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2023 (10) TMI 1131 - AT - Income TaxRevision u/s 263 - addition u/s 40A(3) - assessee by paying huge cash in excess of Rs. 20,000/- alleged to have violated the provision of Section 40A(3) - PCIT is of the opinion that the AO failed to enquire the above aspect in the books of accounts including the cash book and vouchers while completing the assessment in the case of the assessee - case of the assessee is this that the cash payment made is nothing but the withdrawal of the partners of the firm and the partners’ capital account has also been produced before the Ld. PCIT - HELD THAT:- We find substance in such arguments made by the Ld. DR. Furthermore, it is a settled principle that the capital cannot be attributable as expenses and in the instant case part of the old capital had been withdrawn by the partners of the firm, which is not liable to be subjected to the provisions of Section 40A(3). Moreso, when the entire materials were placed before the Ld. AO during the course of assessment proceeding and only upon verification of the same, the return of income was accepted, which is also reflecting from the order passed by the Ld. AO mentioned therein, in our considered opinion, assessment cannot be reopened by exercising power conferred u/s 263 of the Act by the Ld. PCIT in the manner it has been done. We find that the issue raised by the Ld. PCIT was already adjudicated upon due application of mind by the Ld. AO in the assessment proceedings under Section 143(3) of the act and return was accepted. The copy of the partners’ capital account, payment vouchers made to the partners, the ledger of cash book alongwith narration for the period 01/04/2016 to 31/03/2017 were duly placed before the Ld. AO during the original assessment proceeding and only upon verification of the same, the assessment was finalized. It is relevant to mention that the Ld. PCIT referred Explanation (2) to Section 263(1) of the Act while holding the order of assessment erroneous and prejudicial to the interest of the Revenue and exercising power in passing direction for re-assessment by the Ld. AO which in our considered opinion is not having any manner of application as the examination and/or verification of the issue involved in the PCIT’s order were duly been made by the Ld. AO which is also reflected in the order so passed by the Ld. AO. Thus, prima facie finding made by the Ld. PCIT holding the order passed by the ld. AO dated 10.12.2019 is erroneous and prejudicial to the interest of the Revenue, in our considered opinion, is found to be wrong and direction for re- assessment by the Ld. AO is, thus, found to be not sustainable. The entire proceeding is, thus, void ab initio and quashed. Assessee’s appeal is allowed.
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