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2022 (3) TMI 763 - AT - Income TaxRevision u/s 263 - bogus liability towards purchases - payment in expenditure cash during the next year - HELD THAT:- We have gone through the ledger account of supplier and find that there is an opening balance, fresh purchases during the year, rebates and discounts, payments made during the year and the closing balance and therefore, where the liability continues to exist in the books of accounts and there are payments made during the year under consideration, the liability cannot be said to cease to exist during the year under consideration. It is not the case of the Revenue either that it is a case of remission of liability during the year under consideration. In any case, what the Ld. PCIT has alleged is that the liability towards Rana Wines L-1, Solan is a bogus liability which has been incurred and pertains to the financial year 2014-15 relevant to assessment year 2015-16. Therefore, the implications, if any, arising out of such liability where so claimed by the assessee, and which the AO is at liberty to examine as per law and where held to be bogus will be relevant for the assessment year 2015-16 and not for the impugned assessment year 2016-17 and on this account, the order so passed by the AO for the impugned assessment year 2016-17 therefore cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue Discharge of outstanding liability as on close of the financial year 2015-16 relevant to assessment year 2016-17 - We find that where the payment itself has not been made in the financial year relevant to impugned assessment year, basis of arriving at the finding by the Ld. PCIT that there is a contravention of provisions of section 40A(3) is not clear from the impugned order where the applicability of said provisions itself is in doubt. The implications, if any, in respect of discharge of liability in cash in the subsequent financial year 2016-17, a liability which has been incurred in current financial year will arise u/s. 40A(3A) and not under section 40A(3), and the AO will be at liberty to examine the same as per law for the assessment year 2017-18 and not for the impugned assessment year 2016-17. Similar is the situation relating to discharge of remaining outstanding liability by way of entering into an agreement to sell dated 9.05.2017 which again falls in financial year 2017-18 relevant to assessment year 2018-19 and the implications, if any will arise in the financial year 2017-18 and the AO is at liberty to examine as per law for the assessment year 2018-19 and not for the impugned assessment year 2016-17. Therefore, where the AO has not examined the implications relating to discharge of outstanding liability which has evidently happened in the subsequent financial years, the order so passed by the AO for the impugned assessment year 2016-17 cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue. Outstanding liability in balance in the account of Rana Wines, Solan where there is no dispute which has been raised by the Ld. PCIT regarding the purchases made by the assessee from Rana Wines during the year under consideration having not been examined by the AO and account balances in respective books of accounts are also matching and no discrepancy has been highlighted, the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of Revenue. Cash payment to Rana Wines where the implication arising u/s. 40A(3) has not been examined by the AO, we believe that the order so passed by the AO has to be held to be erroneous and prejudicial to the interest of the Revenue and therefore, to this limited extent, we upheld the order of the Ld. PCIT and the order of the AO has to be set aside for the limited purpose of examining as per law the implications u/s. 40A(3) in respect of cash payments of ₹ 9,20,000/- and explanation so submitted by the assessee in support of business exigency. Lastly, whether the assessee is required to keep cash in hand or deposit in the bank account, the same will depend upon the business exigency prevailing at the relevant point in time and so long as there is no discrepancy pointed out in the books of accounts where the cash in hand has been duly recorded and physical cash-in hand, the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of Revenue.
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