TaxTMI 
TaxTMI 
2022 (8) TMI 347
X X X X Extracts X X X X
X X X X Extracts X X X X
....e view as against the firm view adopted by the Ld. AO at the time of original assessment under section 143(3). 4. That the Ld. CIT has erred in concluding proceedings under Section 263 of the Act without proper perusal of the Assessment record." 2. Briefly, the facts of the case are that the assessee filed its return of income declaring income at Rs. NIL, which was processed u/s. 143(1) of the Act, which was later selected for scrutiny and thereafter, after issuance of notice calling for the information/documentation, the assessment was completed u/s. 143(3) of the Act. During the course of assessment proceedings, on perusal of the income and expenditure account of the assessee's society, the Assessing officer observed that the assessee has debited a sum of Rs. 5,17,760/- on account of kitchen expenses, a sum of Rs. 8,55,750/- on account of vehicle running expenses and a sum of Rs. 3,50,490/- on account of building repair expenses. The assessee was 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 d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are not applicable in the instant case. It was further submitted that the assessee's society is assessed under the head 'income from other sources' instead of income under the head 'business and profession' and on this ground as well, the provisions of Sec 40A(3) of the Act are not applicable. Coming specific to the kitchen expenses, it was submitted that the assessee's society has purchased woods for cooking the food for labour and feed for cows and the wood comes under the forest produce, which falls u/r. 6DD exceptions of Income Tax Rules, 1962, and thereafter, provisions of Sec. 40A(3) of the Act, are not applicable. Regarding fuel expenses, it was submitted that the assessee's society has 11 vehicles, out of which, 5 are tractors, 2 ambulances, 2 tempos and 2 motor cycles for transportation for dry fodder and green fodder feeds and transportation of sick and abandoned cows, which are also used as ambulance from time 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ofit motive. It was further held by ld. CIT(Exemptions) that the Finance Act, 2018 has amended the provisions from AY 2019-20 and the amended provisions provides that for the purpose of determining application of income u/s. 11(1) of the Act, the provisions of Sec. 40A(3) of the Act, shall apply as if they apply in computing income under the head 'profits and gains of business of profession'. It was further held by the ld. CIT(Exemptions) that the intention of the legislature introducing provisions of Sec. 40A(3) of the Act, is manifestly clear and which is to curb the chances and opportunities to use or create black money and to ascertain whether the payment were genuine or whether the same is out of the income from disclosed sources. The applicability of section 40A(3) has been extended to the domain of charitable activities by the Finance Act 2018. It was further held by the ld. CIT(Exemptions) that by virtue of the provisions of Sec. 58(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&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se of Malabar Industrial Co Ltd. and given his concluding findings which read as under: "4.5. The Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. V/s CIT in 243 ITR 83(SC) has held that a bare reading of section 263 of the Act makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motto under it is that the order of the ITO is erroneous in so far as it is prejudicial to the interest of revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of AO sought to be revised is erroneous and (ii) it is prejudicial to the interest of revenue. If one of them is absent i.e. if the order of the ITO is erroneous but is not prejudicial to the interest of the revenue or if it is not erroneous but is prejudicial to the interest of revenue, recourse cannot be taken u/s. 263 of the Act. It has also held that there can be no doubt that the provision cannot be invoked to correct each and every type 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 erroneou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out making any enquiry" would be rendered as an assessment order erroneous and prejudicial to the interest of revenue. Similar view again is held by the Hon'ble Apex Court in the case of Smt. Tara Devi Aggarwal vs. CIT, reported in 88 ITR 323 (SC). 4.6.1 The AO has called for books of accounts along with vouchers vide order sheet entry dated 11.07.2017. The AR asked for more time, the AO fixed the case for 21.08.2017. The AR of the assessee appeared on 21.08.2017 and submitted bills/vouchers and without examining and verification of these bills and vouchers the AO has passed assessment order on same day i.e. 21.08.2017. It is apparent that, the AO was in undue haste to pass assessment order without making any enquiry. 5. In view of the aforesaid discussion, it is evident that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue. Accordingly, the assessment order 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 nee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bed by the ld. CIT by invoking provisions of Sec 263 of the Act. It was submitted that it is a settled law that jurisdiction u/s. 263 of the Act cannot be invoked on the basis of change of opinion by reappraising the evidence with a view that enquiries conducted by the AO were inadequate and the AO should have made further enquiries or investigation which he has not done. In support, reliance was placed on the decision of the Hon'ble Punjab & Haryana High Court in case of CIT v. Deepak Mittal reported in [2010] 324 ITR 411 (Punjab & Haryana) and the decision of the Coordinate Chandigarh Benches in case of Narain Singla v. PCIT reported in 62 taxmann.com 255 (Chandigarh-Trib.). It was further submitted that in response to notice dated 08.08.2016, reply was submitted by the assessee during the course of assessment proceedings. In response to notice dated 11.07.2017, wherein, the assessee was asked to produce the Audited Report 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 wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he rival contentions and pursued the material available on record. The undisputed facts which are emerging from the records are that the assessee society has been assessed in the status of an AOP and its taxable income has been determined under the head "Income from other sources" under normal provisions of the Act. During the financial year relevant to the impugned assessment year, it 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/- totaling to Rs. 22,48,374/- and out of which, a sum total of Rs. 11,70,515/- which makes up almost 52% of these three expenses have been paid/incurred in cash. These facts as emerging from the ledger accounts and books of accounts were very much part of the assessment records and there is no dispute regarding the same and has not been challenged by the assessee either before the ld. CIT(E) or before us. The question 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....qually applicable where the income is assessed and brought to tax under the head "Income from other sources" as in the instant case as rightly held by the ld. CIT(E). The provisions of section 40A(3) mandates examination of expenditure on touchstone of conditions specified therein including exceptions so provided under Rule 6DD where the expenditure otherwise qualify as an allowable expenditure. The AO cannot pick and choose one test and related provisions for the other rather he is expected to apply the test and related provisions jointly and in an holistic manner. And where the AO does a pick and choose, he would be applying the law partly and in that sense, it would be incorrect application of complete law as applicable. In the instant case, we find that more than 50% of these expenses have been incurred in cash exceeding Rs. 20,000/- per day, therefore, these are cash transactions spreading throughout the financial 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....