Case Law Details
ITO Vs Rahul Bharatbhushan Jain (ITAT Ahmedabad)
Therefore, for applicability of s. 40A(3) of the Act, if a person makes different payments in cash to same person in excess of Rs 20,000 (w.e.f. A.Y. 2018-19 Rs 10000/-) in a single day even though on separate cash memos, such aggregate payment will be disallowed u/s 40A(3). For example if A makes three payments of Rs 8000 each to the same person during different time of the day and obtains three different cash memos, yet the transaction will be covered by section 40A(3) and such expenditure will be disallowed. Now, in the instant case, the Ld. Counsel for the assessee has submitted that no payment (single or aggregate) has been made to a single party in excess of Rs. 20,000/-. In principle, we agree with the contention of the assessee that if the above is true and correct, then there is no reason to disturb the findings of Ld. CIT(A). However, from data submitted before us, it is unclear to us whether separate invoices have been raised by various parties and accordingly separate payments disbursed to them are within the permissible limit of Rs. 20,000/-. For instance, in the above example of M/s Laxmi Offset, though the assessee, has given a break-up of expense amount to Rs. 44,220/- , but it is unclear from records, whether separate invoices have been raised by respective parties and separate payments have been made to them, not exceeding Rs. 20,000/- in aggregate, or entire payment of Rs. 40,220/- has been made in aggregate to M/s Laxmi Offset on consolidated invoice raised by it. The assessee has not furnished any supporting vouchers or invoices raised by the various parties against which payments have been made. Similar payments to various parties have also been observed from the Chart furnished by the assessee at pages 18 to 20 of the paper book containing branch wise details of printing expenses. In the case of ACIT v. Shree Shanmughar Gunny Stores 146 ITR 600 (Mad), 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 the Ld. Counsel for the 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.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The appeal filed by Revenue and Cross Objection filed by the assessee are against the order of the ld. Commissioner of Income Tax (Appeals), Ahmedabad-10 in Appeal no. CIT(A), Ahmedabad-10/10642/2015-16 vide order dated 25/09/2015 passed for the assessment year 2011-12.
2. The Revenue has raised following grounds of appeal:-
“(1) The ld. CIT(A) has erred in law and in the facts & in circumstances of the case by deleting the addition of Rs. 19,78,745/-being cash payment in contravention to the provisions of section 40A(3) of the I.T. Act, 1961.
(2) If is, therefore, prayed that the order of Id. CIT(A) may be set aside and that of the Assessing Officer be restored.”
3. The assessee has raised following grounds in the Cross Objection:-
“1. The appeal filed by the Ld. AO should not be admitted on account of low tax effect as the Ld. CIT(A) has decided the appeal only on merit of the case not on any issues as are specified in para 10 of the Circular No. 03 of 2018 dated 11.07.2018. Accordingly, Ld. AO has taken adverse advantage of para 10 of Circular No. 03 of 2018 that should not be allowed.
2. The learned AO has erred both on facts and in law by initiating reassessment proceedings u/s 147 of the Act, on account of merely audit objection only, which is not permissible in the eyes of Law. Later on Ld. CIT (A) also erred by not giving his findings on the legal issue that reopening of assessment proceedings can be initiated only on Audit objection or not?
3. The learned AO has erred both on facts and in law by initiating reassessment proceedings u/s 147 of the Act, on account of change of opinion. Later on, Ld. CIT (A) also erred by not giving his findings on the legal issue that reopening of assessment proceedings can be initiated on account of change of opinion or not?
4. The learned 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.
5. Un-necessary cost incurred by the assessee due to this appeal must be awarded to the assessee.
6. The assessee craves for liberty to amend, modify and add any grounds of cross objection of appeal and file additional evidences.”
