2019 (3) TMI 1064 - AT - Income Tax

Disallowance u/s.40A(3) - payment to a single party in a single day - payments made to the transporters in cash in excess of ₹ 20,000/- - HELD THAT - Payment more than ₹ 20,000/- in aggregate to a single party in a single day could not be declined prior to the A.Y.2009-10. It is not in dispute that the present case is in connection with the A.Y.2005-06, therefore, undoubtedly, the provision of aggregate payment to a single party in a single day would not applied in the present assessment year of the assessee i.e.2005-06. Addition on account of payment made to transporter in excess of ₹ 20,000/- u/s.40A(3) the assessee has given the PAN Nos. of some parties to whom the payment was made. With regard to some parties whose PAN Nos. have not given. Since the claim of the assessee has not been verified on the basis of evidence given by the assessee, therefore, we are of the view that the claim of the assessee is liable to be verified in the light of evidence adduced before us in accordance with law. Accordingly, we set aside the finding of the CIT(A) on this issue and direct the Assessing Officer to examine the claim of the assessee afresh after providing an opportunity of being heard to the assessee in accordance with law. Accordingly this issue is decided in favour of the assessee. Addition as suppressed production - information was received from Commissioner of Central Excise and Customs Aurangabad that the assessee indulged in suppression of production and clandestine removal of finished products without payment of excise duty - HELD THAT - The addition was raised on the basis of the information received from the Central Excise and Customs, Aurangabad dated 29.03.2010. The suppression of production was assessed on the basis of different criteria reported by the IIT, Kanpur in their Technical Opinion Report. The assessee challenged the addition before the Custom Excise and Service Tax Appellate Tribunal (CESTAT) who deleted the addition. The CIT(A) has also deleted the addition raised by the Assessing Officer on the basis of the decision of the Custom Excise and Service Tax Appellate Tribunal (CESTAT). We also find that this question has already came up before the Hon ble ITAT which has been answered in favour of the assessee. See BHAGYALAXMI STEEL ALLOYS PVT. LTD. 2015 (11) TMI 14 - ITAT PUNE and SRJ PEETY STEELS (P) LTD. VERSUS ADDL. CIT 2015 (1) TMI 1228 - ITAT PUNE - Decided in favour of the assessee

Summary

Issues Involved:
1. Legality of reopening the assessment under Section 148 of the Income Tax Act.
2. Disallowance under Section 40A(3) of ?19,50,580/-.
3. Addition of ?12,39,57,666/- as suppressed production.

Issue-wise Detailed Analysis:

1. Legality of Reopening the Assessment under Section 148:
The assessee contended that the reopening of the assessment was bad in law as the notice under Section 148 was issued beyond the period of four years from the end of the relevant assessment year, based merely on presumption without any material evidence of income escaping assessment due to the assessee's failure to disclose all material facts. The CIT(A) upheld the reopening based on information received from the Central Excise and Customs Department, but the assessee argued that the Assessing Officer did not independently verify or investigate the information. However, the assessee did not press this issue before the ITAT, and it was decided against the assessee.

2. Disallowance under Section 40A(3) of ?19,50,580/-:
The assessee challenged the disallowance of payments made to transporters in cash exceeding ?20,000/- under Section 40A(3). The CIT(A) upheld the disallowance, but the assessee argued that the provisions were not applicable as the payments were below the ceiling limits per Rule 6DD prevailing during the relevant year. The ITAT noted that the amendment to Section 40A(3) by the Finance Act 2008, which applied from A.Y. 2009-10, was not applicable to the A.Y. 2005-06. The ITAT relied on the Karnataka High Court's decision in A.N. Swarna Prasad and the ITAT Hyderabad's decision in Sonali Castings (P.) Ltd., which held that the CBDT Circular No.5 of 2010 was not applicable retrospectively. Consequently, the ITAT deleted the addition of ?90,48,181/- related to aggregate payments to a single party in a single day.

3. Addition of ?12,39,57,666/- as Suppressed Production:
The revenue appealed against the deletion of the addition of ?12,39,57,666/- as suppressed production. The addition was based on information from the Central Excise and Customs Department, which alleged suppression of production and clandestine removal of finished products without payment of excise duty. The CIT(A) deleted the addition, relying on the decision of the Custom Excise and Service Tax Appellate Tribunal (CESTAT), which had cancelled the adjudication order of the Commissioner of Central Excise, Aurangabad. The ITAT upheld the CIT(A)'s decision, noting that similar issues had been decided in favor of the assessee in previous cases like SRJ Petty Steels Pvt. Ltd. and Bhaghyalakshmi Steel Alloys Pvt. Ltd. The ITAT found that the CIT(A) had judiciously and correctly decided the matter, and the deletion of the addition was upheld.

Conclusion:
The ITAT partly allowed the assessee's appeals and dismissed the revenue's appeals. The reopening of the assessment was upheld, but the disallowance under Section 40A(3) related to aggregate payments was deleted. The addition of ?12,39,57,666/- as suppressed production was also deleted, affirming the CIT(A)'s decision based on the CESTAT's ruling. The ITAT's order was pronounced on 30.01.2019.