2019 (11) TMI 978 - AT - Income Tax

Revision u/s 263 - Addition u/s 40A(3) - TDS u/s 194C - HELD THAT - A perusal of the show cause notice as extracted clearly shows that the issue of verification as to whether the payment is made after deduction of TDS or not and as to whether the provisions of section 40(a)(ia) of the Act would apply in respect of the payments made, is not a part of the show cause notice. It is true that the assessee has discussed the provisions of rule 6DD and the applicability of Rule 6DD(k) of the Act, in his reply to the show cause notice, the provisions of rule 6DD(k) is in respect of reasons for making the payment in a manner other than as prescribed under the Act, and is not in any way connected to the applicability of Sec.40(a)(ia) of the Act or the deduction of TDS u/s.194C(6) of the Act. A perusal of Section 263(1) of the Act clearly shows that the words used are after giving the assessee an opportunity of being heard . In the present case, the directions given by the ld.PCIT to the Assessing Officer is not an issue, that has been put to the assessee or one which has been done after giving the assessee an opportunity of being heard. This being so, his direction is unsustainable and consequently, the order passed u/s.263 of the Act becomes unsustainable and consequently quashed.

Summary

Issues:
Appeals against orders of Principal Commissioner and Commissioner of Income-tax, invoking power under section 263 of the Income Tax Act, 1961 for assessment years 2012-13 & 2013-14, involving disallowance of hire charges paid by bearer cheques, applicability of section 40A(3), and direction for verification of payments exceeding a certain threshold.

Analysis:
The appeals were filed against separate orders of the Principal Commissioner and the Commissioner of Income-tax for the assessment years 2012-13 & 2013-14, invoking powers under section 263 of the Income Tax Act. The issue raised was the disallowance of hire charges payments made by bearer cheques instead of account payee cheques, amounting to a significant sum. The Principal Commissioner issued a show cause notice highlighting the non-compliance with section 40A(3) and proposed disallowance. The assessee responded with detailed explanations and case laws, leading to the Principal Commissioner passing orders under section 263 for both assessment years. However, the direction for further verification of payments exceeding a certain threshold and the applicability of section 40(a)(ia) were not part of the original show cause notice, raising concerns about due process and the opportunity for the assessee to be heard.

The contentions between the parties revolved around whether the issue of verification and applicability of section 40(a)(ia) was intrinsic to the original show cause notice or introduced later without proper opportunity for the assessee to be heard. While the Revenue argued that the issue was implicit in the notice and the assessee had been given a chance to respond, the Tribunal found that the direction for verification was not part of the initial issue raised. The Tribunal emphasized that section 263(1) mandates giving the assessee an opportunity to be heard specifically on the issues raised, which was lacking in this case regarding the direction for verification. Consequently, the Tribunal held that the order passed under section 263 was unsustainable and quashed it.

In conclusion, the Tribunal allowed the appeals filed by the assessee for the assessment years 2012-13 & 2013-14, leading to the dismissal of the Revenue's appeals and the cross objections filed by the assessee. The order passed under section 263 by the Principal Commissioner was quashed, rendering subsequent appeals and cross objections infructuous. The decision was pronounced in an open court after the hearing, bringing the matter to a close on 5th September 2019 in Chennai.