Assessee's appeal allowed, order under Income-tax Act section 263 quashed, based on delay condonation and expenditure disallowance.

The Tribunal allowed the appeal of the assessee, quashing the order passed under section 263 of the Income-tax Act, both on the grounds of condonation of delay in filing the appeal and on the merits of disallowance of expenditure under section 40A(3).

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Issues:
1. Condonation of delay in filing the appeal
2. Merits of the case regarding disallowance of expenditure under section 40A(3) of the Income-tax Act, 1961

Condonation of Delay:
The appeal was filed against the order of the Pr. Commissioner of Income Tax-2, Chandigarh under section 263 of the Act. The delay of 265 days in filing the appeal was explained by the assessee due to wrong professional advice given by their earlier counsel. The counsel failed to advise on the maintainability of the appeal against the order under section 263. The application for condonation of delay was supported by an affidavit and referred to decisions of the Tribunal where delays were condoned due to similar circumstances. The Tribunal considered the explanation, lack of appearance by the earlier counsel, and the decisions cited, ultimately condoning the delay in the interest of justice.

Merits of the Case - Disallowance of Expenditure:
The Pr. Commissioner set aside the assessment order for the year under consideration, directing the Assessing officer to disallow certain expenditures under section 40A(3) of the Act. The Pr. Commissioner noted cash payments made by the assessee exceeding the limit specified in the section. The assessee contended that no sales were made during the year, and all payments were part of closing stock, hence no expenditure was claimed against profit or loss. The Assessing officer's order was challenged on the grounds that the limited scrutiny was only for unsecured loans, and no fault was found in that aspect. The Tribunal held that since no expenditure was claimed, disallowance under section 40A(3) was not warranted. The order of the Pr. Commissioner under section 263 was quashed on this ground, and the appeal of the assessee was allowed.

In conclusion, the Tribunal allowed the appeal of the assessee, quashing the order passed under section 263 of the Act, both on the grounds of condonation of delay in filing the appeal and on the merits of disallowance of expenditure under section 40A(3).

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