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AO Fails To Scrutinize Cash Payments By Assessee Under Lens Of Sec 40A; Indore ITAT Upholds Revisional Interference U/s 263

April 3, 2024

On finding a lack of inquiry on the part of AO in allowing cash sales, which renders the assessment order erroneous so far as it is prejudicial to the interests of revenue, the Indore ITAT upheld the order of disallowance u/s 40A(3) of the Income Tax Act, passed by Pr. CIT by invoking Section 263.

The Bench of the ITAT comprising of Vijay Pal Rao (Judicial Member) and Manish Borad (Accountant Member) observed that “If the assessee takes a plea that the payment in cash was made as per the demand of the seller then it is up to the AO to conduct inquiry to verify this fact from the seller itself, but in the absence of any query or inquiry conducted by the AO, the question of any explanation by the assessee to claim that the case of the assessee falls in the exception provided under Rule 6DD of the Income-tax Rules is pre matured.” (Para 11)

As per the brief facts of the case, the assessee is a builder and developer and filed his return of income declaring total income. The scrutiny assessment was completed at the returned income. Thereafter, the Pr. CIT initiated proceedings u/s 263 by issuing show cause notice and taken up the issue of disallowance u/s 40A(3), in respect of cash payment for purchase of immovable property (Land).

The Bench noted that the AO did not raise any query on the issue of disallowance u/s 40A(3). Therefore, the AO has not taken up this issue for scrutiny.

The Bench observed from the record that it is a case of absolute lack of inquiry on the part of AO on the issue of disallowance u/s 40A(3) despite the payment of cash by the assessee is not in dispute.

The Bench further observed that when the AO has not taken up the issue for scrutiny, then the question of taking a possible view on the part of the AO does not arise.

Therefore, on finding no error or illegality in the impugned order of the Pr. Commissioner of Income, ITAT dismissed the appeal filed by the assessee.

Counsel for Appellant/Taxpayer: Anil Khandelwal

Counsel for Respondent/Department: Ashish Porwal

Case Title: Shri Bharat Jaroli verses Pr. CIT

Case Number: ITA No.753/Ind/2019