Case Law Details
ITO Vs Mayuri Constructions (ITAT Hyderabad)
The brief facts of the case are that the assessee is a firm engaged in the business as civil contractor filed its return of income for the AY 2008-09 on 14/10/2008 declaring total income of Rs. 65,254/-. Initially, the return was processed U/s. 143(1) of the Act and thereafter the assessment was completed U/s. 143(3) of the Act wherein the assessee’s income was assessed at Rs. 2,85,250/-. Subsequently, it was revealed by the Revenue’s Audit party that the assessee had made cash payments exceeding Rs. 20,000/- aggregating to Rs. 21,94,715/-towards expenditure which attracts the provisions of section 40A(3) of the Act and thereby the same has to be disallowed. Therefore, the Ld. AO on agreement with the finding of the Revenue’s Audit reopened the assessment U/s. 147 of the Act which was beyond the period of four years from the end of the relevant assessment year however within the limitation period specified under the Act. During the course of re-assessment proceedings, the Ld. AO once again examined the books of accounts of the assessee and found the observation of the Audit Party to be correct. The Ld. Counsel of the assessee Shri K. Khaja Hussain, Chartered Accountant had appeared on behalf of the assessee however, he could not controvert to the findings of the Ld. AO. Therefore, the Ld. AO disallowed the expenditure incurred amounting to Rs. 21,94,715/-against which cash payment were made exceeding Rs. 20,000/- and added to the income of the assessee.
On appeal, the Ld. CIT (A) citing the decision of the case CIT vs. P.J. Chemicals Limited reported in 210 ITR 830 held that the initiation of proceedings U/s. 147 of the Act is not valid in the case of the assessee because it was initiated based on audit objection. Further, the Ld. CIT (A) deleted the disallowance made by the Ld. AO U/s. 40A(3) of the Act.
Aggrieved by the order of the Ld. CIT (A), the Revenue is now on appeal before us.
ITAT find the decisions relied by the Ld.CIT(A) Viz., CIT vs. P.J. Chemicals Limited reported in 210 ITR 830 is not on the issue. Moreover on merits, ITAT find the 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 Rs. 20,000/- aggregating to Rs. 21,94,715/-. In fact 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. Further since the Ld. CIT (A) has not obtained a remand report from the AO on the issue, his observations cannot be accepted. From the above discussions, I hereby hold that the reopening of the assessment by the Ld. AO based on the Audit Objection is valid and I further hold that the order of the Ld. CIT (A) is devoid of merits and accordingly I hereby reinstate the order of the Ld. AO.
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For a better understanding and tight grip of the essence of the Pr. COMMENT(:
https://taxguru.in/income-tax/summary-draft-report-easwar-committee-simplify-provisions-incometax-act-1961.html
<…………….(e) No re-opening or revision of assessments under sections 147 and 263 respectively merely on the basis of audit objections………”
The point of ISSUE is whether or not ‘reopening of an assessment’ based on ‘Audit objection’ is valid and sustainable in law . Prima facie, the stated general proposition has been favourably decided by courts severally /many a time . As such, there is no rationale, or rhyme or reason in the view taken conceding /upholding the Revenue’s stance that has to be decided depending upon whether or not the amount that has escaped ‘scrutiny assessment’ in a given case is no less than the arbitrarily fixed sum of Rs 20000. The Revenue’s stance is, apparently,devoid of any substance or merit in the eyes of ‘the law’/ case law; more so, if considered with due focus on the supervening PRINCIPLES OF NATURAL JUSTICE .
One has to await developments in the most likely further proceedings.
Meanwhile, anyone with eminent thoughts / expert views to share in a like vein !?!
I agree with vswami. Audit objection is an information. All the facts were placed before the AO during assessment. AO should not proceed based on audit objection as it also tantamounts to change of opinion. This is my view with due respects to those concerned.