2015 (7) TMI 777 - AT - Income Tax

Legality of notice issued and order passed u/s 154 - AO disallowed cash purchases made at ₹ 33,70,800/- u/s. 40A(3) of the Act which was added to the income of the assessee vide order dated 17.6.2014 passed u/s. 154 - Held that - We find considerable cogency in the submissions of the assessee s counsel that assessment order passed under section 143(3) of the Act after considering the relevant material and after appropriate reasoning hence there is no mistake apparent from record which can be rectified under section 154 of the Act therefore the notice U/s 154 and order passed are illegal, bad in law and without jurisdiction. It is amply clear that the issue in dispute is a legal issue in respect of additions made u/s. 154 without any mistake apparent on record and on debatable issue and we are of the view that the order u/s. 154 passed by the AO and upheld by the Ld. CIT(A) are not sustainable in the eyes of law. See CIT vs. Gayatri Glass Works (2007 (4) TMI 259 - ALLAHABAD HIGH COURT) and T.S. Balaram, ITO, Company Circle-IV, Bombay vs. Volkart Brothers and others 1971 (8) TMI 3 - SUPREME Court wherein held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on debatable point of law is not a mistake apparent from the record. - Decided in favour of assessee.

Issues Involved:

1. Legality and jurisdiction of notice and order under section 154.
2. Justification of order under section 154 based on material on record.
3. Apparent mistake in the assessment order under section 143(3) and its rectification under section 154.
4. Legality and justification of additions/disallowances made by the Assessing Officer.
5. Specific disallowance of Rs. 33,70,800 under section 40A(3) for cash purchases.
6. Business expediency and applicability of rule 6DD regarding cash payments.
7. Rejection of books of accounts under section 145 and its impact on section 40A(3) disallowance.
8. Consideration of jurisdictional High Court decisions.
9. Ad-hoc addition/disallowance on estimated basis.
10. Justification of additions based on surmises and conjectures.
11. Proper consideration of evidence and material on record.
12. Principles of natural justice and opportunity of being heard.
13. Wrongful charging of interest under section 234B.

Detailed Analysis:

1. Legality and Jurisdiction of Notice and Order under Section 154:
The Assessee contended that the notice issued and the order passed under section 154 were illegal, bad in law, and without jurisdiction. The Tribunal found that the assessment order under section 143(3) was passed after considering relevant material and reasoning, and thus, there was no apparent mistake that could be rectified under section 154. Consequently, the notice and order under section 154 were deemed illegal and without jurisdiction.

2. Justification of Order under Section 154 Based on Material on Record:
The Assessee argued that the order under section 154 was not justified by any material on record. The Tribunal agreed, stating that the assessment was completed under section 143(3) after thorough consideration, and no mistake apparent from the record warranted rectification under section 154.

3. Apparent Mistake in Assessment Order under Section 143(3) and Its Rectification under Section 154:
The Tribunal noted that rectification under section 154 is permissible only for glaring mistakes apparent from the record. Since the assessment order under section 143(3) was passed with appropriate reasoning, any rectification would amount to a review, which is not permissible under section 154.

4. Legality and Justification of Additions/Disallowances Made by the Assessing Officer:
The Assessee claimed that the additions and disallowances were illegal, unjust, and not based on any material on record. The Tribunal found that the AO had not justified the additions/disallowances with concrete evidence, making them unsustainable.

5. Specific Disallowance of Rs. 33,70,800 under Section 40A(3) for Cash Purchases:
The AO disallowed Rs. 33,70,800 for cash purchases exceeding Rs. 20,000, invoking section 40A(3). The Tribunal, however, found that the Assessee had produced purchase vouchers and statements from suppliers during the assessment, and the AO had rejected the books of accounts under section 145, making section 40A(3) inapplicable.

6. Business Expediency and Applicability of Rule 6DD Regarding Cash Payments:
The Assessee argued that cash payments were made for business expediency and were covered by rule 6DD, which exempts certain cash payments from disallowance under section 40A(3). The Tribunal found merit in this argument, noting that the payments were necessary for business operations.

7. Rejection of Books of Accounts under Section 145 and Its Impact on Section 40A(3) Disallowance:
The Tribunal observed that once the AO rejected the books of accounts under section 145 and applied a gross profit rate, section 40A(3) disallowance was not applicable, as held by the Allahabad High Court in CIT vs. Banwari Lal Bansidhar.

8. Consideration of Jurisdictional High Court Decisions:
The Tribunal noted that the AO and CIT(A) failed to consider the jurisdictional High Court's decision in CIT vs. Banwari Lal Bansidhar, which was squarely applicable to the case.

9. Ad-Hoc Addition/Disallowance on Estimated Basis:
The Assessee contended that the ad-hoc addition/disallowance was arbitrary and based on surmises. The Tribunal agreed, stating that such additions lacked justification and were not supported by material on record.

10. Justification of Additions Based on Surmises and Conjectures:
The Tribunal found that the additions made by the AO were based on mere surmises and conjectures, lacking concrete evidence, and thus were unjust and unlawful.

11. Proper Consideration of Evidence and Material on Record:
The Assessee argued that the evidence and material on record were not properly considered. The Tribunal found that the AO and CIT(A) failed to judicially interpret the evidence, leading to unjustified additions.

12. Principles of Natural Justice and Opportunity of Being Heard:
The Assessee claimed that the assessment and appellate orders violated principles of natural justice by not affording adequate opportunity of being heard. The Tribunal agreed, noting that the orders were passed without proper hearing.

13. Wrongful Charging of Interest under Section 234B:
The Assessee argued that interest under section 234B was wrongly charged, as the disallowances/additions were unforeseen. The Tribunal found merit in this argument, stating that the interest was wrongly computed.

Conclusion:
The Tribunal quashed the order under section 154 passed by the AO and the CIT(A), deleted the additions, and allowed the Assessee's appeal, emphasizing that the issue was covered by relevant judicial precedents and no apparent mistake warranted rectification under section 154. The appeal was allowed in favor of the Assessee.

← Previous Next →