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2012 (10) TMI 561 - AT - Income TaxDisallowance of Payments made in Cash u/s 40A - payment of sister concerns - determination of nature of payment - payment towards expenditure or repayment of loan / advances - held that - the maximum amount that could be considered for disallowance under Section 40A(3) of the Act was Rs. 75,000/- for assessment year 2003-04 and Rs. 2,96,148.45 for assessment year 2004-05. - Insofar as the claim of the assessee that the payments were all made to sister concerns, there is no exemption given under Section 40A(3) for payments effected to sister concerns. - Decided against the assessee. Reopening of an assessment - supply of reasons to assessee - held that - when a notice under Section 148 was issued and assessee, after filing the return, sought reasons for the notice, Assessing Officer was bound to furnish the reasons within a reasonable time. - when any objections were filed by the assessee, Assessing Officer was bound to dispose of such objections by passing a speaking order. - If the said procedure is not followed, the orders of lower authorities have to be set aside and the matter remitted back to the file of the A.O. for re-adjudication after supplying copies of reasons recorded.
Issues Involved:
1. Disallowance under Section 40A(3) of the Income-tax Act, 1961. 2. Non-supply of reasons for reopening assessments under Section 148 of the Act. Issue-wise Detailed Analysis: 1. Disallowance under Section 40A(3): The Revenue appealed against the deletion of additions made by the Assessing Officer (A.O.) under Section 40A(3) of the Income-tax Act, 1961, which mandates disallowance of 20% of expenditure incurred through cash payments exceeding Rs. 20,000. The Revenue relied on the Supreme Court decision in Attar Singh Gurumukh Singh v. ITO and the jurisdictional High Court decision in CIT v. A.D. Jayaveerapandia Nadar & Sons. Case of M/s Kaleesuwari Refinery Pvt. Ltd. (Assessment Years 2003-04 and 2004-05): - The A.O. disallowed Rs. 9,17,400 for 2003-04 and Rs. 50,00,963 for 2004-05 due to cash payments to sister concerns. - The CIT(A) deleted these disallowances, accepting the assessee's argument that these were running accounts and not linked to specific expenditure. - The Tribunal found that the payments to Ananda Oil Corporation, Arun Oil Trade, GMS Traders, and Kaleeswari Oil Store were not against any specific expenditure, except for Rs. 75,000 in 2003-04 and Rs. 2,96,148.45 in 2004-05, which should be disallowed under Section 40A(3). Case of Shri M. Arun (Assessment Years 2003-04 and 2004-05): - Similar disallowances were made for cash payments to sister concerns. - The Tribunal held that payments to proprietorship concerns of the assessee (MKA Transports and Arun Oil Trade) cannot be considered as expenditure. - For 2003-04, only Rs. 32,36,569 paid to Kaleesuwari Refinery Pvt. Ltd. attracted disallowance under Section 40A(3). - For 2004-05, no disallowance was required as the payments were not against any expenditure. 2. Non-supply of Reasons for Reopening Assessments: The assessees objected to the reopening of assessments under Section 148 on the grounds that the A.O. did not provide the reasons for reopening despite specific requests, violating the Supreme Court's mandate in GKN Drive Shaft v. ITO. Case of Smt. M. Kaleesuwari and M/s Kaleesuwari Refinery Pvt. Ltd.: - Notices under Section 148 were issued, and the assessees requested the reasons for reopening, which were not provided. - The CIT(A) dismissed this ground, stating that ample opportunity was given during assessment proceedings. - The Tribunal acknowledged the procedural lapse and set aside the orders of the lower authorities, remitting the matter back to the A.O. for supplying the reasons for reopening and proceeding afresh. Summary of Judgments: - M/s Kaleesuwari Refinery Pvt. Ltd. (2003-04 and 2004-05): Disallowance under Section 40A(3) limited to Rs. 75,000 for 2003-04 and Rs. 2,96,148.45 for 2004-05. - Shri M. Arun (2003-04): Disallowance under Section 40A(3) limited to Rs. 32,36,569. - Shri M. Arun (2004-05): No disallowance required. - Smt. M. Kaleesuwari and M/s Kaleesuwari Refinery Pvt. Ltd. (Reopening under Section 148): Proceedings remitted back to the A.O. for supplying reasons for reopening. Final Orders: - Appeals of the Revenue for 2003-04 and 2004-05 in the case of M/s Kaleesuwari Refinery Pvt. Ltd. are partly allowed. - Appeal of the Revenue in the case of Shri M. Arun for 2003-04 is partly allowed, and for 2004-05 is dismissed. - Appeals of the Revenue in I.T.A. Nos. 134 & 135/Mds/2012 are allowed for statistical purposes, and the matter is remitted back to the A.O. for fresh consideration.
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