2017 (5) TMI 635 - AT - Income Tax

Revision u/s 263 - issue of cash payment exceeding ₹ 20,000/- and the invocation of provision of Section 40A(3) not considered by AO - Held that - As perused the paper book filed by the assessee wherein the questionnaire of the Assessing Officer to the assessee in course of assessment proceedings is produced at pages 36 to 38. The questionnaire does not call for any details of cash payment exceeding ₹ 20,000/-. Nor there is any question raised by the Assessing Officer calling for the details of the payments made to Baba Hardasmal Communication Pvt. Ltd., hence, the contention of the assessee before us that the Assessing Officer has taken a conscious decision not make disallowance u/s 40A(3) after examining the ledger account of Baba Hardasmal Communication Pvt. Ltd. is not correct. Since books of account of the assessee clearly show payment in excess of ₹ 20,000/- to a person on a single day, necessarily the same has to be disallowed u/s 40A(3) of the Act, unless the assessee is able to prove that it comes within the mitigating circumstances prescribed under Rule 6DD of the I.T. Rules 1962. Since assessee does not have a case that the cash payment exceeding ₹ 20,000/- is exempt by virtue of the situation enumerated in Rule 6DD of the I.T. Rules 1962, we are of the view that CIT is justified in passing revisionary order u/s 263 of the Act. - Decided against assessee.

Summary

Issues:
1. Validity of proceedings u/s 263 of the Income Tax Act.
2. Application of Section 40A(3) regarding cash payments exceeding a specified limit.
3. Assessment order's compliance with legal requirements.

Issue 1: Validity of proceedings u/s 263 of the Income Tax Act:

The appeal challenged the CIT(A)'s order dated 09.03.2015, questioning the initiation of proceedings u/s 263. The Revenue contended that the initiation was based on perverse findings and void ab-initio. The CIT issued the notice under Section 263 due to cash payments exceeding ?20,000 in a day to a specific entity, which were disallowable under Section 40A(3). The assessee argued that no such payments were made and provided a confirmation from the party in question, attributing any discrepancies to accounting errors. However, the CIT rejected these contentions, stating that the books clearly showed cash payments exceeding the limit. The Tribunal upheld the CIT's decision, emphasizing that the cash book indicated payments above the threshold, necessitating disallowance under Section 40A(3). The Tribunal found no legal basis to challenge the CIT's revisionary power under Section 263, dismissing the appeal.

Issue 2: Application of Section 40A(3) regarding cash payments exceeding a specified limit:

The case involved cash payments exceeding ?20,000 in a day to a particular entity, triggering the provisions of Section 40A(3) of the Income Tax Act. The assessee claimed that no such payments were made beyond the limit and attributed any discrepancies to accounting errors. However, the CIT found that the books clearly indicated payments exceeding the specified amount, leading to a total of ?3,10,977. The Tribunal concurred with the CIT's findings, highlighting the necessity to disallow such payments under Section 40A(3) unless mitigating circumstances under Rule 6DD of the I.T. Rules 1962 were proven. As the assessee failed to establish exemption under Rule 6DD, the Tribunal upheld the CIT's order under Section 263, affirming the disallowance of the cash payments exceeding the prescribed limit.

Issue 3: Assessment order's compliance with legal requirements:

The Tribunal observed that the Assessing Officer's order under Section 143(3) did not address the issue of cash payments exceeding ?20,000 and the application of Section 40A(3). The Tribunal noted that the questionnaire during the assessment proceedings did not inquire about such payments, indicating a lack of consideration by the Assessing Officer. Despite the assessee's argument that no disallowance was made after examining the ledger account, the Tribunal found that the books clearly depicted payments necessitating disallowance under Section 40A(3). Therefore, the Tribunal concluded that the CIT's revisionary order under Section 263 was justified, dismissing the appeal filed by the assessee.

This detailed analysis of the judgment addresses the issues related to the validity of proceedings under Section 263, the application of Section 40A(3) concerning cash payments exceeding a specified limit, and the compliance of the assessment order with legal requirements.