TMI Blog2015 (9) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 6.65 lakhs, which means that the assessing officer believes a portion of purchases and hence, in our view, he is not justified in disbelieving the remaining part. We may state here that the AO could have examined the said claim of purchases, by ascertaining the market value and accordingly proved that the payment of ₹ 22.00 lakhs made by way of cash is in excess of the prevailing market value, in which case, there could have been some justification. We notice that the AO did not make any such enquiries. In fact, as stated earlier, the AO has proceeded with the misconceived notion that there is no MOU, which was factually incorrect. It is well settled that the AO cannot be given a chance for mistake committed by him. Accordingly, we are of the view that the AO has made the disallowance of ₹ 22 lakhs on misconceived notions, without properly examining the documents. We also notice that the Ld CIT(A) has also committed error in confirming this disallowance. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete this addition.- Decided in favour of assessee. Disallowance made under section 14A of the Act - He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal filed before Ld CIT(A) and hence he has filed this appeal before us. 4. The first issue relates to the disallowance made u/s 40A(3) of the Act. During the course of assessment proceedings, the AO noticed that the assessee has purchased plots worth ₹ 1.40 crores, out of which a sum of ₹ 74.39 lakhs was paid by way of cash. The AO took the view that the assessee has violated the provisions of section 40A(3) of the Act by making payments by way of cash and accordingly asked the assessee to clarify the same. It is pertinent to note that the provisions of sec. 40A(3) provide for disallowance of expenditure, if payment is made in a sum exceeding ₹ 20,000/- otherwise than by account payee cheque or account payee bank draft. In reply, the assessee submitted that the cash payment made to any individual person on any given date did not exceed ₹ 20,000/- and hence there is no violation of provisions of section 40A(3) of the Act. However, the AO took the view that the assessee could not substantiate the said claim. Accordingly, the AO disallowed the sum of ₹ 74.39 lakhs cited above under section 40A(3) of the Act. 5. In the appellate proceedings, the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also corroborated with the entries made in the books of account. Further, the recipients of the cash have also confirmed the said position. Thus, it is seen that all the parties to the transactions have confirmed the factual aspects and the same is also corroborated by the entries made in the books of account. It is pertinent to note that the assessing officer has accepted the books of account. Further, he has also not brought on record any other material to show that the submissions so made by the assessee as well as the entries made in the books of account were false. Under these set of facts, we are of the view that the tax authorities are not justified in rejecting the submissions of the assessee without bringing any other contrary materials on record. The said action of the assessing officer would show that he has made the disallowance u/s 40A(3) of the Act on surmises and conjectures. It is well settled proposition of law that the suspicion, how so ever be strong, cannot replace the evidences available on record. The Ld CIT(A) has observed that the confirmation letters filed by the sellers of the plot did not give the details of payments received by them and hence he rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine this issue with the misconceived notion that there is no MOU between the assessee and M/s Laxman Mhatre and others. We notice that the AO himself has disallowed the very same amount of ₹ 22 lakhs u/s 40A(3) of the Act, meaning thereby, the AO himself has accepted the genuineness of purchases as well as the payments, since the question of disallowance u/s 40A(3) would arise only in respect of genuine expenditure only. We further notice that the assessee has entered into a MOU with M/s Laxman Mhatre and others for purchasing the land for a sum of ₹ 28.65 lakhs, out of which a sum of ₹ 22 lakhs was paid by way of cash and the balance amount was paid by way of cheque. We notice that the AO has accepted the cheque payment of ₹ 6.65 lakhs, which means that the assessing officer believes a portion of purchases and hence, in our view, he is not justified in disbelieving the remaining part. We may state here that the AO could have examined the said claim of purchases, by ascertaining the market value and accordingly proved that the payment of ₹ 22.00 lakhs made by way of cash is in excess of the prevailing market value, in which case, there could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect the AO to restrict the disallowance to ₹ 50,000/-. 12. The next issue relates to disallowance made out of expenses. The assessee had claimed expenses towards car, telephone and business promotion. The AO took the view that the disallowance of 1/5 of the expenditure by holding that the personal element involved in these expenses cannot be ruled out for these expenses. The Ld CIT(A) also confirmed the same. We notice that the AO disallowed 1/5th of following expenses:- Car Expenses 75,488 Telephone expenses 1,20,473 Business Promotion expenses 2,59,439 4,55,400 With regard to car and telephone expenses, we also agree with the view of the AO that the involvement of personal element cannot be ruled out. However, with regard to the Business promotion expenses, we are of the view that the AO should have analysed the nature of expenses before coming to such a conclusion. We notice that the Ld CIT(A) also did not examine this aspect. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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