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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: DR. B.R.R. KUMAR & MS. ASTHA CHANDRA
PER ASTHA CHANDRA, JM
The appeal by the assessee is directed against the order dated 28.2.2019 of the Ld. Commissioner of Income Tax (Appeals), Ghaziabad (“CIT(A)”) pertaining to the assessment year 2013-14.
The assessee is a firm engaged in the business of trading of iron and steel on wholesale basis. It filed its return of income electronically on
ITA No. 2877/Del/2019 Shiv Shakti Traders vs. ACIT 2 29.9.2013 declaring income of Rs. 12,98,577/- for the assessment year 2013-14. The case was selected for scrutiny. During the course of assessment proceedings, the assessee furnished written explanation of the queries raised, produced books of accounts which were examined by the Ld. Assessing Officer (“AO”). The assessee filed statutory audit report in Form No. 3CD along with balance sheet and other financial statements. The assessee disclosed sales at Rs. 1,48,23,24,579/- and gross profit of Rs. 69,42,835/- giving GP rate of 0.47%. Net profit was reported at Rs. 12,98,577/- @ 0.09%. On being asked, assessee produced complete books of accounts which were verified by the Ld. AO who completed the assessment on total income of Rs. 13,98,577/- on 17.12.2015 including therein adhoc addition of Rs. 1,00,000/- to the income of the assessee.
The said assessment was rectified vide order dated 6.8.2018 under section 154 of the Income Tax Act 1961 (the “Act”) on the basis of the audit objection raised by the Revenue Audit Party (“RAP”). It was noticed by the RAP that the assessee had made payments for purchases of trading goods amounting to Rs. 23,72,40,000/- either after cash withdrawal or by bearer cheque in violation of the provisions of section 40A(3) of the Act. According to the Ld. AO, notice under section 154 of the Act issued by him remained uncomplied with. Neither the assessee nor its representatives filed any reply which led him to recompute the total income of the assessee at Rs. 23,86,38,577/- including therein disallowance of Rs. 23,72,40,000/- under section 40A(3) as per the audit objection raised by the RAP. 4. The assessee challenged the rectificatory order under section 154 of the Act before the Ld. CIT(A). In its grounds of appeal, the assessee stated that the order under section 154 was perse without jurisdiction and that the disallowance under section 40A(3) was not justified as the Ld. AO neither in the order under section 154 nor in the assessment order disputed the genuineness of the expenditure and accepted the sales made by the assessee based on said expenditure. It was also stated that the disallowance under
ITA No. 2877/Del/2019 Shiv Shakti Traders vs. ACIT 3 section 40A(3) was covered under Rule 6DD and that the disallowance made under section 40A(3) in order under section 154 was a debatable issue and not a patent mistake warranting action under section 154 of the Act.
4.1 During the course of appellate proceedings, the assessee submitted that the Ld. AO had not doubted the existence of the parties to whom the payments had been made and genuineness of the transactions. Therefore, the disallowance under section 40A(3) was not only outside the purview of that section but was also made in complete violation of the principle of natural justice. In its written submissions before the Ld. CIT(A) reliance was placed on numerous decisions.
4.2 It was emphasised that it was a case of changing the mood of the Ld. AO on the same set of facts and provisions of law which is not warranted under section 154 of the Act. Ld. AO had allowed the claim of expenditure in the original assessment and impugned disallowance subsequently in order under section 154 is in excess of jurisdiction. The assessee brought to the notice of the Ld. CIT(A) the judgment of the Hon’ble Supreme Court in CIT vs. Lucas T.V.S. Ltd. 249 ITR 306 (SC) wherein the Hon’ble Supreme Court held that opinion of audit party cannot confer jurisdiction for reimbursement under section 154 of the Act.
Ld. CIT(A) upheld the order of the Ld. AO by observing, inter alia that section 40A(3) is mandatory provision of law which had been overlooked in the original assessment under section 143(3) of the Act and that it was a mistake rectifiable under section 154 as held by Hon’ble Supreme Court in ITO vs. Ashok Textile Ltd. 41 ITR 732 (SC).
This has brought the assessee before us by reiterating the same grounds which were taken before the Ld. CIT(A).
ITA No. 2877/Del/2019 Shiv Shakti Traders vs. ACIT 4
On request of the assesee the appeal was fixed on out of turn basis to which the Ld. AO had no objection. However, adjournment was sought thrice by the Counsel of the assessee which was granted. On 23.11.2021 the date fixed for hearing, the Counsel withdrew as authorised representative of the assessee. Hence, the hearing was adjourned to 9.2.2022. None appeared for the assessee on 9.2.2022. We therefore proceeded to dispose of the appeal after hearing the Ld. DR and perusal of the material on record. Section 154 of the Act empowers an assessing officer to amend any order passed by him under the provisions of the Act with a view to rectify any mistake apparent from the record. The expression ‘apparent’ has been interpreted as something which appears to be ex facie and is incapable of arguments or debate in the following judgments:-
(i) T.S. Balaram ITO vs. Volkart Brothers 82 ITR 50 (SC) (ii) CIT vs. Tata Engg. And Locomotive Co. Ltd. 108 ITR 869 (Bom) (iii) CIT vs. Hero Cycles Pvt. Ltd. 228 ITR 463 (SC).
