2022 (5) TMI 1527 - AT - Income Tax

Assessee's Cross Objection upheld, assessment reopening quashed, Revenue's appeals dismissed.

The Tribunal allowed the assessee's Cross Objection, quashed the reopening of the assessment, and dismissed the Revenue's appeals for both A.Y. 2012-13 ... Reopening of assessment u/s 147 - maintainability of the proceeding initiated u/s 147 - change of opinion - Addition u/s 40A(3) - HELD THAT:- The power of the Ld. AO of reopening of assessment can be exercised only with the availability of “tangible material”. But we repeat that we do not find any tangible material in possession of the Ld. AO which could lead to the reason to believe that payment made by the assessee is in contravention to the provision of Section 40A(3) of the Act and further to come to a conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief culminating into reopening of assessment u/s 147 - The case in hand is nothing but mere change of opinion. Thus, respectfully relying upon the ratio laid down by Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT] in the absence of any tangible material the reopening of assessment is found to be not sustainable in law and thus hereby quashed. Disallowance u/s 40A(3) - purchase of livestock made by the assessee in cash from shepherd (farmer) on the count that such payment has been made exceeding Rs. 20,000/- in a day to the person(s) in violation of the provision - absence of confirmation to show that payments are covered under Rule 6DD of the I. T. Rules, 1962 - HELD THAT:- When the word livestock clearly appears in exception clause in Rule 6DDE(ii) regarding of any circular is not required, as of the opinion formed by the Ld. CIT(A). According to the clarification the word ‘produce of animal husbandry’ includes ‘livestock and meat’. Once the business of the assessee of livestock has been confirmed and approved by the Revenue as per the conditions specified in Para 4 of the Circular the appellant is not required to fulfill the conditions specified in the Circular which is applicable to the producer of meat and not in case of trader of livestock and therefore, the case of the assessee has been found squarely covered Rule 6DD and consequently no addition is found to be warranted. Decided against revenue. Disallowance of expenses - AO disallowed 1/5th of the total expenditure which was restricted on estimated basis to Rs. 5 lakhs by the CIT(A) in appeal preferred by the assessee - HELD THAT:- CIT(A) came to a finding that since the Ld. AO has made disallowance pointing out no specific defects in the books of accounts or any document submitted during the assessment proceeding, based on the facts and reasoning, the huge disallowance of 1/5th of the total expenditure as made by the Ld. AO found to be unsustainable. We are also in agreement with the view taken by the Ld. CIT(A) in finding the expenditure reasonable taking into consideration the turnover and the dynamic unorganized trade involved in assessee’s case and therefore, estimated disallowance of Rs. 5 lakhs according to us is just and proper for the reason already reflected in the order passed by Ld. CIT(A) without any ambiguity so as to warrant interference. This ground of appeal preferred by the Revenue is, thus, dismissed. Issues Involved:1. Maintainability of the appeal and condonation of delay.2. Legality of the reopening of assessment under Section 147 of the Income Tax Act.3. Disallowance under Section 40A(3) of the Income Tax Act for A.Y. 2012-13.4. Disallowance under Section 40A(3) of the Income Tax Act for A.Y. 2014-15.5. Disallowance of Rs. 35,72,673/- reduced to Rs. 5,00,000/- for lack of documentary evidence.Issue-wise Detailed Analysis:1. Maintainability of the Appeal and Condonation of Delay:The assessee filed a Cross Objection with a delay of 774 days. The delay was justified by the assessee's travel abroad and subsequent disruption due to the COVID-19 pandemic. The Hon’ble Supreme Court's direction extending the limitation period due to the pandemic was cited. The Tribunal found sufficient cause for the delay and condoned it, allowing the Cross Objection to be heard.2. Legality of the Reopening of Assessment under Section 147:The assessee argued that the reopening was based on a mere change of opinion without new tangible material. The original assessment under Section 143(3) did not mention any assessment under Section 40A(3). The Tribunal noted that all relevant details were provided during the original assessment and that the reopening was indeed based on a change of opinion. Citing the Supreme Court's judgment in CIT vs. Kelvinator of India Ltd., the Tribunal concluded that the reopening was not sustainable in law due to the lack of tangible material.3. Disallowance under Section 40A(3) for A.Y. 2012-13:Given that the reopening of the assessment was quashed, the related appeal by the Revenue regarding the disallowance under Section 40A(3) became infructuous and was dismissed.4. Disallowance under Section 40A(3) for A.Y. 2014-15:The Revenue challenged the CIT(A)’s decision to restrict the disallowance from Rs. 4,62,50,000/- to Rs. 8,10,000/-. The Tribunal observed that the assessee's business involved purchasing livestock from unorganized, illiterate farmers who required cash payments. The CIT(A) found that the payments were genuine and covered under Rule 6DD(e)(ii), which exempts certain payments from disallowance under Section 40A(3). The Tribunal upheld the CIT(A)’s decision, noting that the disallowance should be based on the profit element rather than the entire turnover, following the precedent set by the Gujarat High Court in CIT vs. Bholanath Poly Fav (P) Ltd.5. Disallowance of Rs. 35,72,673/- Reduced to Rs. 5,00,000/-:The assessee failed to produce concrete evidence for expenses totaling Rs. 1,78,63,369/-, leading to a disallowance of Rs. 35,72,673/- by the AO. The CIT(A) reduced this to Rs. 5,00,000/- based on the reasonableness of the expenses in relation to the turnover and the nature of the business. The Tribunal agreed with the CIT(A), finding the estimated disallowance of Rs. 5,00,000/- to be just and proper.Conclusion:The Tribunal allowed the assessee’s Cross Objection, quashed the reopening of the assessment, and dismissed the Revenue’s appeals for both A.Y. 2012-13 and A.Y. 2014-15, upholding the CIT(A)’s decisions.