2022 (5) TMI 507 - AT - Income Tax

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 ... Payment of expenses in cash - Addition being cash payment in contravention to the provisions of section 40A(3) - CIT(A) in appeal proceedings analyzed the issue in detail and has agreed to assessee's contention that the ld. A.O. has not pointed out any specific payment exceeding Rs. 20,000/- in contravention of section 40A(3) - HELD THAT:- In the case of ACIT v. Shree Shanmughar Gunny Stores [1982 (10) TMI 14 - MADRAS HIGH COURT] it was held that a single payment exceeding the specified amount made to a party would be covered by the sub-section, though it relates to different items of expenditure. The assessee has submitted before Ld. AO that assessee settles account with printer, once or twice a month as per outstanding amount. However, payments have been made to different parties as per their separate invoices raised by them and no payment is in excess of limit specified u/s. 40A(3) of the Act. We are therefore in agreement with assessee who has provided detailed branch-wise breakup of expenses incurred in cash, that if separate invoices have been raised in respect of each payment by various parties and payment on a single day to a party does not exceed Rs. 20,000/- then there is no reason to disturb the findings of the Ld. CIT(A). We therefore restore the case to the file of Ld. AO with a direction for verification on a limited point whether separate invoices were raised by various parties and separate payments have been made by assessee not exceeding Rs. 20,000/- against such individual invoices as per Chart furnished by the assessee - matter is restored to the file of Ld. AO for carrying out necessary verification as per directions given. Validity of reopening of assessment u/s 147 - reopening based on Audit objection - HELD THAT:- We would like to place reliance on the decision of ITAT Hyderabad in the case of ITO v. Mayuri Construction [2021 (8) TMI 790 - ITAT HYDERABAD] wherein the ITAT held that reopening based on Audit objection is valid if cash payments above Rs. 20000 has escaped scrutiny. Moreover, we note that from reasons recorded, Ld. AO has also independently applied his mind to the issue, while initiating re-assessment proceedings. Whether reopening of assessment proceedings can be initiated on account of change of opinion or not? - A perusal of original assessment order dated 23/01/2013 does not seem to indicate that the Ld. AO has applied his mind to the issue of disallowance on account of cash payment in excess of Rs. 20,000/- u/s. 40A(3) of the Act. The assessee has placed reliance on questionnaire dated 01-04-2013 issued at the time of original assessment. However, a perusal of the same reveals that the said questionnaire is a general questionnaire and no specific query with regard to details of cash payment in relation to disallowance u/s. 40A(3) of the Act was specifically called for. Moreover, the assessee has not brought on record any submission filed by the assessee before the Ld. AO justifying payments in cash exceeding the specified limit u/s. 40A(3) of the Act. Therefore, from facts it is seen that Ld. AO has not applied his mind to the issue of disallowance u/s. 40A(3) of the Act. Therefore, this is not a case of change in opinion as averred by the assessee. Whether AO has erred both on facts and in law by passing order u/s. 143(3) r.w.s 147 of the Act, without providing reasons recorded to the assessee specifically asked for during the time of re assessment proceedings? - A perusal of assessee's facts reveals that he neither sought reason for re-opening of case on receipt of notice initiating re-assessment proceedings, nor did he object to reopening of reassessment proceedings. The reasons were sought almost two months after reply on merits was filed by the assessee and that too just 10 days before the Ld. AO completed the reassessment proceedings vide order dated 24-09-2015. We therefore, find no merit in Cross Objection No. 4 and the same is hereby dismissed. 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 EffectThe 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 ObjectionThe 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 OpinionThe 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 ReasonsThe 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.