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2016 (1) TMI 898 - ITAT AMRITSAR

2016 (1) TMI 898 - ITAT AMRITSAR - TMI - Revision u/s 263 - as per CIT (A) violation of provisions of section 40A(3) - Held that:- CIT has assumed that the assessee must have made payments exceeding ₹ 20,000/- in lump sum and therefore, had violated the provisions of section 40A(3) and therefore, he directed the Assessing Officer to make a fresh assessment. The learned CIT did not consider Circular No.1/2009 issued by Central Board of Direct Taxes wherein, the Board amended the provisions .....

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es that assessee tend to circumvent the provisions of section 40A(3) by splitting a particular high value payment to one person into several cash payments, each below ₹ 20,000/-.

There is no dispute that payments were found to be recorded in cash book which were less than ₹ 20,000/-. Therefore, from the above, it is apparent that the assessee had not violated the provisions of section 40A(3) as admittedly the payments recorded in the cash book were ₹ 20,000/- or bel .....

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Assessing Officer did not examine the amount of lorry charges - Held that:- The view taken by one Assessing Officer in one year, if it differs from the view taken by Assessing Officer in succeeding year on the same issue cannot be said to be erroneous provided the view taken by Assessing Officer is a plausible view. The Assessing Officer did carry out necessary examination to arrive at the genuineness of payments and assessee also filed confirmations by parties to whom payments were m .....

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ent order passed in earlier year cannot be said to be erroneous only on the basis that in subsequent year, the Assessing Officer found certain bogus entries. It is also a fact emerging from records that Assessing Officer did examine the payments of lorry charges & obtained confirmation of payees. It is another matter that he did not call for information u/s 133(c) from RTO to further verify the genuineness of payments. Therefore it is a case of inadequate enquiry and not a case of lack of enquir .....

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as taken four grounds of appeal, out of which ground Nos. 2 and 4 are general and ground No.3 is specific which reads as under: "(iii) That the learned CIT, Jammu, while initiating proceedings as well as at the time of passing of order u/s 263 of the Act has completely ignored the fact that before 1.04.2009 the words "or aggregate of payments made to a person in a day"..... were not mentioned in section 40A(3) during the assessment year under consideration, thus ignoring the CBDT .....

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de the order of Commissioner of Income Tax vide its order 31.10.2013 with the directions that assessee be provided sufficient opportunity of being heard and therefore, after affording the assessee adequate opportunity, the Commissioner of Income Tax again passed order under section 263 with the same directions which were in original order under section 263 dated 21.03.2012. The show cause notice issued by the Commissioner for initiating proceedings under section 263 is reproduced as below. 2. On .....

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/s Shalimar Transporters, Baramulla, as per the following details:- 05.04.2006 30,000/- M/s. Shalimar Transporters Baramulla against purchase 24.06.2006 2,00,000/-do- 30.06.2006 1,00,000/-do- 07.08.2006 1,50,000/-do- 14.08.2006 1,80,000/-do- 23.08.2006 1,80,000/-do- 11.10.2006 1,80,000/-do- 12.10.2006 1,80,000/-do- 14.10.2006 1,80,000/-do- 15.10.2006 1,80,000/-do- 16.10.2006 1,80,000/-do- 17.10.2006 1,80,000/-do- 18.10.2006 1,80,000/-do- 19.10.2006 1,80,000/-do- 21.10.2006 1,80,000/-do- 31.10.20 .....

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61. In response, vide reply dated 17.11.2009, it was submitted by you as under:- The cash payments made to Shalimar Transporters have not been made in violation section 40A(3) of the Income Tax Act, 1961 but have been made on parts during the day and in separate transaction.'. 3.3 The above reply along with the copy of day book is also placed on records. However, it is seen that payments made to a single party have been split up into individual entries below 20,000/- to circumvent the provis .....

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nditure, in excess of ₹ 20,000/-, in respect of any payment/aggregate of payments to any person otherwise than by an account payee cheque/draft, no deduction is allowable in respect of such expenditure. It appears that the provisions of section 40A(3) of the I.T.Act,1961, were clearly applicable but the Assessing Officer has failed to invoke the said provisions and bring to tax the amount of ₹ 45,45,731/-. 3.5. Further, it has also been stated that during the course of the assessment .....

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ring this year also. 4. Keeping in view the above, it appears that the assessment framed by Deputy Commissioner of Income Tax, Circle-III, Srinagar referred to above is erroneous and prejudicial to the interests of revenue and accordingly you are requested to show cause as to why the provisions of section 263 may not be invoked in your case and the assessment order under consideration be enhanced or modified or cancelled directing a fresh assessment. 5. Accordingly you are requested to appear be .....

