2023 (6) TMI 734 - AT - Income Tax

Reopening of assessment u/s 147 - Reopening beyond period of four years - establishment of failure of the assessee to disclose fully and truly all material facts - disallowance of cash payment u/s. 40A(3) - HELD THAT - We find that the reasons recorded for reopening of assessment clearly establishes failure of the assessee to disclose fully and truly all material facts necessary for assessment and thus, in our considered view the proviso to section 147 does not apply to the case of the assessee. Audit objection - As we find that although the basis for reopening of assessment may be audit objection, but on perusal of reasons recorded for reopening of assessment, it is very clear that the AO has established escapement of income and there is a live link between reasons and escapement of income and thus, we reject second ground of the assessee. Reopening of assessment in the given facts and circumstances of this case is on valid grounds and thus, the grounds of appeal taken by the assessee challenging validity of reopening of assessment are dismissed. Additions towards disallowance of cash payment in excess of prescribed limit - AO has disallowed 10% of cash expenses on the ground that the assessee could not furnish necessary books of accounts and other evidence to justify cash payment made in respect of purchase of milk - HELD THAT - Although the assessee claims to have earned less than 1% net profit, but could not justify said profit with necessary evidence. Since, both the parties failed to prove their case with necessary evidence and reasons, in our considered view to settle dispute between the assessee and the Assessing Officer, a reasonable amount of disallowance needs to be estimated. Assessee is a distributor for milk product and also in this line of business, the percentage of profit is very less, we deem it appropriate to direct the Assessing Officer to disallow 4% of cash expenses. Accordingly, the AO is directed to disallow 4% on total cash expenses in excess of prescribed limit. CIT(A) in directing AO to verify the applicability of provisions of Rules 6DD(e) of the I.T. Rules, 1962, on the ground that the CIT(A) does not have any power to set aside the appeal to the AO - We find that the ld. CIT(A) in principal, approved the findings of the Assessing Officer on disallowance of cash expenditure in excess of prescribed limit u/s. 40A(3) of the Act, however set aside the issue for the limited purpose of verification of claim of the assessee in light of provisions of Rules 6DD(b) of the I.T. Rules, 1962 on the ground that M/s. Tamilnadu Co-operative Milk Producers Federation Limited is a Government entity or not. In our considered view, there is no error in the reasons given by the CIT(A) to give directions to the Assessing Officer to verify the claim of the assessee in light of relevant provisions of I.T. Rules, 1962 and thus, we reject the ground taken by the revenue and dismiss appeal filed by the revenue.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Validity of reopening of assessment under Section 147 of the Income-tax Act.
3. Disallowance of cash payments under Section 40A(3) of the Income-tax Act.
4. Estimation of disallowance on cash expenses.
5. Dismissal of appeals on technical grounds without discussing merits.

Summary:

Condonation of Delay:
The appeals filed by the assessee for assessment years 2008-09 and 2013-14 were time-barred by 154 days. The assessee cited severe financial crunch as the reason for the delay. The Tribunal, considering the facts and circumstances, condoned the delay in the interest of justice.

Reopening of Assessment:
The assessee challenged the reopening of assessment after four years, arguing it was based on a mere change of opinion and lacked fresh material. The Tribunal found that the reasons recorded for reopening clearly established the assessee's failure to disclose all material facts necessary for assessment. Thus, the reopening was deemed valid, and the assessee's grounds challenging it were dismissed.

Disallowance of Cash Payments:
The Assessing Officer disallowed cash payments exceeding Rs. 20,000 under Section 40A(3) and made additional disallowances on estimated cash expenses. The CIT(A) upheld the disallowance but directed the Assessing Officer to verify if payments to Tamilnadu Co-operative Milk Producers Federation Ltd. were covered under Rule 6DD(e)(ii). The Tribunal found no error in the CIT(A)'s directions for verification and dismissed the revenue's appeal.

Estimation of Disallowance:
The Tribunal noted that both the Assessing Officer and CIT(A) failed to justify their disallowance percentages (10% and 5%, respectively). Considering the assessee's low-profit margin in the milk distribution business, the Tribunal directed the Assessing Officer to disallow 4% of total cash expenses in excess of the prescribed limit.

Dismissal of Appeals on Technical Grounds:
For assessment years 2010-11 and 2012-13, the CIT(A) dismissed the assessee's appeals for non-appearance without discussing the merits. The Tribunal held that appeals should be disposed of on merits even if the appellant fails to appear. Thus, it set aside the CIT(A)'s orders and remanded the appeals for fresh adjudication, providing the assessee with a reasonable opportunity of hearing.

Conclusion:
Appeals for assessment years 2008-09 and 2013-14 were partly allowed, and appeals for 2010-11 to 2012-13 were allowed for statistical purposes. The revenue's appeal was dismissed.