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2020 (1) TMI 832 - HC - Income TaxRevision u/s 264 in favor of assessee - CIT rejected the application on the ground that, the assessee has filed application only against the order of assessment - Additions towards cash payment in violation of section 40A(3) in the reassessment proceedings - Whether the deposit of amount in cash in the bank account of M/s Jalan Synthetics can be held to be covered under the provisions of Rule 6DD(c)(v) of the Rules, 1962? and for which purpose it can be said to be a payment by use of electronic clearing system through bank account - HELD THAT - It seems that the issue pertaining to the validity of the order under Section 147 of the Act, 1961 was not raised by the assesseee in his application and his only grievance was with regard to the re-assessment order. Cash is deposited directly in the bank account of the beneficiary, can the benefit of Rule 6DD(c)(v) of the Rules, 1962, can be given to the assessee. Such transaction by depositing cash directly in the bank account of the beneficiary is not routed through any clearing house nor is the money send through electronic mode and therefore such a transaction in my considered opinion cannot be covered by Rue 6DD(c)(v) of the Rules, 1962, and therefore benefit of the provision cannot be given to the petitioner. The petitioner also could not lead any evidence to show that he had deposited the amount on the instructions of M/s Jalan Synthetics or due to any business exigency. In absence of such evidence, the assessing authority rightly denied the benefit of exemption to the petitioner. The impugned order dated 19.01.2016, passed by the Principal Commissioner, Income Tax has considered the reply given by the petitioner and has concluded that in respect to the transfer of funds made by the petitioner, benefit of Rule 6DD of the Rules, 1962 is not attracted and therefore computation made by the assessing authority has been up held. The jurisdiction of writ Court in exercise of jurisdiction under Article 226 of the Constitution of India is limited to examining the decision making process and not the decision itself. This position of law has been constantly reiterated by the Hon ble Apex Court in its various pronouncements. See MUNICIPAL COUNCIL NEEMUCH VERSUS MAHADEO REAL ESTATE AND ORS. 2019 (9) TMI 1307 - SUPREME COURT Reassessment proceedings were initiated on account of the fact that it was discovered that the assessee had misrepresented in his return with regard to the payments made to M/s Jalan Synthetics of ₹ 3,40,000/- in cash which were deposited in their bank account and such a transfer was not admissible in the light of provisions of Section 40A(3) of the Act and Rule 6DD of the Rules, 1962, and therefore, in the reassessment proceedings the said amount was added to the income of the assessee. The reassessment order was assailed by moving an application under Section 264 of the Act, 1961. The assessing authority has duly considered the application of the assessee and after considering the same has recorded a finding that the assessee has clearly misrepresented in his return as well as audit report with respect to Section 40A(3) of the Act and Rule 6DD of the Rules, 1962 and therefore the case of the petitioner is not covered by any of the exceptions. No evidence was led by the assessee to demonstrate that the cash was deposited at the instance of M/s Jalan Synthetics, so as to give benefit of Rule 6DD of the Rules, 1962, to the petitioner. Petitioner-assessee also could not demonstrate that the impugned order is bereft of reasons or that it is perverse or that it has failed to consider the relevant material or document and therefore in absence of any of such infirmity the contention of learned counsel for the petitioner cannot be accepted and the writ petition is liable to be dismissed.
Issues Involved:
1. Validity of the reassessment proceedings under Section 147 of the Income Tax Act, 1961. 2. Applicability of Section 40A(3) and Rule 6DD of the Income Tax Rules, 1962. 3. Jurisdiction and scope of powers under Section 264 of the Income Tax Act, 1961. 4. Judicial review scope under Article 226 of the Constitution of India. Detailed Analysis: 1. Validity of the reassessment proceedings under Section 147 of the Income Tax Act, 1961: The petitioner received a notice under Section 148 of the Income Tax Act, 1961, indicating that the authorities had reason to believe that a cash payment of ?3,40,000/- was made in violation of Section 40A(3). The petitioner objected, asserting that all necessary facts were disclosed and that the payment was genuine. However, the assessing authority was not satisfied and proceeded to add ?3,40,000/- to the petitioner’s income, disallowing the benefit under Section 40A(3) for payments exceeding ?20,000/- made other than by crossed cheque or bank draft. 2. Applicability of Section 40A(3) and Rule 6DD of the Income Tax Rules, 1962: The petitioner contended that the cash deposits in the bank account of M/s Jalan Synthetics should be covered under Rule 6DD(c)(v) as a payment by "electronic clearing system." The court examined Section 40A(3) and Rule 6DD, which stipulate that payments exceeding ?20,000/- should be made by account payee cheque, bank draft, or electronic clearing system to be deductible. The court clarified that direct cash deposits into a beneficiary’s bank account do not qualify as payments through an electronic clearing system, as they are not routed through any clearing house or electronic mode. Therefore, the benefit of Rule 6DD(c)(v) could not be extended to the petitioner. 3. Jurisdiction and scope of powers under Section 264 of the Income Tax Act, 1961: The Principal Commissioner, Income Tax, Gorakhpur, rejected the petitioner’s application under Section 264, holding that the petitioner misrepresented facts regarding the application of Section 40A(3) and Rule 6DD. The Principal Commissioner concluded that the petitioner’s cash payments were not covered by any exemptions and upheld the assessing authority’s decision. The court noted that the scope of Section 264 is limited and does not equate to an appellate power under Section 246. The Principal Commissioner’s role is to hold a limited inquiry into the grounds raised by the assessee and pass appropriate orders. 4. Judicial review scope under Article 226 of the Constitution of India: The court emphasized that its jurisdiction under Article 226 is confined to examining the decision-making process, not the decision itself. The court referred to the principles laid down by the Supreme Court, which restrict judicial review to cases where the decision-maker exceeded their powers, committed an error of law, breached natural justice, reached an unreasonable decision, or abused their powers. The court found no procedural impropriety or irrationality in the decision-making process of the Principal Commissioner and assessing authority. The reassessment was initiated based on the discovery that the petitioner misrepresented facts regarding cash payments, and the reassessment order was duly considered and reasoned. Conclusion: The court dismissed the writ petition, finding no merit in the petitioner’s contentions. The reassessment proceedings were validly initiated, the petitioner’s cash payments did not qualify for exemptions under Rule 6DD, and the Principal Commissioner acted within the scope of his powers under Section 264. The judicial review did not reveal any procedural impropriety or irrationality in the decision-making process.
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