TMI Blog2022 (3) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Accountant Member This is an appeal filed by the assessee against the order of Learned Principal Commissioner of Income Tax-I, Chandigarh, [in short the 'Ld. Pr.CIT'] dated 26.03.2021 pertaining to assessment year 2016-17. 2. Briefly, the facts of the case are that the assessee has filed his return of income declaring total income of ₹ 5,10,381/- from his liquor trading business. The case of the assessee was selected for complete scrutiny for examination of mismatch in sales turnover reported in audit report and ITR, and low income from TCS receipts (liquor). Notices u/s. 143(2) 142(1) of the Act were issued and after issuing final show cause notice dated 21.12.2018 and taking into consideration reply submitted by the assessee, the assessment was completed at total assessed income of ₹ 9,09,855/- as against the returned income of ₹ 5,10,380/-. Subsequently, the assessment records were called for and examined by the Ld. Pr.CIT and a show cause notice u/s. 263 of the Act was issued on 20.02.2021 and after calling for submissions from the assessee, the assessment order passed by the AO u/s. 143(3) of the Act was held to be erroneous in so far as pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 183,04,731/-. Out of this, the assessee has paid ₹ 72,00,000/- in cash to Rana Wines during F.Y. 2016-17. The assessee in its reply dated 27.12.2018, in para 3 has submitted that payment of ₹ 72,00,000/- has been made in cash. The relevant para is reproduced as under:- 3. That there is sundry creditor in the name of M/s. Rana Wines whose outstanding shown as on 31.3.2016 was ₹ 1,83,04,731/-. As the assessee has replied in para No. 8 to the annexure dated 4.12.2017 that no work was allotted to the assessee for the next year so the advance of ₹ 1.8 Crore was used for repayment of amount outstanding at the end of year. It is further submitted that the assessee has made repayment of ₹ 72,00,000/- to M/s. Rana Wines during the next year i.e. A.Y. 2017-18. The assessee was not able to make the repayment of outstanding liability to M/s. Rana Wines after 31.3.2017 due to weak financial position and later on father of the assessee Sh. Kashmir Singh Rana entered into an agreement dated 9.05.2017 to sell his land situated at Mehal Malyana, Tehsil Teera, Distt. Mandi (H.P.) to clear the liability/Debts of assessee with M/s. Rana Wines. The copy of agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is accepted that liability of sundry creditors has been paid off by transferring the land. It is seen from Ikrarnama that the land is in the name of father and the father of the assessee has paid off the liability of the assessee. Since the father of the assessee has no interest in the business of the assessee, the land so sold to Rana Wines is to be treated as gift in the hands of the assessee under section 56(2) of the Act and the assessee is liable to pay capital gain on sale/transfer of land in lieu of disposal of liability. As the AO has failed to consider this issue, the order issued by the assessing officer is erroneous and prejudicial to the interest of the revenue. 4.3 Confirmation Of Balance Of Rana Wines The AO has also not verified the accounts of Rana Wines, Solan whether they have shown the debtor of ₹ 1,83,04,731/- in their books of account. Though the assessing officer has called for information under section 133(6) of the Act, but no information has been received from M/s. Rana Liquor Solan and the AO has accepted the accounts of the assessee without verifying the genuineness of the accounts. As the AO has failed to consider this the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. 2015-16 with Sher Singh Solan is shown as ₹ 1,11,42,804.40/- (Dr.). The copies of ledger account from the Audit books of account of Sher Singh and M/s. Rana Wines L-1 are enclosed herewith. Meaning thereby your good office has wrongly taken the figures of Rs. nil as opening balance. The correct transactions of sher singh with M/s. Rana wines L-1 for the F.Y. 2015-16 is as under:- Opening balance as on 01/04/2015 ₹ 1,11,42,804.40/- Purchases during the year ₹ 1,71, 52,31 3.00/- Total ₹ 2,82,95,1 17.40/- Less:- Rebate and discount ₹ 2,57, 2700.00/- Less:- Payments ₹ 74,17,686.00/- Closing balance as on 31/03/2016 ₹ 1,83,04,731.00/- From the above table it is very much clear that there was no bogus liability declared by the assesses in his balance sheet during F.Y. 2014-15 and has correctly shown the balance with M/s. Rana Wines. Regarding payments of outstanding lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the department that this amount was used for repayment in cash to discharged the liability of M/s. Rana Wine L-1 in contravention to Section 40A(3) are absolutely wrong and completely denied. It is further submitted that the imprest account was used by the assessee for purchasing lotteries/draw with the Excise liquor