4. The brief facts of the case are that the assessee is engaged in the business of newspaper printing and publishing. For A.Y. 2011-12, assessment was completed u/s. 143(3) of the Act at total income of Rs. 2,87,710/- vide order dated 23-01-2014. Subsequently, the ld. A.O. initiated re-assessment proceedings on the ground that the assessee had made an expenditure of Rs. 19,78,745/- in cash which was in contravention of provision of section 40A(3) of the Act and therefore the same was liable to be disallowed. Before the ld. A.O, the assessee submitted that he has three branches- at Ahmedabad, Surat and Baroda and the payment debited in the ledger account of printing charges of all three branches is made in cash to various parties and not to any one single party even though the payments are made on a single day since the assessee settles the accounts with the parties once or twice a month as per the outstanding amount. The ld. A.O. however rejected the arguments of the assessee and held that the amount of Rs. 19,78,745/- claimed under the head printing charges for which payment is made in cash in contravention to section 40A(3) of the Act is not allowable. The ld. A.O. made the following observations while passing the assessment order:-
“The above reply of the assessee has been considered carefully. It is seen from the details furnished that the amount shown in the ledger account of expenses as cash payment to various parties do not tally from the copies of bills furnished by the assessee. The assessee in the reply has attempted to explain that the amounts of payment exceeding Rs.20,000/- as shown in the ledger are in fact paid to various parties below Rs. 20,000/-. However, the assessee’s contention has not been found to be correct after verification of the bills. Accordingly, it is held that the amount of Rs.19,78,745/- claimed under the head printing charges for which payment is made in contravention to section 40A(3) of the Act is not allowable and as such the same is disallowed and added to the total income of the Assessee. The Penalty proceedings are initiated u/s 271(1)(c) r.w.s 274 of the l.T. Act for concealment of income by furnishing inaccurate particulars of income on this issue.”
5. The assessee filed an appeal before the ld. CIT(A), who allowed the assessee’s appeal by holding that the ld. A.O. has not pointed out any payment made to any party exceeding Rs. 20,000/-. The ld. CIT(A) observed as under while passing the order:-
“5. Before me, the appellant has filed a paper book in which the derails of payments made at Baroda office, Surat office and Ahmedabad office were summarized. No payment to single party in these transactions is above Rs. 20,000/-. These details are certified to be filed before the Assessing Officer. The appellant has also produced the corresponding vouchers before me, which were test checked. It was also pointed out by the appellant that Ahmedabad office in the case of ‘Laxmi Offset’, only part payment was made to this party. Therefore, the amount entered in the bill was not matching with the payment. He further reiterated that no payment to single party exceeded Rs. 20,000/-. No such payment has been also pointed out by the Assessing Office in his order. Accordingly the addition of Rs. 19,78,747 is deleted and the ground no. 2 of appeal is allowed.”
6. Before us, the ld. D.R. drew our attention to the observations of ld. A.O. at page 4 of the assessment order wherein the ld. AO has observed that from the details furnished, it is seen that the amount shown in the ledger of expenses as cash payment to various parties do not tally with the copies of bills furnished by the assessee. The assessee has attempted to explain that the amounts of payment exceeding Rs. 20,000/- as shown in the ledger are in fact paid to various parties are below Rs. 20,000/-, however, the assessee’s contention was not found to be correct after verification of the bills. The ld. counsel for the assessee in response submitted that the ld. CIT(A) has analyzed this aspect in appeal and had also analyzed corresponding vouchers on test check basis and after recording due satisfaction had given relief to the assessee. The ld. counsel for the assessee drew our attention to pages 18 to 20 of the paper book containing branch wise details of printing expenses for the captioned year. The ld. counsel for the assessee submitted that the assessee has made payments to various parties (although they are settled in a single day), however no payment was made to any single party in cash above Rs. 20,000/- in violation of section 40A(3) of the Act. Further, the ld. counsel submitted that the ld. A.O. has not pointed out any specific instance/party to whom payment in excess of Rs. 20,000/- was made.