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he assessee had made payments to one M/s. Shalimar Transporters, Baramulla, in excess of ₹ 20,000/-, however, in the books of account the payments has been spilt up into individual entries below ₹ 20,000/- to circumvent the provisions of section 40A(3) of the I.T. Act. The other allegation of Commissioner is that the Assessing Officer during the course of assessment proceedings for Asst. Year 2008-09 had called for information under section 133(6) of the I.T. Act, 1961, from RTO, Sri .....

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invoked in the above noted case. 1. That the assessment order section 143(3) read with section 115WE(3) dated 24.12.2009 is in no way erroneous as the Assessing Officer with great caution has applied his judicial mind in assessing the income of the assessee for the assessment year 2007-2008 and the Assessing Officer has taken into account the overall circumstances effecting the income and profit positions of the assessee and has observed in his order dated 24.12.2009 that the income shown for t .....

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111/314 ITR 81 (SC), Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 (SC). Jai Kumar Kankaria Vs. CIT 251 ITR 707 hence the proceedings under section 263 of the Income Tax Act 1961 may kindly be dropped. 2. That the payments made to M/s. Shalimar Transporters for purchase of fuel have been made in para below ₹ 20,000/- on different times in a day. The word 'sum' in section 40A(3) is used only to indicate an amount of money and does not refer to the totality of the expenditure. It i .....

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ter the amendments in the Income Tax Act 1961 by the Finance Act, 2008, w.e.f, 1.4.2009 that the payments above the limit in a whole day are ought to be disallowed and in the instant case of the assessee in assessment year under consideration is 2007-2008 such disallowance is not applicable as the words in section 40A(3) prior to amendment of 2009 clearly mention "Where the assessee incurs any.....in a sum exceeding twenty through rupees otherwise than by an account payee cheque drawn on a .....

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s in a day due to exceptional and unavoidable circumstances duly considered by the Ld. Assessing Officer while making the assessment and the cash has been genuinely paid and confirmation letters from the party is placed on record, as these payments by bank draft/Cheque were not practically possible for fuel purchase for Lorries/Buses/Load carries since often cash is paid to Lorry Driver of Bus Driver or Load Carriers Driver so that he fills the fuel in vehicles which are used to complete the Con .....

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3(3) read with section 115WE(3) dated 24.12.2009 is neither erroneous nor prejudicial to the interest of revenue & therefore the proceedings under section 263 of the Income Tax Act 1961 may kindly be dropped. 4. That while passing Assessment Order u/s 143(3) dated 24.12.2009 the assessing officer has applied the law under section. 40A(3) of the Income Tax Act 1961 as laid down by the Hon'ble Courts in the case of including CIT vs. Aloo Supply Co. [1990] 121 ITR 680(Ori.). M.R.Soap (P.) L .....

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he position of the Assessee with regards to applicability of the provisions of sec. 40A(3) of the Income Tax Act 1961. Hence the order under section 143(3) read with section 115WE(3) dated 24.12.2009 is neither erroneous under section 263 of the Income Tax Act 1961 may kindly be dropped. 5. That while passing Assessment order u/s 143(3) Dated 24.12.2009 the assessing Officer has applied his mind and asked detailed questions vide Letter No. ACIT-3SNG/2007-08/267 Dated 16.08.2009, Letter No.Dy./Cr .....

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en before completion of the assessment and no doubt all those questioners and replies have not been expressly mentioned in the assessment order but the record available on file is self explanatory and all the questions have been duly considered and adjudicated by the AO in his assessment order therefore keeping in view the above facts and circumstances and decisions of the Hon'ble High Courts in the cases of CIT vs. Development Credit Bank Ltd. 323 ITR 206 , CIT vs. Ashish Rajpal 320 ITR 674 .....

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after giving an opportunity to the assessee of being heard. The assessee is in appeal before us, against this order passed by learned Commissioner. 4. At the out set, the learned AR submitted that it is an admitted fact by the Commissioner himself that payments were not made in excess of ₹ 20,000/- as in the cash book each payment was not exceeding ₹ 20,000/- and his allegation is that the entire payments were made in one day in lump sum and was recorded in the cash book by splittin .....

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of payments in a single day is to be considered for the purposes of violation of provisions of section 40A(3). The learned AR submitted that circular itself, says that Courts had approved such splitting thereby applying the limit to each transaction. In view of the above, it was submitted that the making of multiple payments in a single day was allowed in the Asst. Year under question. The learned AR, further submitted that the Assessing Officer had duly carried necessary investigation for verif .....

