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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MANJUNATHA. G, HON’BLE & SHRI MANOMOHAN DAS, HON’BLE
आदेश /O R D E R
PER BENCH :
These bunch of five appeals filed by the assessee and one appeal filed by the revenue are directed against separate but :-2-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 identical orders of Commissioner of Income-tax (Appeals)-14, Chennai and pertains to assessment years 2008-09, 2013-14, 2010-11, 2011-12 & 2012-13. Since, facts are identical and issues are common, for the sake of convenience, these cross appeals filed by the assessee as well as the revenue are disposed off, by this consolidated order.
At the outset, we find that the appeals filed by the assessee for assessment year 2008-09 and 2013-14 are time barred by 154 days, for which a petition for condonation along with affidavit explaining reasons for delay in filing of appeal has been filed. The Ld. Counsel for the assessee, submitted that the assessee was having severe financial crunch and this lead to delay in filing of the appeals. Therefore, considering the facts and circumstances of the case and also in the interest of justice, delay may be condoned.
The ld. DR, opposing petition filed by the assessee for condonation of delay submitted that reasons given by the assessee does not come under reasonable cause for condonation of delay and thus, application filed by the assessee may be dismissed.
:-3-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 4. We have heard both the parties and considered relevant contents of the petition filed by the assessee for condonation of delay. From the petition filed by the assessee, we find that there is a reasonable cause in not filing appeals within time allowed under the Act and therefore, considering the explanation of the assessee, the delay in filing of appeals for assessment years 2008-09 & 2013-14 are condoned.
The assessee, has more or less filed common grounds of appeal for all the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for assessment year 2008-09 are reproduced as under: “The order dated 31.01.2019 of the Learned CIT(A)- 14, Chennai in 2016-17 for the Assessment year is contrary to facts, opposed to law and untenable. Lack of Jurisdiction. The Learned Assessing Officer erred in reopening the Assessment after 4 years. 2.1 The Notice u/s 148 lacks jurisdiction as there is no fresh material no fresh material available for reopening the assessment and the notice u/s 148 is unsustainable 2.2 Reassessment cannot be made on the issues not covered beyond the reasons recorded for issuing Notice u/s 148. Disallowance of Cash payment on Estimated basis The Ld CIT (A) erred in disallowing 5% of the expenses when the margin of the business is less than 1% on turnover.
:-4-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 3.1 The Learned Assessing officer further erred in making an addition which is based on suspicion, surmises and conjectures. There is no material in the possession of the assessing officer that the amount incurred were not the purpose of business. For these and other grounds that may be permitted to be adduced before or during the course of hearing, the Appellant prays that the appeal be allowed and the order of Learned Commissioner of Income Tax (Appeals) be deleted in respect of the grounds not allowed by him.”
The brief facts of the case are that, the assessee Shri. K. Murugan, has been issued summons u/s. 131 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by the DDIT, Unit-1, CRU, requiring him to produce books of accounts in connection with information shared by the FIU-IND regarding cash expenditure incurred to the tune of Rs. 21,66,12,036/-. The assessment has been subsequently, reopened u/s. 147 of the Act, for the reasons recorded, as per which income chargeable to tax had been escaped assessment. In response to the notice u/s. 148 of the Act, the assessee filed copy of return of income originally filed for assessment year 2008-09 and requested to consider the same as return filed in response to notice u/s. 148 of the Act. The case was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer called upon the assessee to explain huge cash expenditure incurred for the relevant assessment year in light
:-5-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 of provisions of section 40A(3) of the Act. In response, the assessee submitted that he is engaged in the business of distributor for Aavin Sachet Milk and payment made in cash is for purchase of milk from M/s. Tamilnadu Co-operative Milk Producers Federation Ltd. Therefore, submitted that provisions of section 40A(3) of the Act, cannot be invoked, because the assessee case is covered under exception provided under Rule 6DD(e) of the I.T. Rules, 1962. The Assessing Officer, after considering relevant submissions of the assessee and also following certain judicial precedents, opined that the case of the assessee does not come under Rule 6DD(e)(ii) of the I.T. Rules, 1962 and thus, segregated cash payment in excess of Rs. 20,000/- amounting to Rs. 9,92,55,861/- and made additions u/s. 40A(3) of the Act. In so far as balance amount of Rs. 11,73,56,175/-, rejected explanation of the assessee and estimated 10% on total expenditure and made additions of Rs. 1,17,35,617/-.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld. CIT(A), the assessee challenged re-opening of assessment on the ground that the assessment has been re-opened on mere
:-6-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 ‘change of opinion’ and also in violation of provisions of section 147 of the Act, because the assessment has been re-opened after a period of four years from the end of the relevant assessment year and the Assessing Officer failed to make out the case of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The assessee had also challenged additions made towards disallowance of cash payment u/s. 40A(3) of the Act, in light of Rule 6DD(e) of I.T. Rules, 1962 and also estimation of 10% disallowance on cash payment, on the ground that disallowance estimated by the Assessing Officer is higher side and unreasonable.
The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of various facts rejected legal grounds taken by the assessee challenging reopening of assessment. In so far as, addition made towards cash payment in excess of prescribed limit u/s. 40A(3) of the Act, the CIT(A) for the reasons stated in their appellate order dated 31.01.2019 upheld the findings of the Assessing Officer, in respect of disallowance of cash payment in excess of prescribed limit. However, directed the Assessing Officer to verify the contention
:-7-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 of the assessee for application of Rule 6DD(e)(ii) of the I.T. Rules, 1962 in light of facts that payment made to M/s. Tamilnadu Co-operative Milk Producers’ Federation Limited comes under Rule 6DD(e)(ii) of the I.T. Rules, 1962 . As regards, estimation disallowance on remaining cash expenses, the ld. CIT(A), after considering relevant submissions of the assessee, has scaled down estimation from 10% to 5% and directed the assessee to restrict additions to the extent of 5% on cash expenses. Being aggrieved by the CIT(A), the assessee as well as the revenue are in appeal before us.
The ld. Counsel for the assessee, referring to reasons recorded for reopening of assessment u/s. 147 of the Act, submitted that the assessment has been reopened after a period of four years from the end of relevant assessment year, in violation of provisions of section 147 of the Act, because the original assessment in the present case has been completed u/s. 143(3) of the Act and the assessment can be reopened after a period of four years, only in a case of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Ld. Counsel for the assessee further submitted that, the assessment has been reopened on :-8-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 borrowed satisfaction on the basis of audit objection which is unsustainable. The Ld. Counsel for the assessee, further on merits of the issue submitted that the addition made by the Assessing Officer towards estimation of disallowance on cash expenditure and further findings of the CIT(A) to reduce disallowance to 5% on total cash expenses is not supported by any evidence. He further submitted that the assessee is having very less margin in this business, because he is involved in distribution of milk products, where he earns 2% of margin on sales. Therefore, submitted that reasonable amount of profit may be estimated from cash expenses.
The ld. DR, on the other hand submitted that the assessment has been reopened u/s. 147 of the Act, as per reasons recorded it clearly shows that there is no disclosure of necessary facts for completion of assessment and thus, the CIT(A) has rightly rejected arguments of the assessee on the legal issue and their order should be upheld. The DR, further submitted that in so far as estimation of disallowance of cash expenses, the ld. CIT(A) after considering relevant submissions and also taken note of various facts scaled down estimation to 5% from 10% and thus, there is no reason to give further relief
:-9-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 to the assessee. In so far as revenue appeal, the DR further submitted that the CIT(A) does not have powers to remit the matter for further verification to the Assessing Officer and thus, the order of the CIT(A) in so far as disallowance of cash payment u/s. 40A(3) of the Act should be set aside.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. As regards reopening of assessment u/s. 147 of the Act, we find that the reasons recorded for reopening of assessment clearly establishes failure of the assessee to disclose fully and truly all material facts necessary for assessment and thus, in our considered view the proviso to section 147 of the Act does not apply to the case of the assessee. In so far as second arguments of the assessee in light of audit objection, we find that although the basis for reopening of assessment may be audit objection, but on perusal of reasons recorded for reopening of assessment, it is very clear that the Assessing Officer has established escapement of income and there is a live link between reasons and escapement of income and thus, we reject second ground of the assessee. To sum up, reopening of assessment in the given facts and circumstances of this case is :-10-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 on valid grounds and thus, the grounds of appeal taken by the assessee challenging validity of reopening of assessment are dismissed.
12. Coming back to the additions made by the Assessing Officer towards disallowance of cash payment in excess of prescribed limit. The Assessing Officer has disallowed 10% of cash expenses on the ground that the assessee could not furnish necessary books of accounts and other evidence to justify cash payment made in respect of purchase of milk from M/s. Tamilnadu Co-operative Milk Producers’ Federation Limited. It was the argument of the assessee that disallowance estimated by the Assessing Officer and scaled down by the CIT(A) to 5% is on higher side. In the given facts and circumstances of this case, we find that the Assessing Officer has disallowed 10% of cash expenses and the same has been scaled down by the CIT(A) to 5% on cash expenses. But both the parties did not give any reasons as to why disallowance computed by the Assessing Officer and CIT(A) is correct. On the other hand, the assessee had filed a comparative chart of turnover from his business and profit earned for relevant assessment years. From the chart filed by the assessee, we
:-11-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 find that the assessee is having 2% gross profit margin on sales and after expenses, the net profit percentage is below 1% for all assessment years. Further, although the assessee claims to have earned less than 1% net profit, but could not justify said profit with necessary evidence. Since, both the parties failed to prove their case with necessary evidence and reasons, in our considered view to settle dispute between the assessee and the Assessing Officer, a reasonable amount of disallowance needs to be estimated. Therefore, considering the fact that the assessee is a distributor for milk product and also in this line of business, the percentage of profit is very less, we deem it appropriate to direct the Assessing Officer to disallow 4% of cash expenses. Accordingly, the Assessing Officer is directed to disallow 4% on total cash expenses in excess of prescribed limit.
Coming back to the revenue appeal. The revenue has challenged the findings of the CIT(A) in directing the Assessing Officer to verify the applicability of provisions of Rules 6DD(e) of the I.T. Rules, 1962, on the ground that the CIT(A) does not have any power to set aside the appeal to the Assessing Officer. The revenue further contended that M/s. Tamilnadu Co-
:-12-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 operative Milk Producers’ Federation Limited, is a separate legal entity and no longer part of the State Government as per the provisions of Rules 6DD(e) of the I.T. Rules, 1962. We find that the ld. CIT(A) in principal, approved the findings of the Assessing Officer on disallowance of cash expenditure in excess of prescribed limit u/s. 40A(3) of the Act, however set aside the issue for the limited purpose of verification of claim of the assessee in light of provisions of Rules 6DD(b) of the I.T. Rules, 1962 on the ground that M/s. Tamilnadu Co-operative Milk Producers’ Federation Limited is a Government entity or not. In our considered view, there is no error in the reasons given by the CIT(A) to give directions to the Assessing Officer to verify the claim of the assessee in light of relevant provisions of I.T. Rules, 1962 and thus, we reject the ground taken by the revenue and dismiss appeal filed by the revenue.
In the result, appeal filed by the assessee for the assessment year 2008-09 is partly allowed and appeal filed by the revenue for assessment year 2008-09 is dismissed.
:-13-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 ITA NO: 3157/Chny/2019 assessment year 2013-14: 15. The only issue involved in the present appeal filed by the assessee is estimation of disallowance on cash expenses. The Assessing Officer disallowed 10% of cash expenses, whereas the CIT(A) scaled down the disallowance of expenses to 5%. We find that an identical issue has been considered by us for assessment year 2008-09 in ITA No. 3156/Chny/2019, where we directed the Assessing Officer to disallow 4% of cash expenses. The facts in the present year are identical to the facts considered by us for assessment year 2008-09. Therefore, reasons given by us in preceding Para no. 12 for assessment year 2008-09, shall mutandis mutatis apply to this appeal as well. Therefore, for similar reasons, we direct the Assessing Officer to disallow 4% of cash expenses in excess of prescribed limit.
In the result, appeal filed by the assessee for assessment year 2013-14 is partly allowed.
:-14-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 ITA Nos: 858, 859/Chny/2019 & 3158/Chny/2019 for assessment years 2010-11, 2012-13 & 2012-13:
The Ld. Counsel for the assessee, submitted that the CIT(A) has dismissed appeal filed by the assessee on technical ground for not appearing at the time of hearing without the issue on merits. Therefore, in the interest of justice, one more opportunity may be given to the assessee to go back to the CIT(A) to explain its case. The ld. CIT-DR, on the other hand supporting the order of the CIT(A) submitted that, the assessee did not appear before the CIT(A) inspite of repeated opportunities, which is evident from the order of the CIT(A). Therefore, there is no reason to given one more opportunity of hearing to the appellant.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The CIT(A) had dismissed appeal filed by the assessee for assessment years 2010-11 & 2012-13 on technical ground for not appearing for hearing on the date when appeal was posted for hearing. Although, the CIT(A) dismissed appeal filed by the assessee for want of prosecution, but these appeals have :-15-: 3156 to 3158/Chny/2019, 858 & 859/Chny/2019 & 1750/Chny/2019 been dismissed on technical grounds without discussing the issues on merits. It is a well settled principal of law by the decisions of various courts and tribunals, that in a case where the appellant is not appearing for the hearing, the appellate authorities should dispose off the appeals on merits on the basis of merits available on record. In this case, the CIT(A) dismissed appeal filed by the assessee on technical ground without discussing the issue on merits. Therefore, we are of the considered view that the appeals needs to go back to the file of the CIT(A) to give reasonable opportunity of hearing to the assessee. Thus, we set aside the orders of the CIT(A) for assessment years 2010-11 to 2012-13 and restore the appeals to the file of the CIT(A) for fresh adjudication after providing reasonable opportunity of hearing to the assessee.
In the result, appeals filed by the assessee for assessment years 2010-11 to 2012-13 are treated as allowed for statistical purposes.
As a result, appeals filed by the assessee in & 3157/Chny/2019 are partly allowed and assessee’s appeals in ITA No. 858 & 859/Chny/2019 & 3158/Chny2019 are