department of Punjab and Himachal in the F.Y. 2017-18 for getting liquor contract but not succeeded and suffered huge monetary loss for non-awarded of any liquor contract. Regarding cash payment of ₹ 9,20,000/- to M/s. Rana Wines: It is submitted that the assessee was under pressure from M/s. Rana Wines L-1 Solan regarding huge outstanding in the name of the firm and said firm has forcibly taken cash from the liquor vends of the assessee on the last date of the year and assessee was left with no alternative and was forcibly compelled to make payment of ₹ 9,20,000/- under exceptional circumstances which were not in his control. It is submitted that it is a genuine transactions as both the assessee as well as M/s. Rana Wines L-1 are permanent Income Tax Assessee and both has shown the transactions in their books of account which are audited by Chart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016-17 relevant to assessment year 2017-18 and, therefore, as far as the year under consideration is concerned, the said matter has no bearing on the assessment order so passed by the AO and, therefore, the order so passed by the AO cannot be held as erroneous and prejudicial to the interest of the Revenue. Similarly, it was submitted that regarding the balance payment of ₹ 1,11,04,731/- in respect of which the assessee has submitted that this liability was discharged by executing an agreement dated 09.05.2017 for a sum of ₹ 1.25 crores, it again pertains to financial year 2017-18 relevant to assessment year 2018-19 and it has no bearing for the assessment order passed for the year under consideration. 8. Regarding the balance confirmation from M/s. Rana Wines, L-1, Solan amounting to ₹ 1,83,04,731/-, it was submitted that the assessee has duly submitted copy of the ledger account of M/s. Rana Wines, L-1, Solan in its books of accounts before the AO, which was duly verified by him and during the course of revisionary proceedings before the Ld. Pr.CIT, the copy of the ledger account of the assessee in the books of M/s. Rana Wines, L-1, Solan were submitted and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific findings of the Ld. Pr.CIT. Firstly, regarding the balance confirmation of M/s. Rana Wines, L-1, Solan amounting to ₹ 1,83,04,731/-, it was submitted that during the course of assessment proceedings though the AO has called for the information u/s. 133(6) of the Act, no information has been received from M/s. Rana Wines, L-1, Solan and, therefore, the AO has merely relied upon the submissions so filed by the assessee without verifying the same independently from M/s. Rana Wines, L-1, Solan and, therefore, the Ld. Pr.CIT has rightly held that the AO has accepted the accounts of the assessee without verifying the genuineness of the accounts with M/s. Rana Wines, L-1, Solan. 13. It was further submitted that regarding the cash payment of ₹ 9,20,000/-, the same is clearly evident from the perusal of the ledger account of M/s. Rana Wines, L-1, Solan in the books of the assessee and inspite of that, there is no examination or verification which has been undertaken by the AO or any query which has been raised by the AO and, therefore, as far as the payment of ₹ 9,20,000/- in cash, the same is clearly in violation of section 40A(3) of the Act and, therefore, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, 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. 15. Now, coming to discharge of outstanding liability of ₹ 1,83,04,731/- as on close of the financial year 2015-16 relevant to assessment year 2016-17, it is an admitted position that the same has been partly discharged by way of cash payment of ₹ 72,00,000/- during the subsequent financial year 2016-17 relevant to assessment year 2017-18. The Ld. PCIT has held that the assessee has made the payments in contravention of section 40A(3) and since the AO has not examined this matter, the order so passed is erroneous in so far as prejudicial to the interest of Revenue. 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to highlight any discrepancies in the two accounts. Therefore, on this account, 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. 17. Coming to cash payment of ₹ 9,20,000/- to Rana Wines during the year under consideration, the Ld. PCIT has stated that the assessee has made the payment in contravention of section 40A(3) and the AO has failed to examine and take cognizance of the said fact and which has resulted in underassessment to the tune of ₹ 9,20,000/- and the order so passed by the AO was held to be erroneous in so far as prejudicial to the interest of Revenue. During the course of hearing, the Ld. CIT DR submitted that the same is clearly evident from the perusal of the ledger account of M/s. Rana Wines, L-1, Solan in the books of the assessee and inspite of that, there is no examination or ve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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