2023 (1) TMI 367 - AT - Income Tax

Condonation of delay in filling the appeal - whether CIT (A) erred by his action as condoned the delay but he has recorded just one line in his order that the delay is not condoned without any speaking order - HELD THAT:- The income of the assessee should not be over assessed even there is a mistake of the assessee. As such the legitimate deduction for which the assessee is entitled should be allowed while determining the taxable income.

As decided in the case of Vareli textile industry versus [2006 (2) TMI 102 - GUJARAT HIGH COURT] as equally well-settled that where a cause is consciously abandoned (as in the present case) the party seeking condonation has to show by cogent evidence sufficient cause in support of its claim of condonation. The onus is greater. One of the propositions of settled legal position is to ensure that a meritorious case is not thrown out on the ground of limitation. Therefore, it is necessary to examine, at least prima facie, whether the assessee has or has not a case on merits.

We are of the view that it is a fit case where the delay in filing the appeal by the assessee before the learned CIT-A deserves to be condoned. Accordingly, we proceed to decide the issue raised by the assessee on merit.

Disallowance on account of cash payment u/s 40A(3) - Return of the assessee for the year under consideration was selected for limited scrutiny to verify the genuineness of “cash in hand” - Conversion of “Limited Scrutiny” into “Complete Scrutiny” - HELD THAT:- On perusal of notice under section 143(2) of the Act, we note that the notice for “Limited Scrutiny” was issued for examination of “cash in hand”. There was no mentioning/whisper about examination of the fact with regard to “cash payment” in violation of section 40A(3) of the Act. Further, there no whisper in the order of the authority below that the limited scrutiny was converted into complete scrutiny.

DR before us has also not brought anything on record justifying that the “Limited Scrutiny” was converted by the Assessing Officer under normal scrutiny after obtaining necessary approval from the appropriate authority. Accordingly, we hold that the AO has exceeded his jurisdiction by making disallowances of cash payment as per the provision of section 40A(3) of the Act.

The right course of action for the AO was to take the approval from the competent authority for expanding the scope of Limited Scrutiny to the regular assessment but he failed to do so. Thus, in our considered view inaction of the AO should not cause any inconvenience to the assessee. In holding so we draw support and guidance from the case of Rajesh Jain [2005 (4) TMI 629 - ITAT CHANDIGARH].

We are not convinced with the finding of the authorities below. As such the entire issue should have been limited to the extent of the dispute raised in the notice issued under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus, we hold the addition made by the AO without having valid jurisdiction cannot be sustained. - Assessee appeal allowed.