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n was invited to para 10 & 11 wherein the assessee had explained the alleged violation of provisions of section 40A(3). The learned AR submitted that Assessing Officer again vide letter dated 10.12.2009 raised the same issue vide question No.8 to which the assessee replied vide letter dated 17.12.2009, which was placed at paper book page-45. In view of the examination of this fact and circumstances by Assessing Officer, the learned AR argued that Assessing Officer had made complete verificat .....

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) for the proposition that where a query was raised during the course of scrutiny which was satisfactory answered by the assessee but which did not get reflected in the assessment order would not by itself lead to a conclusion that there was no enquiry with respect to transactions carried out by the assessee. The learned AR submitted that as demonstrated the Assessing Officer had verified this issue on two occasions and on two occasions the assessee had filed replies and Assessing Officer being .....

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a Ltd. 204 ITR 208 (Bom), for the same proposition that omission on the part of Assessing Officer to make elaborate discussion in Assessment Order does not make an order erroneous. The learned AR further submitted that audit report issued under section 44AB also did not point out any payment exceeding ₹ 20,000/- and the audit report also strengthens the fact that no payment exceeding ₹ 20,000/- was made. 5. As regards the other allegation of Commissioner regarding non verification of .....

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on the other hand, submitted that assessee had splinted the payments into transactions of less then 20,000/- as in fact he had made payments in lump sum as it is not possible that in a single day the assessee would have made payment to same party 10 times in a day. He argued that human probability does not warrant such type of actions and Assessing Officer had failed to examine this issue as he simply accepted the version of assessee and did not go further to find out as to whether these paymen .....

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Supreme Court in the case of Durga Prasad More (1971) 82 ITR 540 has clearly held that while arriving at a conclusion the human probability aspect has to be kept in mind. The learned DR invited our attention to the fact that payments were splitted in a manner that each payment did not exceed ₹ 20,000/-, which was a threshold limited for violation of provisions of section 40A(3). As regards second allegation the learned DR submitted that in Asst. year 2008-09, the Assessing Officer had hel .....

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is order has stated that though assessee had recorded payments of ₹ 20,000/- or less to M/s Shalimar Transporters but in fact the assessee must have paid in lump sum and must have recorded the entries by splitting the same. Therefore, the learned CIT has assumed that the assessee must have made payments exceeding ₹ 20,000/- in lump sum and therefore, had violated the provisions of section 40A(3) and therefore, he directed the Assessing Officer to make a fresh assessment. The learned .....

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cable for the year under consideration as the assessment year involved in 2007-08. The Circular vide para 13.2 itself states that assessee tend to circumvent the provisions of section 40A(3) by splitting a particular high value payment to one person into several cash payments, each below ₹ 20,000/-. The relevant provision of the said Circular as contained in para 13.2 to 13.4 are reproduced below: "13.2 Sub-section (3) of section 40A is an anti tax-evasion measure. By requiring paymen .....

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splitting by interpreting the words 'in a sum' used in the section to mean a single sum thereby applying the limit to each transaction. This interpretation is against legislative intent and has, consequently, adversely affected the efficacy of this anti abuse provision. 13.3 Therefore, the provisions of sub-section (3) of section 40A have been amended providing that the provisions of sub-section(3) of section 40A shall also be attracted where the aggregate of payments made to a single pa .....

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no dispute that payments were found to be recorded in cash book which were less than ₹ 20,000/-. Therefore, from the above, it is apparent that the assessee had not violated the provisions of section 40A(3) as admittedly the payments recorded in the cash book were ₹ 20,000/- or below. As regards examination by Assessing Officer regarding violation of there provisions, we find that the Assessing Officer had raised this issue on two occasions and the assessee had replied to the Assess .....

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at where the Assessing Officer had made enquiries in regard to nature of expenditure incurred by assessee and assessee had given detailed explanation in that regard and Assessing Officer had accepted the explanation of the assessee, the decision of Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in this regard. In the present case, the Assessing office raised an enquiry and assessee filed detailed reply and thereafter, Asses .....

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oceedings. The view taken by one Assessing Officer in one year, if it differs from the view taken by Assessing Officer in succeeding year on the same issue cannot be said to be erroneous provided the view taken by Assessing Officer is a plausible view. The Assessing Officer did carry out necessary examination to arrive at the genuineness of payments and assessee also filed confirmations by parties to whom payments were made. The fact that the assessee had filed confirmations of payees becomes ap .....

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