Tribunal Restores Matter for Payment Verification under Section 40A(3)

The Tribunal restored the matter to the Assessing Officer for verification of payments under Section 40A(3). The Tribunal dismissed all cross objections raised by the assessee, with the order pronounced on 22-04-2022.

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Issues Involved:
1. Deletion of addition of Rs. 19,78,745/- under Section 40A(3) of the Income Tax Act, 1961.
2. Admission of appeal by the Assessing Officer (AO) on account of low tax effect.
3. Validity of reassessment proceedings initiated under Section 147 based on audit objection.
4. Validity of reassessment proceedings initiated under Section 147 on the ground of change of opinion.
5. Passing of order under Section 143(3) read with Section 147 without providing reasons recorded to the assessee.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 40A(3)
The Revenue appealed against the deletion of Rs. 19,78,745/- by the CIT(A), which was added by the AO for cash payments exceeding Rs. 20,000/-. The assessee contended that payments were made to various parties, none exceeding Rs. 20,000/-. The CIT(A) found no single payment exceeding Rs. 20,000/-, and deleted the addition. However, the Tribunal noted that it was unclear whether payments exceeding Rs. 20,000/- were made to a single party under consolidated invoices. The Tribunal restored the case to the AO for verification of whether separate invoices were raised by various parties and payments did not exceed Rs. 20,000/-.

Issue 2: Admission of Appeal on Account of Low Tax Effect
The assessee argued that the appeal should not be admitted due to low tax effect, as per Circular No. 03 of 2018. The Tribunal dismissed this objection, citing that the case fell under exceptions provided for low tax effect, specifically where Revenue Audit objection was accepted by the Department, as supported by the Gujarat High Court in Pr. CIT v. Kunj Infrastructure (P.) Ltd.

Issue 3: Validity of Reassessment Based on Audit Objection
The assessee argued that reassessment under Section 147 based on audit objection was impermissible. The Tribunal relied on ITAT Hyderabad's decision in ITO v. Mayuri Construction, which upheld reassessment based on audit objections if cash payments above Rs. 20,000/- escaped scrutiny. The Tribunal noted that the AO independently applied his mind while initiating reassessment.

Issue 4: Validity of Reassessment on Change of Opinion
The assessee claimed reassessment was based on a change of opinion. The Tribunal found no indication in the original assessment order that the AO had applied his mind to disallowance under Section 40A(3). The Tribunal observed that the questionnaire issued during the original assessment was general, with no specific query on cash payments. Thus, it was not a case of change in opinion.

Issue 5: Passing of Order without Providing Reasons
The assessee contended that the AO passed the reassessment order without providing reasons recorded for reopening. The Tribunal noted that the assessee did not seek reasons upon receiving the notice and only requested them two months later, just before the reassessment order was passed. The Tribunal found no merit in this objection, referencing the Supreme Court's procedure in GKN Driveshafts v. ITO, which mandates seeking reasons promptly upon notice.

Conclusion:
The Tribunal restored the matter to the AO for verification regarding payments under Section 40A(3). All cross objections raised by the assessee were dismissed. The order was pronounced in the open court on 22-04-2022.

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