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Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
Before: SHRI KUL BHARAT
O R D E R PER KUL BHARAT, JM:
This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals)-1, Gurgaon, dated 26.06.2019, pertaining to the assessment year 2014-15. The assessee has raised following grounds of appeal:
“1. That having regard to the facts and circumstances of the case, assumption of jurisdiction in reopening the impugned assessment and passing the impugned order u/s 144/147, is bad in law and against the facts
147 to 151 have not been complied with. 2. That in any case and in any view of the matter, assumption of jurisdiction in reopening the assessment u/s 147, is bad in law and against the facts and circumstances of the case 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) ought to have quashed the reassessment order on the ground that no notice u/s 143(2) has been issued after the return filed in response to notice u/s 148 of the Act.
4. That Having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making aggregate disallowance of Rs.5,41,427/- u/s 40A(3) and that too by recording incorrect facts and findings and in violation of principles of natural justice.
5. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making aggregate disallowance of Rs.5,41,427/- u/s 40A(3), is bad in law and against the facts and circumstances of the case. 6. That having regard to the facts and circumstances of the case, Ld. CIT(A) ought to deleting the disallowance of Rs.89,542/- made by Ld. AO on account of interest on late payment and interest on late payment of VAT as the assessee has submitted in this regard in the statement of facts filed before Ld. CIT(A). 7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in passing the impugned order and that too without providing the adequate opportunity of hearing as per law. 8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234A and 234B of Income Tax Act, 1961. 9. That the appellant craves for leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.
2. Apart from that the assessee had also filed an application seeking admission of additional grounds. The additional grounds raised by the assessee are as under:
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not quashing the impugned reassessment order passed by Ld. AO and that too without assuming jurisdiction as per law and without complying with mandatory conditions u/s 147 to 151 as envisaged under the Income Tax Act, 1961.
That in any case and in any view of the matter, action of Ld. CIT(A) in not quashing the impugned reassessment order passed by Ld. AO u/s 147/144, is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) ought to have quashed the impugned reassessment order passed by Ld. AO on the ground that no notice u/s 143(2) has been issued during the course of entire reassessment order and more particularly when return was filed by assessee in response to notice u/s 148.
4. That having regard to the facts and circumstances of the case, the Ld. CIT(A) ought to have deleted the disallowance of Rs. 89,542/- made by Ld. AO on account of 'HPCL interest on late payment' and 'interest on late payment of VAT' for 79,000/- and 10,542/- respectively as submitted by the assessee in the statement of facts filed before Ld. CIT(A).”
The assessee has also relied upon various case laws for admission of the additional grounds. Since the additional grounds raised by the assessee are of legal nature, same are admitted for adjudication.
Facts giving rise to the present appeal are that in this case the assessee filed its return of income on 30.11.2014 declaring an income of Rs. 8,29,440/-. Same was processed u/s 143(1) of the Income-tax Act, 1961, hereinafter referred to as the “Act”. Thereafter, the case was selected for compulsory scrutiny under CASS.
Thereafter, the assessment was framed u/s 143(3) of the Act at Rs. 9,44,939/-. The case of the assessee was reopened on the basis that the assessee had made payments in cash exceeding to the statutory limit. Thus, the AO proceeded to make the impugned additions and assessed income at Rs. 15,75,908/-. Aggrieved against this the assessee preferred appeal before the learned CIT(Appeals), who dismissed the appeal. Now the assessee is in appeal before this Tribunal.
