2016 (1) TMI 898 - AT - Income Tax

Revision u/s 263 - as per CIT (A) violation of provisions of section 40A(3) - Held that - CIT has assumed that the assessee must have made payments exceeding ₹ 20,000/- in lump sum and therefore, had violated the provisions of section 40A(3) and therefore, he directed the Assessing Officer to make a fresh assessment. The learned CIT did not consider Circular No.1/2009 issued by Central Board of Direct Taxes wherein, the Board amended the provisions of section 40A(3) and vide para 13.3 directed that provisions of section 40A(3) shall also be applicable where the aggregate of payments made to a single party otherwise than by an account payee cheque exceeds ₹ 20,000/- in a day. Vide para 13.4, the Circular states that the amendment will be applicable w.e.f. 1st April, 2009, therefore, this amendment will not be applicable for the year under consideration as the assessment year involved in 2007-08. The Circular vide para 13.2 itself states that assessee tend to circumvent the provisions of section 40A(3) by splitting a particular high value payment to one person into several cash payments, each below ₹ 20,000/-. There is no dispute that payments were found to be recorded in cash book which were less than ₹ 20,000/-. Therefore, from the above, it is apparent that the assessee had not violated the provisions of section 40A(3) as admittedly the payments recorded in the cash book were ₹ 20,000/- or below. As regards examination by Assessing Officer regarding violation of there provisions, we find that the Assessing Officer had raised this issue on two occasions and the assessee had replied to the Assessing Officer and after being satisfied that no payment of more than 20,000/- was paid by assessee he did not make the addition and therefore, the order of Assessing Officer on this account cannot be said to be erroneous and prejudicial to the interest of revenue.- Decided in favour of assessee. Assessing Officer did not examine the amount of lorry charges - Held that - The view taken by one Assessing Officer in one year, if it differs from the view taken by Assessing Officer in succeeding year on the same issue cannot be said to be erroneous provided the view taken by Assessing Officer is a plausible view. The Assessing Officer did carry out necessary examination to arrive at the genuineness of payments and assessee also filed confirmations by parties to whom payments were made. The fact that the assessee had filed confirmations of payees becomes apparent from the reply filed by the assessee to CIT against the show cause notice under section 263. There is a difference between lack of enquiry and no enquiry. It is not a case of no enquiry as Assessing Officer did carry out sufficient examination to arrive at the genuineness of transactions and if he did not take one further step to examine the genuineness of transactions which he took in succeeding year, the assessment order passed in earlier year cannot be said to be erroneous only on the basis that in subsequent year, the Assessing Officer found certain bogus entries. It is also a fact emerging from records that Assessing Officer did examine the payments of lorry charges & obtained confirmation of payees. It is another matter that he did not call for information u/s 133(c) from RTO to further verify the genuineness of payments. Therefore it is a case of inadequate enquiry and not a case of lack of enquiry, therefore the order passed by A.O is held not to be erroneous and prejudicial to the interest of Revenue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order under section 263 of the Income Tax Act.
2. Applicability of section 40A(3) regarding cash payments exceeding Rs. 20,000.
3. Examination of lorry hiring charges and alleged bogus payments.

Issue-wise Detailed Analysis:

1. Validity of the Order under Section 263 of the Income Tax Act:
The appeal challenges the order under section 263 passed by the Commissioner of Income Tax (CIT), Jammu & Kashmir, which was claimed to be erroneous and prejudicial to the interests of revenue. The CIT had initiated proceedings under section 263, alleging that the Assessing Officer (AO) failed to invoke the provisions of section 40A(3) and did not adequately verify the genuineness of lorry hiring charges. The assessee contended that the AO had applied judicial mind and conducted necessary inquiries, thus making the assessment order neither erroneous nor prejudicial to revenue. The Tribunal found that the AO had indeed made inquiries and accepted the explanations provided by the assessee, thus the order could not be deemed erroneous simply because the AO did not elaborate on these inquiries in the assessment order.

2. Applicability of Section 40A(3) Regarding Cash Payments Exceeding Rs. 20,000:
The CIT alleged that the assessee made cash payments exceeding Rs. 20,000 to M/s. Shalimar Transporters, which were split into smaller amounts to circumvent section 40A(3). The assessee argued that before the amendment effective from 1.04.2009, the law considered each payment individually, not the aggregate in a day. The Tribunal referred to CBDT Circular No.1/2009, which clarified that the amendment to section 40A(3) applied from the assessment year 2009-10 onwards. Thus, for the assessment year 2007-08, splitting payments below Rs. 20,000 was permissible. The AO had raised this issue during assessment and accepted the assessee's explanation, making the assessment order not erroneous.

3. Examination of Lorry Hiring Charges and Alleged Bogus Payments:
The CIT's second objection was that the AO did not verify lorry hiring charges for the assessment year 2007-08, despite finding bogus payments in the subsequent year. The assessee argued that each assessment year is independent, and the principle of res judicata does not apply to tax proceedings. The Tribunal agreed, noting that the AO had conducted inquiries and obtained confirmations from the payees. The Tribunal concluded that the AO's failure to take an additional verification step, as done in the subsequent year, did not render the earlier assessment erroneous. The Tribunal emphasized the distinction between lack of inquiry and inadequate inquiry, citing judicial precedents that supported the AO's actions.

Conclusion:
The Tribunal found merit in the assessee's arguments and held that the assessment order was not erroneous or prejudicial to the interests of revenue. The appeal filed by the assessee was allowed, and the order under section 263 was set aside. The Tribunal emphasized that the AO's inquiries and acceptance of the assessee's explanations were adequate, and the CIT's assumptions did not justify the invocation of section 263. The order was pronounced in the open court on 5.11.2015.