TMI Blog2022 (8) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... licability thereof in the facts of the instant case. AO is expected to examine the provisions of section 40A(3) vis- -vis respective transactions and determine which all these transactions are covered by the provisions of section 40A(3) and which all transactions fall under the exception as so provided in the Rule 6DD and decide accordingly. Only where the AO has examined the transactions from the perspective of section 40A(3) read with exceptions thereto and the ld. CIT(E) arrives at a different finding, the question of change of opinion arises. Where there is no examination and no formation of opinion at first place, the question of change of opinion as so contended by the ld. AR doesn't arise. Where the provisions of section 40A(3) are applicable in the facts of the case and which the AO has failed to examine and invoke at first place and the ld. CIT(E) subsequently noticed and thereafter, records his findings as to how the said provisions are applicable in the facts of the case, it is no doubt a case of reappraisal of the facts but with a view to highlight the applicability of correct law which the AO has failed to apply which is very much within the domain and juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as asked to produce bills/vouchers in support of these expenses and in response, the assessee's society produced self-made vouchers, which as per the Assessing officer could not relied upon and thereafter, the Assessing officer disallowed 15% of the kitchen expenses and 20% each of vehicle running and building repair expenses besides surplus of Rs. 1,35,034/- was also brought to tax and accordingly, the assessment was completed determining taxable income at Rs. 4,53,946/- as against the returned income of Rs. NIL. 3. The assessment records were subsequently called for and examined by the ld. CIT(Exemptions) and a show-cause u/s. 263 of the Act was issued as to why the assessment order framed u/s. 143(3) of the Act, should not be set aside. In the show cause notice, the ld. CIT(Exemptions) has stated that the assessee has incurred fuel expenses of Rs. 8,74,864/-, vehicle running expenses of Rs. 8,55,750/- and kitchen expenses of Rs. 5,17,760/- and out of all these expenses totaling to Rs. 22,48,374/-, a sum total of Rs. 11,70,515/- has been paid in cash exceeding Rs. 20,000/- in a day which needs to be disallowed being in contravention of provisions of Sec. 40A(3) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to time. It was submitted that the assessee has given standing instructions to petrol pump dealers to give diesel and petrol to vehicle drivers and take the signatures and given that the petrol and diesel is purchased in small quantities from time to time, the petrol pump dealers make a composite bill mentioning day wise sale of petrol and diesel and as a result of composite bill, the same has exceeded Rs. 20,000/- per day. However, given that the purchases have been made on daily basis, the provisions of Sec. 40A(3) of the Act, are not applicable. Similarly, contentions were raised regarding the standing instructions given to mechanics to repair the vehicles who also issue a composite bill bearing day wise expenses. It was further submitted that provisions of Sec. 40A(3) of the Act, has been made applicable to charitable trust w.e.f. AY 2019-2020 and the same cannot be applied retrospectively to the assessee's society for the impugned assessment year i.e. AY 2015-16. It was finally submitted that the AO has already disallowed a sum of Rs. 77,664/- on account of kitchen expenses, Rs. 1,71,150/- on account of vehicle running expenses and a sum of Rs. 70,098/- on account of build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8(2) of the Act, provisions of Sec. 40A(3) of the Act are equally applicable even where the assessee's income is assessed under the head 'income from other sources' instead of income under the head 'business and profession'. It was further held by the ld. CIT(Exemptions) that on perusal of the assessment records, it is noted that various ledger accounts were placed in the assessment folder and it is observed that the assessee has made cash payments under various heads exceeding Rs. 20,000/- per day, which is in contravention of provisions of Sec. 40A(3) of the Act. It was further noted by the ld. CIT(Exemptions) that the AO vide order sheet entry dated 11.07.2017 has asked the ld. AR to file books of accounts along with complete bills/vouchers. In response, the assessee's society submitted bills/vouchers, which are simply placed on record by the AO and he went on framing the assessment by making estimated disallowances under the heads 'kitchen expenses', 'vehicle running expenses' and 'building repair expenses', on the plea that the society has just produced self-made vouchers, which could not be relied upon in toto. It was further he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mistake or error committed by the AO; it is only when an order is erroneous that the section shall be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. It has also held that the phrase prejudicial to the interest of revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed u/s. 143(3) of the Act dated 21.08.2017 for the A.Y. 2015-16, is cancelled with the direction to pass an order afresh in accordance of law keeping in the view above observation and by conducting necessary inquires on the aforesaid issues and needless to say after affording reasonable opportunity of being heard to the assessee. 