2024 (1) TMI 908 - AT - Income Tax

CIT revision under section 263 upheld due to inadequate inquiry on CST disallowance and cash purchases

Raj Kumar Goyal Versus Pr. CIT-2, Indore

ITAT Indore upheld CIT's revision u/s 263 against assessee's assessment order. AO failed to conduct proper inquiry on two issues: non-disallowance of ... Revision u/s 263 - CIT observed lack of proper inquiry by the AO on two issues as of not making disallowance on account of outstanding Central Sales Tax (CST) and claim of cash purchase of cotton which was allowed by the AO despite absence of bills, vouchers, transportation receipts, weighment slips etc - HELD THAT:- AO made an inquiry about the genuineness of the purchase and due to deficiency in supporting evidence of purchase the AO made an adhoc disallowance. Thus to the extent of conducting an inquiry on purchase made by the assessee the case in hand does not fall in the category of complete lack of inquiry though it may be a case of inadequate inquiry. However the Pr. CIT has invoked the provisions of section 263 on two issues as stated in the show cause notice being non-allowability of the outstanding Central Sales Tax as per the provisions of section 43B and non-conducting of the inquiry on the part of the AO in respect of the cash purchase of cotton in the light of the provisions of section 40A(3) of the Act. So far as the first issue regarding non-payment of the CST is concerned the assessee has accepted that the same is not allowable as per the provisions of section 43B. Therefore, to that extent the invocation of the provisions u/s 263 are not in dispute. As regards the second issue though the Pr. CIT has taken up the issue of disallowance u/s 40A(3) as well as the genuineness of the purchase however, it is manifest from the record and particularly from the assessment record and order sheet entries that the AO has not even taken up the issue of disallowance u/s 40A(3) of the Act. It is manifest from the record and particularly from the assessment order and order sheet entries that the AO has not taken up this issue of disallowance u/s 40A(3) of the Act and hence, there is a complete lack of inquiry on the part of the AO so far as this issue is concerned. Whether the assessee would take the benefit of exception under Rule 6DD is again a matter of verification and examination of the relevant facts and record which the AO has not at all taken into account despite knowing the factum of cash purchase of more than Rs. 14.90 crore as the AO did not raise any query on this issue. Hence, there is complete lack of inquiry on the part of the AO on this issue and consequently the Pr. CIT has rightly exercised his jurisdiction u/s 263 to revise the assessment order to the extent of allowability of the claim in the light of the provisions section 40A(3) of the Act. Thus order of AO is erroneous being contrary to the provisions of section 43B as well as 40A(3) and therefore, in absence of any inquiry on these two issues the order of the AO has been rightly set aside by the Pr. CIT. Accordingly we do not find any error or illegality in the impugned order of the Pr. CIT. The decisions relied upon by the Ld.AR of the assessee are applicable only in a situation where the AO has conducted an inquiry on an issue and taken a possible view whereas in the case of the assessee there is a complete lack of inquiry on the part of the AO on the two issues; (i) Disallowance u/s 43B (ii) u/s 40A(3) and therefore, the said judgments would not help the case of the assessee. Appeal of the assessee is dismissed. Issues Involved:1. Legality of the order passed under section 263 of the Income Tax Act, 1961.2. Verification and examination of cash purchases.3. Disallowance on account of outstanding Central Sales Tax (CST).4. Invocation of section 40A(3) regarding cash purchases.Summary:1. Legality of the Order Passed U/S 263:The assessee challenged the order passed by the Pr. Commissioner of Income Tax (Pr. CIT) under section 263 of the Income Tax Act, 1961, claiming it was illegal, wrong, and bad-in-law. The Pr. CIT initiated proceedings under section 263 due to the lack of proper inquiry by the Assessing Officer (AO) on specific issues, rendering the assessment order erroneous and prejudicial to the interest of revenue.2. Verification and Examination of Cash Purchases:The Pr. CIT found that the AO did not properly verify and examine the cash purchases of cotton amounting to Rs. 14,90,73,159/-, which lacked supporting documents such as bills, vouchers, transportation receipts, and weighment slips. The AO made an ad hoc disallowance of Rs. 1,50,000/- due to the absence of proper supporting evidence but did not address the genuineness of the purchases or the applicability of section 40A(3).3. Disallowance on Account of Outstanding CST:The Pr. CIT noted that the assessee had not paid the CST amounting to Rs. 90,022/- by the due date under section 139(1) and neither added it back in the computation of income nor was it disallowed by the AO during the assessment proceedings. The assessee accepted the non-allowability of the claim of outstanding CST as per the provisions of section 43B, and thus, this issue was not disputed.4. Invocation of Section 40A(3) Regarding Cash Purchases:The Pr. CIT invoked section 263 due to the AO's failure to consider the disallowance under section 40A(3) for cash purchases exceeding Rs. 14.90 crores. The assessee contended that the purchases fell under the exceptions provided in Rule 6DD, but this required verification of necessary facts and records. The Tribunal found that the AO did not address this issue, leading to a complete lack of inquiry.Conclusion:The Tribunal upheld the Pr. CIT's order, concluding that the AO's assessment was erroneous and prejudicial to the interest of revenue due to the lack of proper inquiry on the issues of disallowance under sections 43B and 40A(3). The appeal of the assessee was dismissed. The Tribunal emphasized that the decisions cited by the assessee applied only where the AO conducted an inquiry and took a possible view, which was not the case here due to the complete lack of inquiry on the two issues. Order Pronounced:The appeal was dismissed, and the order was pronounced in the open court on 20.11.2023.