifest from the revision order that CIT has accepted that the deposits have been reflected in the books of accounts. Moreover, assessee has also explained the source of such deposits - at assessment proceedings, A.O. has examined the books of accounts as well as the bank statement. Therefore, when the assessee has produced its books of accounts before the A.O. as well as before the Ld. CIT and has also explained the source for deposit which have not been disputed or found to be incorrect by the Ld. CIT, in our view, it was not proper on the part of CIT to set aside the assessment order on that issue as the directions given by the CIT, without any positive finding of error or prejudice to the Revenue, is only in the nature of a roving and fishing enquiry to be conducted by the A.O. which is not the intent and purpose of section 263. We direct the A.O. to only examine the issue of applicability of section 40A(3) with reference to Rule 6DD after giving due opportunity of being heard to the assessee. The order of Ld. CIT is modified to this extent. Appeal of assessee is partly allowed for statistical purposes.
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