7. We have heard the rival contentions and perused the material on record. We observed that the ld. 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) of the Act. On going through the paper book filed by the assessee before us at pages 18 to 20, it may be seen from table furnished that assessee has made several payments in excess of Rs. 20,000/-. We are however unclear on whether the figure of payment exceeding Rs. 20,000/- in a single day is in respect of separate invoices by several parties or a consolidated single invoice raised by one party. Now, for instance, in case of Baroda Branch of the assessee, a payment of Rs. 44,220/- was made to M/s Laxmi Offset on 22/04/2010. The assessee has given a bifurcation that this payment consists of various charges being separately paid to various parties for separate works carried out by them, and aggregate of each payment to a single party does not exceed Rs. 20,000/- in a single day. However, from records, it is unclear whether separate invoices were raised by the respective parties (as given in bifurcation given in 18 to 20 of Paper-Book) or whether payments of entire sum of Rs. 44,220/- was made to a single party M/s Laxmi Offset on a single day on 22/04/2010 under a consolidated invoice raised by the latter. The assessee has not furnished any supporting vouchers or invoices raised by the various parties against which payments have been made. Similar instances have been found in respect of various other payments appearing to M/s Laxmi Offset on 23/05/2010 (Rs. 42,410/-) and again on 23/07/2010 (Rs. 47,310/-) and also to various other parties like M/s Arihant Printing Press (Rs. 29, 420/-) on 22/09/2010 for its Surat branch. The Counsel for the assessee has also submitted that vouchers were produced before Ld. CIT(A) on test check basis and Ld. CIT(A) also recorded due satisfaction that no payment to a single party has been in excess of Rs. 20, 000/-.
8. Now, section 40A(3) of the Act is an anti-abuse provision aimed at discouraging cash payment above a specified limit to a single party. Section 40A(3) of the Act (as applicable for year under consideration) is being reproduced hereunder:
3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, [or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], exceeds twenty thousand rupees,] no deduction shall be allowed in respect of such expenditure.
Therefore, for applicability of s. 40A(3) of the Act, if a person makes different payments in cash to same person in excess of Rs 20,000 (w.e.f. A.Y. 2018-19 Rs 10000/-) in a single day even though on separate cash memos, such aggregate payment will be disallowed u/s 40A(3). For example if A makes three payments of Rs 8000 each to the same person during different time of the day and obtains three different cash memos, yet the transaction will be covered by section 40A(3) and such expenditure will be disallowed. Now, in the instant case, the Ld. Counsel for the assessee has submitted that no payment (single or aggregate) has been made to a single party in excess of Rs. 20,000/-. In principle, we agree with the contention of the assessee that if the above is true and correct, then there is no reason to disturb the findings of Ld. CIT(A). However, from data submitted before us, it is unclear to us whether separate invoices have been raised by various parties and accordingly separate payments disbursed to them are within the permissible limit of Rs. 20,000/-. For instance, in the above example of M/s Laxmi Offset, though the assessee, has given a break-up of expense amount to Rs. 44,220/- , but it is unclear from records, whether separate invoices have been raised by respective parties and separate payments have been made to them, not exceeding Rs. 20,000/- in aggregate, or entire payment of Rs. 40,220/- has been made in aggregate to M/s Laxmi Offset on consolidated invoice raised by it. The assessee has not furnished any supporting vouchers or invoices raised by the various parties against which payments have been made. Similar payments to various parties have also been observed from the Chart furnished by the assessee at pages 18 to 20 of the paper book containing branch wise details of printing expenses. In the case of ACIT v. Shree Shanmughar Gunny Stores 146 ITR 600 (Mad), 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 the Ld. Counsel for the 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.
9. In the result, matter is restored to the file of Ld. AO for carrying out necessary verification as per directions given in the preceding paragraph.
10. Now we shall deal with the Cross Objections filed by the assessee.
Cross Objection 1. The appeal filed by the Ld. AO should not be admitted on account of low tax effect as the Ld. CIT(A) has decided the appeal only on merit of the case not on any issues as are specified in para 10 of the Circular No. 03 of 2018 dated 11.07.2018. Accordingly, Ld. AO has taken adverse advantage of para 10 of Circular No. 03 of 2018 that should not be allowed.
