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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 ..... (191 ITR 667) and that of Hon'ble jurisdictional High Court in the case of CIT v. A.D. Jayaveerapandia Nadar & Sons (207 CTR 428). 2. Though the grounds are similar, the fact situation giving rise to the disallowances, and transactions which were considered by the Assessing Officer for such disallowances, were different in each of these cases. Hence, each of these cases are separately dealt with. 3. In I.T.A. Nos. 136 and 137/Mds/2012, assessee is a company called M/s Kaleesuwari Refinery Private Limited and the relevant assessment years are 2003-04 and 2004-05. Appeals in I.T.A. Nos. 141 and 142/Mds/2012 are in respect of the assessee Shri M. Arun, and relevant assessment years are again 2003-04 and 2004-05. First we advert to the appeals relating to the former. 4. For the impugned assessment years, Assessing Officer had made disallowances for payments effected otherwise than by account payee cheques, for sums exceeded Rs. 20,000/-. Relying on Section 40A(3) of the Act, 20% of the expenditure claimed was disallowed. Such disallowance for assessment year 2003-04 came to Rs. 9,17,400/- and for assessment year 2004-05, it came to Rs. 50,00,963/-. Appended to the related as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal before CIT(Appeals) for all these years. Argument of the assessee again was that these were running accounts and Section 40A(3) was not attracted. According to it, cash payments were small when compared to the total payments, and payments were all made to sister concerns. CIT(Appeals) was appreciative of these contentions. He cancelled the addition made by the A.O. under Section 40A(3) of the Act. According to him, the running accounts clearly showed that the receipts did not match with purchases and sales and therefore, it could not be taken that the payments made were linked to any specific expenditure. He also noted that the payments effected were all to sister concerns. 7. Now before us, learned D.R. assailing the order of CIT(Appeals) in all these cases, submitted that in view of the decision of Hon'ble Apex Court in the case of Attar Singh Gurumukh Singh (supra) and also that of Hon'ble jurisdictional High Court in the case of A.D. Jayaveerapandia Nadar & Sons (supra), orders of the CIT(Appeals) had to be upturned. According to him, in the first place, it was not necessary that payments should necessarily be linked to expenditure and in the second place, even where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke up previous year relevant to assessment year 2004-05, in the case of M/s MKA Transports there was an opening debit balance of Rs. 25,59,322.05, in the case of GMS Traders there was an opening debit balance of Rs. 89,87,661.07, in the case of Kaleeswari Oil Store there was an opening debit balance of Rs. 43,38,623.17, and in the case of Arun Oil Trade an opening debit balance of Rs. 5,37,45,363.57. The only opening credit balance appeared in the account of Ananda Oil Corporation which was Rs. 2,96,148.45. For previous year relevant to assessment year 2003-04, i.e. previous year starting on 1.4.2002, the only payment made to Ananda Oil Corporation was Rs. 7,00,000/-, which was in cash. Ananda Oil Corporation was having an opening debit balance. Therefore, we cannot say that such payment was against any purchases made by the assessee. If it was against any purchase made by the assessee, then the opening balance would have been only in the credit. Similar is the case with Arun Oil Trade also. However, in the case of MKA Transpsorts, there is an opening credit balance of Rs. 4,60,101.08. However, the payments made in cash in excess of Rs. 20,000/- came to Rs. 75,000/- only. All othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f purchase of stock-in-trade. The credit balances arising on account of purchases were paid later in cash and argument of the assessee was that payments effected later against such credit balances could not be considered as payments against expenditure as such, but only as payment against dues to the concerned parties. It is in this context, Hon'ble Apex Court held that the word "expenditure" appearing in Section 40A(3) had a wide import. Without doubt, "expenditure" mentioned in Section 40A(3) will cover all payments to square up the credit balances subject to the condition that such credit balances arose on account of transactions, which were in the nature of business expenditure. If we take that every type of payment will be covered, then Section 269SS of the Act will become otiose. Hon'ble Apex Court in the case of CIT v. Sun Engineering Works Pvt. Ltd. (1992) (198 ITR 297) (SC) clearly held that findings given should not be taken divorced out of the circumstances and facts situation and we have to be careful in applying the law laid down and such application should be after consideration of the facts on record in each case. 10. Insofar as the claim of the assessee that the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Attar Singh Gurumukh Singh (supra) and that of Hon'ble jurisdictional High Court in the case of A.D. Jayaveerapandia Nadar & Sons (supra), we are of the opinion that application of Section 40A(3) is attracted only in respect to payments of Rs. 32,36,569/- to M/s Kaleesuwari Refinery Pvt. Ltd. For assessment year 2004-05, no disallowance is required under Section 40A(3) of the Act. Orders of CIT(Appeals) are set aside to this extent. A.O. is directed to restrict the disallowance as per Section 40A(3) at 20% of Rs. 32,36,569/- being payments made to Kaleesuwari Refinery Pvt. Ltd. for assessment year 2003-04. 13. In the result, appeals of the Revenue for assessment years 2003-04 and 2004-05 in the case of Kaleesuwari Refinery Pvt. Ltd. are partly allowed. Appeal of the Revenue in the case of Shri M. Arun for assessment year 2003-04 is also partly allowed, whereas, appeal of the Revenue in the case of Shri M. Arun for assessment year 2004-05 is dismissed. 14. Now we take up appeals of the Revenue in I.T.A. No. 134/Mds/2012 and I.T.A. No. 135/Mds/2012, where assessee has filed objections under Rule 27 of Appellate Tribunal Rules, 1963. In these cases also, disallowances wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t though the CIT(Appeals) deleted the disallowance made under Section 40A(3) of the Act, he ruled against assessee on the issue of non-supply of reasons for reopening. Therefore, he was supporting the orders of CIT(Appeals) under Rule 27 of Appellate Rules, 1963 based on the ground which has been decided against it. 17. Per contra, learned D.R. did not dispute that reasons for reopening was not given to the assessees despite their request. However, according to him, at the best it could be considered only as procedural lapse. As per the learned D.R., it would not render the assessments themselves void. 18. Ad libitum, learned A.R. submitted that Hon'ble jurisdictional High Court in the case of K.S. Suresh v. DCIT (279 ITR 61) had held that reassessments done without giving reasons for reopening and without considering the objections filed, were liable to be quashed. 19. We have perused the orders and heard the rival submissions. In the circumstances of the case, we deem it fit to first decide on the objections raised by the assessee under Rule 27 of Appellate Tribunal Rules, 1963. Admittedly, here reasons were requested by the assessees but were not given by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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