6. In light of aforesaid findings, the ld. CIT(E) has held that the order passed by the AO is erroneous in so far as prejudicial to the interest of the revenue and the assessment order so passed was cancelled with a direction to pass an order afresh in accordance with law keeping in view the above observations in the impugned order by conducting necessary verification and affording reasonable opportunity to the assessee. 7. Against the said findings/directions of the ld. CIT(Exemptions), the assessee is in appeal before us. 8. During the course of hearing, the ld. AR submitted that the ld. CIT(Exemptions) is not correct in holding that the AO has not made necessary enquiries in the matter of verification of various expenses claimed by the assessee's society. It was submitted that the ld. CIT(Exemptions) has failed to appreciate that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt along with Balance Sheet, Income Expenditure account and books of accounts along with complete bills/vouchers, the books of accounts were produced. Thereafter, reply was filed on 01.08.2017 and some more information was called for verification of facts which were filed on 21.08.2017. Thereafter, after examination of documents and discussion with the ld. AR of the assessee and due application of mind, the AO made certain disallowances on the basis of review of the documents and concluded the assessment proceedings. It was accordingly submitted that the findings of the ld. CIT(Exemptions) that the AO has passed the order in undue haste without making any enquiry is not correct as the proceedings were in process for a very long time as well as the evidences have been presented on 21.08.2017 which were duly taken into consideration and after thorough examination and discussion, the assessment order has been passed by the AO. It was accordingly submitted that the revision of the order in the assessee' case is not justified and the order so passed by the ld. CIT(Exemptions) may be set aside. 9. Per contra, the ld. CIT/DR has vehemently argued the matter and took us through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that arises for consideration is whether the AO took note of these undisputed facts and what action he has taken in this regard in terms of examination/verification of these expenses and application of relevant provisions of the Act. 11. In this regard, we find that the AO has recorded a finding in the assessment order that in respect of kitchen, vehicle running and building repair expenses, the AR of the assessee has produced self made vouchers and which could not be relied upon in toto and thereafter, he has estimated and disallowed 15% of kitchen expenses and 20% of vehicle running and building repair expenses. However, no finding has been recorded by the AO regarding fuel expenses. Further, there is nothing on record that fuel expenses have been examined by the AO and any information/documentation called for and responded by the assessee during the course of assessment proceedings. As per the ld. CIT(E), where more than 50% of these expenses i.e., kitchen expenses, vehicle expenses and fuel expenses have been incurred in cash exceeding Rs. 20,000/- per day, the provisions of section 40A(3) are clearly attracted in the instant case and which the AO has failed to examine durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year and it is not a case of certain sporadic cash transactions which could have escaped the attention of the Assessing officer and have been noticed subsequently by the ld. CIT(E). We therefore find that it is a case where the Assessing officer has completely failed to examine the provisions of section 40A(3) and applicability thereof in the facts of the instant case. We therefore find force in the contentions advanced by the ld. CIT/DR that it is a clear case of non-application of mind on the part of the AO and failure to apply provisions of section 40A(3), when it is clearly on the face of the ledger accounts that the payments have been made in cash exceeding Rs. 20,000/- per day. The AO is expected to examine the provisions of section 40A(3) vis- -vis respective transactions and determine which all these transactions are covered by the provisions of section 40A(3) and which all transactions fall under the exception as so provided in the Rule 6DD and decide accordingly. Only where the AO has examined the transactions from the perspective of section 40A(3) read with exceptions thereto and the ld. CIT(E) arrives at a different finding, the question of change of opinion arises. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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