10.1 The Assessee’s case is falling in exceptions provided for low tax effect under sub-clause (c) of Para of the Circular No. 03 of 2018 dated 11.07.2018, which is to the effect that embargo against filing of appeal in case of low tax effect shall not apply where Revenue Audit objection has been accepted by the Department. Moreover, this issue is covered by the Jurisdictional Gujarat High Court on similar set of facts in the case of Pr. CIT v. Kunj Infrastructure (P.) Ltd [2019] 109 taxmann.com 401 (Gujarat). In this case, the Revenue authorities filed appeal before Tribunal challenging disallowance deleted by appellate authority under section 40A(3) in respect of payment of legal fee. The Tribunal relying upon Circular dated 10-12-2015, dismissed said appeal on ground of low tax effect. The Revenue filed instant appeal contending that case had been reopened on basis of revenue’s audit objection and, in such circumstances, same would be covered under exception mentioned in Circular dated 11-72018. The Hon’ble Gujarat High Court held that Tribunal should have decided issue on merits rather than dismissing appeal on ground of low tax effect. This issue is covered by jurisdictional Gujarat High Court, and hence this Cross-objection No. 1 is hereby dismissed.
11. In the result, Cross Objection No. 1 of the assessee is dismissed.
12. Cross Objection No. 2. The learned AO has erred both on facts and in law by initiating re-assessment proceedings u/s 147 of the Act, on account of merely audit objection only, which is not permissible in the eyes of Law. Later on Ld. CIT (A) also erred by not giving his findings on the legal issue that reopening of assessment proceedings can be initiated only on Audit objection or not.
12.1 We would like to place reliance on the decision of ITAT Hyderabad in the case of ITO v. Mayuri Construction ITA No.1740/Hyd/2018, 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.
13. In the result, Cross Objection No. 2 of the assessee is dismissed.
14. Cross Objection No. 3. The learned AO has erred both on facts and in law by initiating re-assessment proceedings u/s 147 of the Act, on account of change of opinion. Later on, Ld. CIT (A) also erred by not giving his findings on the legal issue that reopening of assessment proceedings can be initiated on account of change of opinion or not?
14.1 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.
15. In the result, Cross Objection No. 3 of the assessee is dismissed.
16. Cross Objection No. 4. The learned 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.
16.1 A perusal of the paper book filed by the Ld. Counsel of the assessee and also Certificate under Rule 18 of ITAT Rules at page 1 of the Paper Book shows that reassessment proceedings were initiated for the captioned year vide notice dated 08-09-2014. The assessee did not respond to the same. The Ld. AO in the 147 order specifically noted that neither return of income was furnished by the assessee, nor did the assessee seek reasons recorded for reopening assessment in response to the above notice. Thereafter, another notice dated 17-07-2015 was issued asking for certain details in connection with proposed addition u/s 40A(3) of the Act. In response thereto, the assessee filed letter dated 28-07-2015, from wherein it is seen that the assessee has replied on merits in response to Ld. AO’s notice, but neither has he objected to reopening of assessment nor has he sought reasons for reopening of assessment. The assessee sought for reasons of reopening of assessment almost after two months thereafter on 15-092015 just before the Ld. AO passed the order u/s 147 of the Act dated 24-092015. The Hon’ble Supreme Court in the case of GKN Driveshafts v. ITO 259 ITR 19 (SC) (2002) has laid down a specific procedure to be adopted by the assessee on issuance of notice u/s 148 of the Act seeking reopening of assessment, which is reproduced below for reference:
We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.
16.2 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.
17. In the result, the Cross Objection No. 4 of the assessee is dismissed.
18. Cross Objections 5 and 6 are general in nature and do not require any specific adjudication.
19. In the combined result, the matter is restored to file of Ld. AO for carrying on necessary verification as per directions given above. The Cross Objections of the assessee are dismissed.
Order pronounced in the open court on 22-04-2022
