2014 (2) TMI 471 - AT - Income Tax

Rectification of order u/s 154 of the Act Error apparent on record Payment made from account payee cheque on holiday - Held that - The mistake apparent from record in the assessment order as pointed out by the assessee in its application u/s 154 of the Act before the AO - in the application u/s 154 of the Act made before the AO such explanation was made before the AO or any evidence was filed in support to the explanation - The first appellate authority to this extent has thus rightly approved the action of the AO in this regard - The CIT(A) was not justified in approving the assessment order that there was no mistake apparent from record in the assessment order regarding denial of explanation towards the payment made to OM Advertising - The mistake was apparent and the AO was supposed to rectify it while rectifying the other mistake pointed out in the application - The AO is directed to allow the same Decided partly in favour of Assessee. Sustainability of Penalty for concealment u/s 271(1)(c) of the Act - Disallowance u/s 40A(3) of the Act Held that - There was mistake apparent in the order of the AO in not accepting the payment made to OM Advertising through an account payee cheque in support of which bank statement was also furnished before the AO - Without verifying this explanation as to whether 5.4.2008 was Saturday or not cannot be arrived at a conclusion beyond doubt that explanation of the assessee was false thus, the AO was not justified in attracting penal provisions u/s 271(1)(c) of the Act - in absence of arriving at this fact clearly beyond doubt that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee towards the disallowance Decided in favour of Assessee.

Summary

Issues Involved:
1. Disallowance of cash payments exceeding Rs. 20,000 under section 40A(3) of the Income Tax Act.
2. Rectification of assessment order under section 154 regarding disallowance of payments.
3. Sustaining penalty for concealment under section 271(1)(c) for disallowance made under section 40A(3).

Issue 1: Disallowance of Cash Payments Exceeding Rs. 20,000 under Section 40A(3):
The assessee contested the first appellate order, arguing that the CIT(A) erred in rejecting the application under section 154 despite payments being made through account payee cheque, on holidays, or for specific reasons like salary and labor payments. The AR contended that cash payments exceeding Rs. 20,000 to various parties for genuine reasons do not fall under section 40A(3). The AO disallowed such payments even when made through account payee cheques or due to legitimate reasons. The AR provided explanations for specific payments, such as payment to OM Advertising through a cheque and to a timber merchant on a Saturday when banking hours were limited. The tribunal found mistakes in the assessment order, where certain payments were erroneously disallowed. It directed the AO to rectify the errors and allow the payments made through account payee cheques. The tribunal partially allowed the appeal on this ground.

Issue 2: Rectification of Assessment Order under Section 154 Regarding Disallowance of Payments:
The AO had initially disallowed payments exceeding Rs. 20,000 to various parties under section 40A(3), but later rectified the order under section 154, reducing the disallowance amount. The AR argued that the disallowance was based on the assessee's disclosures, and the AO accepted explanations during the rectification proceedings. The tribunal noted that the AO had mistakenly rejected certain payments to OM Advertising and Mahaveer Timber. It found that the AO should have accepted the payment to OM Advertising made through a cheque and considered the circumstances of the payment to Mahaveer Timber on a restricted banking day. The tribunal held that there was no clear concealment of income particulars, and thus, deleted the penalty levied under section 271(1)(c) for the disallowance. The tribunal allowed the appeal on this issue.

Issue 3: Sustaining Penalty for Concealment under Section 271(1)(c) for Disallowance Made under Section 40A(3):
The assessee challenged the penalty for concealment imposed by the CIT(A) for the disallowance under section 40A(3). The AR argued that the disallowance was based on disclosed information, and the AO later rectified the order, reducing the disallowance amount. The AR contended that the disallowance was not due to concealment but rather due to genuine circumstances explained by the assessee. The tribunal agreed with the AR, highlighting that the AO had erred in not accepting certain payments and not verifying explanations adequately. Consequently, the tribunal deleted the penalty imposed under section 271(1)(c). The appeal was allowed on this ground.

In conclusion, the tribunal partially allowed one appeal and fully allowed another, directing the AO to rectify errors in disallowing certain payments and deleting the penalty for concealment due to lack of clear evidence of income particulars concealment.