Tribunal upholds assessment reopening under IT Act; disallows taxi fare, dish charges. AO to verify remote area expenses.

The Tribunal upheld the validity of reopening the assessment under Section 147 of the IT Act, finding it based on factual details of cash expenditures exceeding Rs. 20,000, not merely audit opinion. The disallowance of taxi fare and dish installation charges under Section 40A(3) was upheld as not essential for the business. The Tribunal directed the AO to verify if dish installation charges were incurred in remote areas without banking facilities. The Miscellaneous Application was partly allowed, with the order pronounced on 20/05/2019.

---

---

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the IT Act.
2. Disallowance of expenditures under Section 40A(3) of the IT Act.

Detailed Analysis:

1. Validity of Reopening the Assessment:

The assessee sought rectification of mistakes in the Tribunal's order dated 26.02.2019, challenging the validity of reopening the assessment on the grounds that it was based on a change of opinion and audit objection, not on the Assessing Officer’s (AO) independent opinion. The Tribunal reviewed the submissions and found that the original assessment was completed under Section 143(3) on 20.02.2014. An audit objection dated 26.06.2015 highlighted that the assessee incurred expenditures on dish installation charges and taxi fare payments in cash, exceeding Rs. 20,000, violating Section 40A(3). Consequently, the AO reopened the assessment by issuing a notice under Section 148 on 08.09.2015.

The Tribunal noted that the reopening was based on factual details of cash expenditures exceeding Rs. 20,000, not merely on the audit party's opinion. The AO considered these facts while recording reasons for reopening, making it a valid case of reopening based on tangible material. The Tribunal emphasized that the AO had not examined the issue of allowability of cash expenditures under Section 40A(3) in the original assessment, thus, reopening was justified. The Tribunal concluded that the reopening was within four years from the end of the relevant assessment year, making the proviso to Section 147 inapplicable. Therefore, the Tribunal found no error or illegality in the AO’s action of reopening the assessment for the assessment year 2011-12.

2. Disallowance of Expenditures under Section 40A(3):

The assessee contested the Tribunal's observation that taxi fare and dish installation charges were not essential expenditures for the business. The Tribunal had noted that the AO disallowed these expenditures by invoking Section 40A(3), as each payment exceeded Rs. 20,000 and was made in cash. The Tribunal upheld the AO's disallowance, stating that these expenditures were not inevitable or essential for the assessee’s business, and alternative means of transport were available.

Regarding dish installation charges, the Tribunal observed that this activity was not part of the assessee’s main business, and no income from dish installation was shown in the Profit & Loss account. However, the assessee claimed that activation charges in the Profit & Loss account represented income from dish installation. The Tribunal found no material evidence to support this claim and thus upheld the disallowance under Section 40A(3).

The Tribunal modified its observation, stating that the nature of dish installation expenditures needed verification to determine if they were incurred in remote areas without banking facilities. The AO was directed to verify these facts and reassess the disallowance of dish installation charges under Section 40A(3).

Conclusion:

The Tribunal upheld the reopening of the assessment as valid and justified under Section 147. It also upheld the disallowance of taxi fare and dish installation charges under Section 40A(3), with a directive for the AO to verify specific facts regarding the dish installation expenditures. The Miscellaneous Application was partly allowed, and the order was pronounced on 20/05/2019.

---