It is well settled that mistake may be of fact or of law. The only condition precedent is that the mistake must be apparent from the record of the assessee and that it must be glaring, obvious or self evident mistake as held by the Delhi High Court in CIT vs. Delhi Cloth & General Mills Co. Ltd. 197 ITR 223 (Del). It has been held by the Hon’ble Supreme Court in the case of ITO vs. Ashok Textiles Ltd. 41 ITR 732 (SC) that overlooking of mandatory provision of law in the original assessment under section 143(3) can be remedied by order of rectification. This principle of law enunciated by the Hon’ble Supreme Court has been applied by the Kerala High Court in the case of CIT vs. Janatha Steel Mills Pvt. Ltd. 294 ITR 668 (Ker).
In the case before us it was brought to the notice of the Ld. AO by RAP that in the original assessment made by him, he overlooked the mandatory provision of section 40A(3) of the Act. Ld. AO, therefore, after giving
ITA No. 2877/Del/2019 Shiv Shakti Traders vs. ACIT 5 opportunity to the assessee passed the rectificatory order making the impugned disallowance. Assumption of power by the Ld. AO under section 154 was agitated by the assessee before the Ld. CIT(A) as also before us on the ground that the impugned disallowance is a debatable issue and hence outside the ambit of section 154 of the Act. We are unable to subscribe to this view. Overlooking the mandatory provision of law in the original assessment is apparent mistake of law which is rectifiable under section 154 as held in the case of the ITO vs. Ashok Textile Limited and Janatha Steel Mills Pvt. Ltd. (supra). The reliance placed by the assessee on the judgment of CIT vs. Lucas TVS Ltd. 249 ITR 306 (SC) is misplaced. In that case the issue was of reopening the assessment under section 147(b) on the opinion of the audit party. We accordingly, reject the ground of the assessee objecting to the assumption of jurisdiction by the AO under section 154 of the Act.
We now proceed to deal with the grounds of the assessee relating to challenge of the impugned disallowance under section 40A(3) on merits. Section 40A(3) and (3A) as substituted w.e.f. 1.4.2009 read as under:-
“(3). Where the assessee incurs any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an bank account payee cheque drawn on a bank or account payee bank draft exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.
(3A) xxxx
Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub- section (3) where a payment or aggregate of payments made to a person in a day, otherwise than an account payee cheque drawn on a bank or account payee bank draft exceeds twenty thousand rupees in such cases and under
ITA No. 2877/Del/2019 Shiv Shakti Traders vs. ACIT 6 such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, consideration of business expediency and other relevant factors.”
9.1 The legislative intent behind the above provision may be seen from circular No. 1 dated 27.3.2009 reported in (2009) 310 ITR (St) 42 which states as below:-
“13.2 Sub-section (3) of section 40A is an anti tax evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction. Thereby the risk of evasion is substantially mitigated.”
9.2 Rule 6DD prescribed by the Board has been substituted by the Income Tax (Seventh Amendment) Rules, 2008 w.e.f. assessment year 2009-10.
Perusal of the order under section 154 reveals that during the rectificatory proceedings the Ld. AO required the assessee to show cause as to why its income be not recomputed as payments amounting to Rs. 23,72,40,000/- for expenditure made in violation of section 40A(3) of the Act were liable to be disallowed. Notice under section 154 dated 5.7.2018 was duly received by the Ld. AR of the assesee who appeared on 16.7.2018 but did not provide any reply and requested for adjournment which was granted. The hearing was adjourned to 19.7.2018 but on that date also neither the assesee nor the Ld. AR filed any reply. Ld. AO, therefore, passed ex-parte order. In the appellate order the Ld. CIT(A) observed that without filing any application under Rule 46A the assessee furnished undated copies of letters addressed to ACIT–C2, Ghaziabad as part of submission. Before us the plea taken by the assessee in the grounds of appeal is that the Ld. AO has not disputed the genuineness of the impugned expenditure and accepted the sale made by the assessee based on such expenditure. We are of the view
ITA No. 2877/Del/2019 Shiv Shakti Traders vs. ACIT 7 that this is not enough to bring the case of the assessee out of the ambit of the mandatory provision of section 40A(3). The assessee also claimed that its case is covered under Rule 6DD without specifying under which sub-rule of Rule 6DD as amended by the Income Tax (Seventh Amendment) Rules, 2008 its case falls. In such scenario, in our opinion it would be just and fair if the matter is restored to the file of the Ld. AO for decision afresh. Ld. AO shall give reasonable opportunity to the assessee to present its case and to bring on record all the material in support of its claim that its case falls under Rule 6DD. Thereafter, Ld. AO shall pass reasoned and speaking order in accordance with law.
In the result, the appeal is partly allowed.
Order pronounced in the open court on 15th March, 2022.
Sd/- sd/- (DR. B.R.R. KUMAR) (ASTHA CHANDRA) ACCOUNTANT MEMBER JUDICIAL MEMEBR Dated: 15/03/2022 Veena Copy forwarded to- 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi