LATE SHRI TIRATH RAJ SINGH,THROUGH LEGAL HEIR SHRI GYANENDRA SINGH, VIDEH NIKUNJ, NEAR JAWAHAR PARK, SIDHI(M.P),SIDHI vs. INCOME TAX OFFICER -2, , REWA

The brief facts of the case are that for the captioned assessment year, the original assessment order dated 19.11.2010 passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) was set aside by the ld. Commissioner of Income Tax (CIT) vide order dated 18.03.2013 on account of alleged omission on the part of the Assessing Officer to examine the issue of payments made in violation of provisions of Section 40A(3) of the Act. In the consequential assessment order, the Assessing Officer made a disallowance of Rs.3,46,050/- on account of payments made against purchase of cement on the ground that the assessee had made all the payments below Rs.20,000/- in cash with an aim to avoid the liability of deducting tax at source.

Aggrieved, the assessee preferred an appeal before the ld. First Appellate Authority, challenging the disallowance made in the assessment order. However, the assessee’s appeal was dismissed by the NFAC as admittedly there was no compliance by the assessee on any of the three dates on which the assessee was required to file submissions.

Now, the assessee has approached this Tribunal, challenging the dismissal of his appeal by raising the following grounds of appeal: “1. That the National Faceless Appeal Centre (NFAC) has grossly erred in facts and circumstances of the case to decide the appeal in the name of the deceased whereas the name of Legal Heir was requested to substitute.

The ld. Authorized Representative submitted that the assessment order passed subsequent to the order passed u/s. 263 of the Act was bad in law as well on facts for the simple reason that all the payments which have been disallowed u/s.40A(3) of the Act were below Rs.20,000/- and further the payments had been made towards purchase of cement which did not attract any liability to deduct tax at source.

Per contra, the ld. Senior Departmental Representative submitted that the assessee had not complied with the various notices issued by the NFAC and, therefore, the issue cannot be decided without obtaining report from the Assessing Officer. The ld. Senior D.R. also placed reliance on the findings and observations of the Assessing Officer and underlined the reason behind initiating revisionary proceedings in this case i.e. violation of provisions of Section 40A(3) of the Act.

We have heard the rival submissions and have also perused the material on record. At this juncture, it will be appropriate to reproduce the relevant portion from the assessment order which deals with the issue at hand. The same is being reproduced hereinunder: “From the verification of Cement Account it is noticed that the assessee has made payment to various parties in excess of Rs. 20,000/. However, from the examination of Bank Account it is found that the assessee has made payments to those parties below Rs. 20,000/- more than once frequently within the interval of 1-2 days. Further, there was sufficient credit balance in Bank Account and there did not seem to be any financial hardship. In the circumstances the assessee was asked to explain the intention of making payments below Rs. 20,000/- in parts within interval of 1-2 days when there was sufficient fund available and also the fact that the amount was due to those parties. On this, it has been stated by the assessee that the payments have been made as per the vouchers produced for examination. Since the vouchers being self made and can be made of any amount and in any manner according to convenience, this plea of the assessee is not accepted. The assessee could not explain the reasons why payments below Rs.20,000/- have been made to various parties when there was sufficient fund available with the assessee and also the fact that the amount was due to parties. In the circumstances it is obvious that the sole strategy of making payments below Rs. 20,000/- was to avoid TDS liability to-wards purchasers. From the counter-foil of Cheque Book only one payment of Rs. 30,360/- is found to have been made through cheque. Since the assessee has failed to explain the reasons of making payment in parts and below Rs.20,000/-, I disallow and add such payments, except one payment amounting to Rs. 30,360/- to the income so assessed u/s. 143(3) vide assessment order dated 19/11/2010 Total Income is computed as under:

In the final result, the appeal filed by the assessee stands allowed.