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2022 (3) TMI 763 - AT - Income TaxRevision u/s 263 - bogus liability towards purchases - payment in expenditure cash during the next year - HELD THAT - We have gone through the ledger account of supplier and find that there is an opening balance, fresh purchases during the year, rebates and discounts, payments made during the year and the closing balance and therefore, where the liability continues to exist in the books of accounts and there are payments made during the year under consideration, the liability cannot be said to cease to exist during the year under consideration. It is not the case of the Revenue either that it is a case of remission of liability during the year under consideration. In any case, what the Ld. PCIT has alleged is that the liability towards Rana Wines L-1, Solan is a bogus liability which has been incurred and pertains to the financial year 2014-15 relevant to assessment year 2015-16. Therefore, the implications, if any, arising out of such liability where so claimed by the assessee, and which the AO is at liberty to examine as per law and where held to be bogus will be relevant for the assessment year 2015-16 and not for the impugned assessment year 2016-17 and on this account, the order so passed by the AO for the impugned assessment year 2016-17 therefore cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue Discharge of outstanding liability as on close of the financial year 2015-16 relevant to assessment year 2016-17 - We find that where the payment itself has not been made in the financial year relevant to impugned assessment year, basis of arriving at the finding by the Ld. PCIT that there is a contravention of provisions of section 40A(3) is not clear from the impugned order where the applicability of said provisions itself is in doubt. The implications, if any, in respect of discharge of liability in cash in the subsequent financial year 2016-17, a liability which has been incurred in current financial year will arise u/s. 40A(3A) and not under section 40A(3), and the AO will be at liberty to examine the same as per law for the assessment year 2017-18 and not for the impugned assessment year 2016-17. Similar is the situation relating to discharge of remaining outstanding liability by way of entering into an agreement to sell dated 9.05.2017 which again falls in financial year 2017-18 relevant to assessment year 2018-19 and the implications, if any will arise in the financial year 2017-18 and the AO is at liberty to examine as per law for the assessment year 2018-19 and not for the impugned assessment year 2016-17. Therefore, where the AO has not examined the implications relating to discharge of outstanding liability which has evidently happened in the subsequent financial years, the order so passed by the AO for the impugned assessment year 2016-17 cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue. Outstanding liability in balance in the account of Rana Wines, Solan where there is no dispute which has been raised by the Ld. PCIT regarding the purchases made by the assessee from Rana Wines during the year under consideration having not been examined by the AO and account balances in respective books of accounts are also matching and no discrepancy has been highlighted, the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of Revenue. Cash payment to Rana Wines where the implication arising u/s. 40A(3) has not been examined by the AO , we believe that the order so passed by the AO has to be held to be erroneous and prejudicial to the interest of the Revenue and therefore, to this limited extent, we upheld the order of the Ld. PCIT and the order of the AO has to be set aside for the limited purpose of examining as per law the implications u/s. 40A(3) in respect of cash payments of ₹ 9,20,000/- and explanation so submitted by the assessee in support of business exigency. Lastly, whether the assessee is required to keep cash in hand or deposit in the bank account, the same will depend upon the business exigency prevailing at the relevant point in time and so long as there is no discrepancy pointed out in the books of accounts where the cash in hand has been duly recorded and physical cash-in hand, the order so passed by the AO cannot be held to be erroneous in so far as prejudicial to the interest of Revenue.
Issues Involved:
1. Bogus Liability in Financial Year 2014-15 2. Payment of Liability in Financial Year 2015-16 3. Confirmation of Balance of Rana Wines 4. Cash-in-Hand as per Balance Sheet 5. Payment of ?9,20,000/- in Cash Detailed Analysis: 1. Bogus Liability in Financial Year 2014-15: The Ld. Pr.CIT alleged that the assessee declared a bogus liability of ?1,11,42,804/- towards Rana Wines, L-1, Solan in the balance sheet for FY 2014-15, which the AO failed to consider, rendering the assessment order erroneous and prejudicial to the interest of the Revenue. The assessee contended that the opening balance for FY 2015-16 was correctly shown as ?1,11,42,804/-, and the Ld. Pr.CIT incorrectly considered this as part of the purchases. The Tribunal found that the liability continued to exist in the books and payments were made during the year. The alleged bogus liability pertained to FY 2014-15, thus not relevant for the impugned assessment year 2016-17. Therefore, the AO's order for AY 2016-17 could not be held erroneous on this ground. 2. Payment of Liability in Financial Year 2015-16: The Ld. Pr.CIT held that the assessee made cash payments of ?72,00,000/- in FY 2016-17, violating Section 40A(3) of the Act, and the AO failed to examine this, making the order erroneous. The Tribunal noted that the payment was made in the subsequent FY 2016-17, relevant to AY 2017-18, not impacting the assessment for AY 2016-17. Similarly, the agreement to sell property dated 09.05.2017 for ?1.25 crores pertained to FY 2017-18, relevant to AY 2018-19. Thus, the AO's order for AY 2016-17 could not be held erroneous based on these subsequent transactions. 3. Confirmation of Balance of Rana Wines: The Ld. Pr.CIT stated that the AO did not independently verify the accounts of Rana Wines, Solan, to confirm the outstanding liability of ?1,83,04,731/-. The Tribunal found that the AO called for information u/s 133(6) but received no response. During revisionary proceedings, the ledger accounts of both parties were submitted, showing matching balances. The Ld. Pr.CIT did not highlight any discrepancies. Therefore, the AO's order could not be held erroneous and prejudicial to the interest of Revenue on this account. 4. Cash-in-Hand as per Balance Sheet: The Ld. Pr.CIT questioned the necessity of keeping ?1.80 crores in cash, suggesting it was based on presumption. The Tribunal stated that the decision to keep cash in hand depends on business exigencies and cannot be challenged if duly recorded in the books. The AO verified the financial statements, and no discrepancy was found. Thus, the AO's order could not be held erroneous and prejudicial to the interest of Revenue on this ground. 5. Payment of ?9,20,000/- in Cash: The Ld. Pr.CIT noted that the assessee made a cash payment of ?9,20,000/- to Rana Wines during the year under consideration, violating Section 40A(3), and the AO failed to examine this. The Tribunal found that the payment was evident from the ledger account, and no query or examination was carried out by the AO. The assessee's explanation of business exigency was submitted for the first time before the Ld. Pr.CIT. The Tribunal upheld the Ld. Pr.CIT's order to the limited extent of examining the implications of Section 40A(3) and the assessee's explanation. Conclusion: The Tribunal partly allowed the appeal, upholding the Ld. Pr.CIT's order for the limited purpose of examining the cash payment of ?9,20,000/- under Section 40A(3). The AO's order for AY 2016-17 was not held erroneous and prejudicial to the interest of Revenue on other grounds.
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