Apropos to the grounds of appeal, learned counsel for the assessee submitted that firstly, the assumption of jurisdiction for initiating the proceedings u/s 147, passing the impugned assessment order u/s 147 read with Section 144 is bad in law on various counts. The impugned assessment order is for A.Y. 2014-15and the case was reopened beyond four years of the relevant assessment year. The original assessment in this case had been completed u/s 143(3) of the Act. There was no tangible material recorded by the AO. It was further submitted that the issues were duly examined by the AO. Hence, the assessment is unjustified. Moreover, he submitted that there is no application of mind as no positive inquiry was conducted by the Assessing Authority. Further, the assumption of jurisdiction is illegal in view of the fact that no notice u/s 143(2) of the Act was issued after the return filed in response to notice u/s 148 of the Act on 22.7.2017 which is duly acknowledged in the impugned assessment order. To buttress his contention, learned counsel
placed reliance on various case laws, as under:
- PCIT & Another vs. Silver Line & Another (2016) 383 ITR 0455 (Del.); - ACIT & Another vs. Hotel Blue Moon (2010) 321 ITR 0362 (SC); - CIT vs. Laxman Das Khandelwal SLP(C) No. Dairy No. 7708 of 2019; - Alpine Electronics Asia P. Ltd. v. DGIT (2012) 341 ITR 247 (Del.).
Further, in respect of ground nos. 4 & 6 it was stated that the alleged expenses were on account of interest on late payment to HPCL and interest on late payment of VAT for Rs. 79,000/- and Rs. 10,542/- respectively. It was stated that the assessee is a partnership firm engaged in running a petrol pump. During the year under consideration the assessee made payment of Rs. 79,000/- on account of late payment charges to HPCL and Rs. 10,542/- on account of interest on late payment of VAT. These two payments are not in the nature of penalty and are legible for deduction u/s 37(1) of the Act.
Learned counsel in respect of ground nos. 4 & 5 i.e. the amount relating to addition of Rs. 5,41,427/- submitted that the payments were made of Rs. 3,09,100/- to three security guards and a salary of Rs. 9300/- per guard was made.
Thus, it was 3 different payments to 3 different persons and are not in violation of provisions of Section 40A(3) of the Act. Payment of Rs. 68,747/- was made to Electricity Department, Government of India. Thus, the cash payment to government department is allowable. Further, payment of Rs. 26,000/- was made for fire protection instruments. These payments are allowable expenses under Rule 6DD and the payment of Rs. 35,000/- was made in two transactions of Rs. 18,000/- and Rs. 17,000/-, hence, lower than the pecuniary limit. He submitted that the learned CIT(Appeals) did not consider the material evidences.
On the other hand, learned DR supported the orders of the authorities below.
He submitted that the reopening of the assessment is justified in view of the fact that the assessee violated the provisions of Section 40A(3). Further, certain allowances were wrongly claimed. He, therefore, strongly relied on the orders of the authorities below.
I have heard rival submissions and perused the material available on record.
There is no dispute with regard to the fact that the Revenue could not produce the evidences of issuance and service of notice u/s 143(2) of the Act. In the absence of statutory notice u/s 143(2), framing of assessment is contrary to the law laid down by the Hon’ble Supreme Court in the case of ACIT & Another vs. Hotel Blue Moon (supra) and followed by the Hon’ble High Court and other Division Benches of the Tribunal. The assessment so framed is therefore bad in law, hence deserves to be annulled. I order accordingly.
Now coming to the other grounds, the assessee has pointed out that disallowance in respect of VAT and payment to HPCL is allowable u/s 37(1) of the Act as both the payments are not in the nature of penalty. In support of this learned counsel has relied upon the judgment of the Hon’ble Calcutta High Court rendered in the case of CIT Vs. EL Properties 166 CTR 485 (Cal.); and the order of the ITAT Mumbai Bench in the case of ACIT vs. Gini & Jony Ltd. 172 ITD 472.
Therefore, respectfully following the binding precedence I am of the considered view that in respect of these two payments the assessing authority was not justified to make the addition.
In respect of addition made u/s 40A(3) of the Act the assessee has demonstrated that the payments were made to the government department and other payments were made lower than the pecuniary limit. The Revenue ahs not rebutted the same. Therefore, the Assessing Officer was not justified in making the addition. Same is hereby deleted.
Grounds raised in this appeal are allowed in the terms indicated hereinabove.
Appeal of the assessee is allowed.
Order pronounced in open court on 27th February, 2023.