2019 (10) TMI 1115 - AT - Income Tax

Rectification u/s 254 - Validity of reopening of assessment - AO has originally passed order under section 143(3) on 20.02.2014 and, therefore, the subsequent reopening of the order of the AO to make the disallowance under section 40A(3) - HELD THAT - All the contentions of the assessee as well as the decisions relied upon by the ld. A/R of the assessee were considered by the Tribunal while passing the impugned order. Tribunal has specifically discussed the relevant facts pertaining to the violation of section 40A(3) of the Act which were pointed out by the Audit Party - AO has completely ignored the mandatory provisions of section 40A(3) at the time of passing the order under section 143(3) and subsequently the audit party has pointed out the fact of violation of provisions of section 40A(3) when the assessee has made the payment in cash exceeding the minimum limit as provided under section 40A(3). This fact of payment in cash exceeding the limit as provided under section 40A(3) is not in dispute and, therefore, in those facts, the Tribunal has held that the reopening was valid. The decision taken by the Tribunal on merits of the case cannot be reversed in the proceedings under section 254(2) of the Act by re-appreciating the same facts and decisions relied upon by the ld. A/R of the assessee. Therefore, the assessee has not pointed out any apparent mistake in the order of the Tribunal qua this issue. Accordingly, we do not find any merit or substance in the mistake alleged by the assessee in the Miscellaneous application Addition u/s 40A(3) - taxi fare and dish installation charges - HELD THAT - As regards the disallowance made under section 40A(3) of the Act in respect of taxi fare, the Tribunal has discussed the relevant fact that each payment is exceeding ₹ 20,000/- and was represented by a separate bill. Therefore, to that extent the expenditure was clearly hit by the provisions of section 40A(3) of the Act. Accordingly, we do not find any apparent error in the order of the Tribunal qua the disallowance made under section 40A(3) on account of taxi fare. Second disallowance was made in respect of the dish installation charges made in cash. To the extent of the payment made in cash exceeding ₹ 20,000/-, our decision on this issue regarding taxi fare charges is applicable mutatis mutandis. However, we find that the Tribunal has observed that the dish installation are not main business of the assessee and the assessee has not shown any income from the said activity which is based on the record that in the Profit Loss account no such income is shown on account of dish installation activity. However, now the ld. A/R has submitted that the activation charges shown in the Profit Loss account are regarding the income from dish installation activity. Though apart from the submission of the ld. A/R, no other material is produced before us to give a concluding finding, therefore, we modify our observation in para 8 of the impugned order.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the IT Act.
2. Disallowance of expenditures under Section 40A(3) of the IT Act.

Detailed Analysis:

1. Validity of Reopening the Assessment:

The assessee sought rectification of mistakes in the Tribunal's order dated 26.02.2019, challenging the validity of reopening the assessment on the grounds that it was based on a change of opinion and audit objection, not on the Assessing Officer’s (AO) independent opinion. The Tribunal reviewed the submissions and found that the original assessment was completed under Section 143(3) on 20.02.2014. An audit objection dated 26.06.2015 highlighted that the assessee incurred expenditures on dish installation charges and taxi fare payments in cash, exceeding ?20,000, violating Section 40A(3). Consequently, the AO reopened the assessment by issuing a notice under Section 148 on 08.09.2015.

The Tribunal noted that the reopening was based on factual details of cash expenditures exceeding ?20,000, not merely on the audit party's opinion. The AO considered these facts while recording reasons for reopening, making it a valid case of reopening based on tangible material. The Tribunal emphasized that the AO had not examined the issue of allowability of cash expenditures under Section 40A(3) in the original assessment, thus, reopening was justified. The Tribunal concluded that the reopening was within four years from the end of the relevant assessment year, making the proviso to Section 147 inapplicable. Therefore, the Tribunal found no error or illegality in the AO’s action of reopening the assessment for the assessment year 2011-12.

2. Disallowance of Expenditures under Section 40A(3):

The assessee contested the Tribunal's observation that taxi fare and dish installation charges were not essential expenditures for the business. The Tribunal had noted that the AO disallowed these expenditures by invoking Section 40A(3), as each payment exceeded ?20,000 and was made in cash. The Tribunal upheld the AO's disallowance, stating that these expenditures were not inevitable or essential for the assessee’s business, and alternative means of transport were available.

Regarding dish installation charges, the Tribunal observed that this activity was not part of the assessee’s main business, and no income from dish installation was shown in the Profit & Loss account. However, the assessee claimed that activation charges in the Profit & Loss account represented income from dish installation. The Tribunal found no material evidence to support this claim and thus upheld the disallowance under Section 40A(3).

The Tribunal modified its observation, stating that the nature of dish installation expenditures needed verification to determine if they were incurred in remote areas without banking facilities. The AO was directed to verify these facts and reassess the disallowance of dish installation charges under Section 40A(3).

Conclusion:

The Tribunal upheld the reopening of the assessment as valid and justified under Section 147. It also upheld the disallowance of taxi fare and dish installation charges under Section 40A(3), with a directive for the AO to verify specific facts regarding the dish installation expenditures. The Miscellaneous Application was partly allowed, and the order was pronounced on 20/05/2019.