2021 (8) TMI 790 - AT - Income Tax

Validity of Reopening Assessment & Cash Payment Disallowance Upheld

The ITAT Hyderabad allowed the Revenue's appeal, reinstating the Ld. AO's order on the validity of reopening the assessment based on audit objection and ... Addition u/s 40A(3) - assessee had made cash payments exceeding ₹ 20,000/- - CIT-A deleted the addition - HELD THAT:- AO is right in his rem to reopen the assessment based on the Revenue’s audit report. - Order of the Ld. CIT (A) to be de void of merit because he has not given a categorical finding as to why the provisions of section 40A(3) of the Act would not be attracted in the case of the assessee even though assessee had made cash payments exceeding ₹ 20,000/- aggregating to ₹ 21,94,715/-.- he has simply brushed aside the issue by stating that all those payments were made during bank holidays which falls under exceptions mentioned in Rule 6DD of the IT Rules, 1962 without giving a clear cut finding on that regard - Decided in favour of revenue. Issues:1. Validity of reopening assessment based on audit objection.2. Disallowance of cash payments exceeding Rs. 20,000 under section 40A(3) of the Act.Issue 1: Validity of reopening assessment based on audit objection:The appeal was filed by the Revenue against the order of the Ld. CIT (A), challenging the initiation of proceedings under section 147 of the Act, which was beyond the four-year period from the end of the relevant assessment year. The Revenue contended that the audit objection raised by the Revenue's Audit party justified the reopening of the assessment. The Ld. AO disallowed the expenditure incurred by the assessee based on the audit findings. The Ld. CIT (A) held that the initiation of proceedings under section 147 was not valid, citing the decision in CIT vs. P.J. Chemicals Limited. However, the ITAT Hyderabad reinstated the order of the Ld. AO, emphasizing that the reopening of the assessment based on the audit objection was valid in law. The Tribunal highlighted a Supreme Court decision where it was established that reopening based on factual information provided by the audit party is permissible under the law.Issue 2: Disallowance of cash payments exceeding Rs. 20,000 under section 40A(3) of the Act:The Revenue contended that the disallowance made by the Ld. AO under section 40A(3) of the Act was valid, as the assessee had made cash payments exceeding Rs. 20,000 without satisfying the genuineness of the transactions and the identity of the payee. The Ld. CIT (A) deleted the disallowance, citing Rule 6DD(j) exemptions and stating that the payments were made during bank holidays. However, the ITAT Hyderabad found the Ld. CIT (A)'s decision to be devoid of merit. The Tribunal noted that the Ld. CIT (A) did not provide a clear finding on why section 40A(3) would not be attracted, merely relying on the exception mentioned in Rule 6DD without obtaining a remand report from the AO. Consequently, the ITAT reinstated the order of the Ld. AO, upholding the disallowance of the cash payments exceeding Rs. 20,000.In conclusion, the ITAT Hyderabad allowed the Revenue's appeal, reinstating the order of the Ld. AO regarding the validity of reopening the assessment based on audit objection and the disallowance of cash payments exceeding Rs. 20,000 under section 40A(3) of the Act.