The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that disallowances under Section 40A (3) of the Income Tax Act, 1961 are not applicable when payment was by account payee cheque or account payee demand draft.
The assessee filed an original return of income admitting total income at Rs.3,82,06,896/-. The limitation for issuance of notice under Section 143(2) of the Income Tax Act was expired. Search action was conducted by Income-tax Department under Section 132 of the Income Tax Act.
The Assessing Officer (AO) issued a notice under Section 142(1) of the Income Tax Act and proposed to make additions and disallowances in respect of the purchase of properties in cash in violation of provisions of Section 40A(3) of the Income Tax Act amounting to Rs.45,50,132/-.
The assessee raised the ground of assumption of jurisdiction by the Assessing Officer in framing assessment without any incriminating material or seized material since the assessment has abated and hence, the assessment completed under Section 153A of the Income Tax Act without any incriminating or seized material is bad in law.
The counsel for the assessee stated that a search under Section 132 of the Income Tax Act was conducted on the premises of the assessee and stated that there is no incriminating material unearthed by the Income-tax Department during the course of the search which is used for the purpose of framing of assessment under Section 153A of the Income Tax Act.
The Departmental Representative drew our attention to the judgment of the Kerala High Court in the case of CIT vs. M/s. ST.Francis Clay Décor Tiles, wherein it was referred to the following “Therefore, any material which was unearthed during search operations or any statement made during the course of search by the assessee is a valuable piece of evidence in order to invoke section 153A of the Income-tax Act, 1961.”
Therefore, the Departmental Representative stated that the statement recorded during the course of the search of the assessee is a valuable piece of evidence in order to invoke the provisions of section 153A of the Act.
The assessee stated that she is a partner in a partnership firm and doing real estate business along with her husband but for maintenance of accounts and details of properties, she stated that she doesn’t know anything, her husband only knows.
The Assessing Officer has entirely based his decision on purchase deeds which are accounted for by the assessee in her books of accounts and it cannot be called that these purchase deeds are unaccounted or incriminating.
The two-bench member consisting of Mahavir Singh (Vice-president) and Manjunatha G (Accountant member) quashed the assessment order and reverse the order of the Commissioner of Income Tax (Appeal) and the Assessing Officer in favour of the assessee.
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