TMI Blog2019 (11) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the payment made in cash - HELD THAT:- Once the assessee has filed the return of income declaring the income based on the business results shown in the books of account then the AO is required to examine the correctness of the return of income and claim of the assessee in the context of business results shown as per the books of account. The assessee did not claim the applicability of the provisions of section 44AD either before the AO or before the ld. PCIT. Even otherwise, this plea of the assessee is also required to be verified based on the relevant facts as recorded in the books of account. Therefore, merely because the turnover of the assessee for the year under consideration is less than the limit provided under section 44AD, would not preclude the PCIT to exercise his jurisdiction under section 263 regarding violation of provisions of section 40A(3). The payment of cash for purchase of plots of land shown as stock-in-trade is not in dispute, therefore, the explanation furnished by the assessee are required to be examined in the light of the relevant provisions of the Act and Rules. Though the ld. PCIT has observed that the cash payment is not allowable under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of ₹ 59,33,000/- as against the returned income of ₹ 6,64,126/-. Subsequently, the ld. PCIT on examination of the assessment record noted that the assessee derives income from business of real estate and paid cash payment of ₹ 6,82,000/- for purchase of plot No. A-123, Sitaram Vihar Vistar, Village Ramsinghpura, Tehsil Sanganer, Jaipur. Similarly, in other case the assessee has paid the purchase consideration in cash. Accordingly the cash payment made by the assessee towards purchase of stock-in-trade during the year under consideration was found to be hit by the provisions of section 40A(3) of the IT Act but the AO has not invoked the said provision. The ld. PCIT also noticed that the deduction under section 80C to the extent of ₹ 1,00,000/- for tuition fee paid for self was claimed in the return of income and was allowed by the AO. Accordingly the ld. PCIT issued show cause notice under section 263 of the IT Act on 15.02.2019 requiring the assessee to explain as to why the assessment order under section 143(3) passed on 26th December, 2016 should not be treated as erroneous and prejudicial to the interests of the revenue and consequently set aside. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two courses permissible in law and if it has resulted in loss of revenue or where two views are possible and the AO has taken one view which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the revenue. Thus the ld. A/R has submitted that the ld. PCIT has wrongly and illegally invoked the provisions of section 263 and held that the assessment order is erroneous and prejudicial to the interests of the Revenue. 4. On the other hand, the ld. D/R has submitted that the AO has not conducted any enquiry on both the issues which were taken up in the revision proceedings. It is a case of complete lack of enquiry on the part of the AO while passing the assessment order. The assessee has not disputed the fact that she has made the payment of purchase consideration in cash in respect of stock-in-trade which is not permissible under section 40A(3) of the Act and, therefore, non-examination of the applicability of the provisions of section 40A(3) on the part of the AO renders the assessment order erroneous in so far as prejudicial to the interests of the Revenue. The ld. D/R has further contended that the AO has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the category of complete lack of enquiry on these two issues. Therefore, we do not find any merit or substance in ground no. 1 of the appeal of the assessee. The lack of enquiry on the part of the AO renders the assessment order erroneous in so far as prejudicial to the interests of the revenue. Accordingly, the exercise of jurisdiction under section 263 of the IT Act is valid and proper. Ground No. 2 is regarding the observation of the ld. PCIT on account of disallowance under section 40A(3) of the IT Act in respect of the payment made in cash of ₹ 8,36,000/-. 6. The ld. A/R of the assessee has submitted that the case of the assessee is covered under section 44AD of the Act as the turnover of the assessee is ₹ 85 lacs which is not exceeding the limit provided under section 44AD. The ld. A/R further submitted that the assessee has declared profit of ₹ 7.64 lacs which is 8.99% of the turnover. Therefore, even if there is a payment in cash which is hit by the provisions of section 40A(3), once the case of the assessee is covered under section 44AD and assessee has declared more than 8% of profit on the said turnover, then no furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correctness of the return of income and claim of the assessee in the context of business results shown as per the books of account. The assessee did not claim the applicability of the provisions of section 44AD either before the AO or before the ld. PCIT. Even otherwise, this plea of the assessee is also required to be verified based on the relevant facts as recorded in the books of account. Therefore, merely because the turnover of the assessee for the year under consideration is less than the limit provided under section 44AD, would not preclude the ld. PCIT to exercise his jurisdiction under section 263 regarding violation of provisions of section 40A(3) of the Act. The payment of cash for purchase of plots of land shown as stock-in-trade is not in dispute, therefore, the explanation furnished by the assessee are required to be examined in the light of the relevant provisions of the Act and Rules. Though the ld. PCIT has observed that the cash payment is not allowable under section 40A(3), however, we direct the AO to verify the explanation of the assessee and then decide the issue of disallowance under section 40A(3) of the Act. Ground No. 3 is regarding di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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