2017 (2) TMI 328 - AT - Income Tax

Allowing payments U/s 40A(3) - Held that - Once books are rejected then AO cannot make separate additions in respect of different items and, therefore, this observation of AO is not legally sustainable in view of the decision of Hon ble Supreme Court in the case of Commissioenr of Sales Tax Vs. H.M. Esufali H.M. Abdulali 1973 (4) TMI 49 - SUPREME Court . The plea of payments were made on bank holidays have not at all been considered by AO and, therefore, the same is to be examined by AO afresh. Further, ld. counsel has referred to page 12 of PB wherein details of payment over ₹ 20,000/- and less than ₹ 20,000/- is made aggregating to ₹ 3,69,407/- and this also needs to be examined by AO. Therefore, this ground is allowed for statistical purposes in respect of aforementioned observation. Disallowance of freight - Held that - Assessee has not been provided cross-examination of proprietor of Chacha Transport Co. and, therefore, the matter is restored back to the file of AO to provide opportunity to cross-examine the proprietor of Chacha Transport Co. Accordingly, this ground is allowed for statistical purposes.

Issues:
1. Disallowance under section 40A(3) for cash purchases of raw material.
2. Disallowance of freight charges under section 40A(3) for transportation charges.
3. Addition of cash payment against freight delivery charges.
4. Rejection of books under section 145 of the Income-tax Act.
5. Applicability of previous year's decision to the current year.
6. Cross-examination of the proprietor of Chacha Transport Co.

Analysis:

1. The appellant, a private limited company, declared nil income in its e-return for A.Y. 2010-11. The Assessing Officer (AO) disallowed the total purchases of &8377; 31,24,250 made in cash from M/s Singhal Suplaires under section 40A(3). The AO observed irregularities in the cash payments and rejected the books of accounts under section 145 of the Income-tax Act.

2. The AO further disallowed cash payments of &8377; 9,94,234 made to Chacha Transport Co. for freight delivery charges, questioning the inclusion of these charges in the purchase account. The appellant explained that the payments were for transportation services and not for purchases. The AO issued notices and recorded statements, leading to the addition of &8377; 9,94,234.

3. The AO's investigation revealed discrepancies in the dealings between Chacha Transport Co. and the appellant, leading to the addition of the disputed amount. The AO's decision was challenged before the CIT(A), who confirmed both disallowances, prompting the appellant to appeal to the ITAT Delhi.

4. The ITAT Delhi, in its analysis, considered the previous year's decision in the appellant's case and the legal implications of rejecting books under section 145. The tribunal observed that once books are rejected, separate additions for different items are not permissible. The tribunal directed the AO to re-examine the grounds related to payments made on bank holidays and payment details exceeding &8377; 20,000.

5. Regarding the disallowance of freight charges, the tribunal allowed the appellant's appeal for statistical purposes due to procedural irregularities. The tribunal emphasized the importance of providing the appellant with the opportunity to cross-examine the proprietor of Chacha Transport Co., leading to the restoration of the matter to the AO for further examination.

6. Ultimately, the ITAT Delhi allowed the appellant's appeal, setting aside the disallowances and directing the AO to reevaluate the issues raised during the proceedings. The judgment highlighted the importance of procedural fairness and adherence to legal principles in tax assessments.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the tribunal's decision on each aspect of the case.

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