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TMI Blog2012 (10) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... s of lower authorities have to be set aside and the matter remitted back to the file of the A.O. for re-adjudication after supplying copies of reasons recorded. - I.T.A. Nos. 134 to 137/Mds/12 & I.T.A. Nos. 141 & 142/Mds/12 - - - Dated:- 11-7-2012 - SHRI ABRAHAM P. GEORGE AND SHRI VIKAS AWASTHY, JJ. Appellant by : Dr. S. Moharana, CIT-DR Shri Vikramaditya, JCIT Respondents by : Shri G. Baskar, Advocate ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : These are appeals of the Revenue for the respective assessment years, all directed against orders of Commissioner of Income Tax (Appeals)-II, Chennai. Of these appeals, in I.T.A. No. 134/Mds/2012 and I.T.A. No. 135/Mds/2012, assessee has raised certain objections under Rule 27 of Appellate Tribunal Rules, 1963 and therefore, these two appeals will be considered last. In all the appeals, Revenue has taken a common ground that CIT(Appeals) deleted an addition made by the A.O. under Section 40A(3) of Income-tax Act, 1961 (in short 'the Act'). In support of its case, Revenue is mainly relying on two decisions one that of Hon be Apex Court in the case of Attar Singh Gurumukh Singh v. ITO (191 ITR 667) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Ananda Oil Corporation, there was an opening credit balance. None of these accounts for previous year relevant to assessment year 2004-05 also show any credit purchases effected from the mentioned concerns. However, the Assessing Officer was of the opinion that these were all payments against expenditure and warranted application of Section 40A(3) of the Act resulting to the impugned disallowances. 5. In the case of assessee Shri M. Arun also, similar disallowances were made for both the assessment years. In the account copies annexed to the assessment order for assessment year 2003-04 there were opening credit balances in the accounts of Kaleesuwari Refinery Pvt. Ltd. and Arun Oil Trade. For assessment year 2004-05, there is an opening credit balance in the name of Arun Oil Trade, but there are no opening balances in the names of Ananda Oil Corporation and Ashok Oil Trade. However, as per the A.O., cash payments effected to these parties also attracted rigours of Section 40A(3) of the Act. Disallowance made in the case of Shri M. Arun was Rs. 9,65,000/- for assessment year 2004-05 and Rs. 12,07,313/- for assessment year 2003-04. 6. Assessees moved in appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similarly for payments made to Ashok Oil Trade also, learned A.R. submitted that there was no opening balance, but, were in the nature of advance or loan. As for the payments made to MKA Transports and Arun Oil Trade, learned A.R. submitted that these were proprietorship concerns of the same assessee and there could not be application of Section 40A(3) of the Act. 9. We have perused the orders and heard the rival submissions. We will first take the case of assessee M/s Kaleesuwari Refinery Pvt. Ltd. Assessing Officer had considered transactions of the said assessee with M/s Ananda Oil Corporation, Arun Oil Trade, MKA Transports, GMS Traders and Kaleeswari Oil Store, which were all sister concerns of the assessee. As on 1.4.2002, in the accounts of Ananda Oil Corporation, there was opening debit balance of Rs. 1,95,60,352.93, in the case of Arun Oil Trade, there was an opening debit balance of Rs. 4,33,04,817.54 and in the case of GMS Traders, there was an opening debit balance of Rs. 38,62,639.80. The only opening credit balance appeared in the account of MKA Transports Rs. 4,60,101.08. In the case of Kaleeswari oil Store, there was no opening as on 1.4.2002. If we take up previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration, there was opening credit balance of Rs. 2,96,148.45 and every one of the payments totalling to Rs. 88,50,368.45 exceeded Rs. 20,000/- and were in cash. Nevertheless, the payments in excess of opening credit balance made by the assessee to M/s Ananda Oil Corporation cannot be considered as payment made for any expenditure at all. These could at the best be considered as loans or advances. Thus, in our opinion, the maximum amount that could be considered for disallowance under Section 40A(3) of the Act was Rs. 75,000/- for assessment year 2003-04 and Rs. 2,96,148.45 for assessment year 2004-05. The CIT(Appeals), in our opinion, fell in error in deleting the disallowance to this extent, for the simple reason that Hon ble Apex Court in the case of Attar Singh Gurumukh Singh (supra) clearly held that the word expenditure mentioned in Section 40A(3) of the Act was one of wide import and it included all outgoings. However, in our opinion, the decision of Hon ble Apex Court cannot be extended to mean that even loans and advances will be covered under Section 40A(3) of the Act. Hon ble Apex Court was dealing with the issue of payments made against credits arising out of purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee itself. So, the payments effected whether to MKA Transports or Arun Oil Trade, can only be considered as transfer of money from left hand to right hand, because the proprietor was assessee himself. A transfer from left hand to right hand cannot be considered as a transaction at all. Definitely it cannot be considered as an expenditure, since one cannot effect a payment to one self. Therefore, application of Section 40A(3) for assessment year 2003-04 was limited to the transaction with regard to Kaleesuwari Refinery Pvt. Ltd. The total amount of cash payment made to that concern was Rs. 32,36,569/-. For assessment year 2004-05, the payments made by the assessee to Ananda Oil Corporation was Rs. 4 lakhs and this was not against any opening credit or debit balance. Similarly, the payment of Rs. 72,55,229.95 made to Ashok Oil Trade was also not against any expenditure or debit balance. There was a credit balance only in the account of Arun Oil Trade. But, both Arun Oil Trade and MKA Transports were proprietorship concerns of assessee. Therefore, in none of these cases, application of Section 40A(3) was called for. Thus, in view of the decision of Hon ble Apex Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uest to the Assessing Officer for supplying the reasons for reopening. As per the assessees, the Assessing Officer despite this specific request, did not supply the reasons recorded for reopening the assessment. 15. In the appeals before CIT(Appeals), assessees raised this point and objected to the reopening since reasons were not supplied to them. Reliance was placed on the decision of Hon ble Apex Court in the case of GKN Drive Shaft v. ITO (259 ITR 15). However, the CIT(Appeals) did not accept this ground and held as under:- 6. I have considered the submissions of the learned A.R. and verified the record. It is seen from the record that the A.O. recorded the reasons for reopening the assessment, obtained the prior approval of Additional CIT, and then issued the notice under sec.148 to the appellant. Though the reasons recorded were not furnished during the assessment proceedings ample opportunity on the issue for reopening was given by the A.O. during the assessment proceedings. I, therefore, find no infirmity in the notice issued under sec.148 of the I.T. Act. Accordingly, this ground of appeal of the appellant is dismissed. 16. Now before us, learned A.R. submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 148 was issued. If the said procedure is not followed, the orders of lower authorities have to be set aside and the matter remitted back to the file of the A.O. for re-adjudication after supplying copies of reasons recorded. It is a curable procedural infirmity and the matter has to go back to point when the defect occurred, so as to facilitate curing such defect and for proceeding in the matter in accordance with law. We, therefore, set aside the orders of authorities below and remit the proceedings back to the file of the A.O. for serving the assessees the reasons for reopening so that it can file its objections. The A.O. shall proceed in accordance with law. 20. In the result, objections raised by the assessee in their applications under Rule 27 of Appellate Tribunal Rules, 1963 are allowed for statistical purposes. Since we have set aside the orders of authorities below and sent the matter back to file of the A.O. for consideration afresh, appeals of the Revenue are treated as allowed for statistical purposes. It may be noted that A.O. when he proceeds afresh, will pass orders untrammeled by the finding of ld. CIT(Appeals) on merits. 21. To summarise the result, Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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