SH. GURMEET KUMAR VERMA,BARNALA vs. ITO, W-1, BARNALA

PER DIVA SINGH

The present appeal has been filed by the assessee assailing the correctness of the order dated 02.11.2017 of CIT(A)-3 Ludhiana pertaining to 2010-11 assessment year on the following grounds : 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer with regard to the reopening of the case u/s 147/148 of the Act. 2. That the confirmation of action by the Ld. CIT(A),with regard to reopening of the case is not justified since the original assessment was framed u/s 143(3) and, there was no failure on the part of the assessee to disclose all the particulars of income during the course of original assessment proceedings. 3. That the reopening is otherwise bad in law since, the assessment was reopened on the basis of Audit objections and as per the binding judgment of Hon'ble Supreme Court and of different High Courts, no assessment could be reopened in view of the above said judgments. 4. Notwithstanding the above said grounds of appeal, the confirmation of addition by the CIT (A) on account of 40A(3) of the I.T. Act. to the tune of Rs. ,53,860/- and Rs. 9,60,184/- is against the facts and circumstances of the case. 2. The relevant facts of the case are that the assessee declared an income of Rs. 3,54,980/-. Assessment order u/s 143 (3) dated 31.12.2012 was passed at an income of Rs. 4,05,750/-. Subsequently, the assessment was reopened in view of the fact that the assessee had

ITA 186/CHD/2018 A.Y. 2010-11 Page 2 of 5

made certain payments in contravention of Section 40A(3) of the Income Tax Act,1961. The AO noted that the assessee had made payment of freight @ Rs. 20,000/- per day to each person before 30.09.2009 and Rs. 35,000/- after 01.10.2009 in a day to a single person. Accordingly, notice u/s 148 was issued after recording reasons. These have been set out in pages 3 to 4 of the order. After requiring the assessee to address the same addition of Rs. 8,85,772/- was made for the payments made to M/s Bhagwati Roadlines as per details set out in para 6 of the assessment order and Rs. 36,412/- for payments made to M/s Jodhpur Bikaner Transport Company and Rs. 38,000/- for payment made on 06.04.2009 in cash to M/s Highway Transport Company. 3. These additions were challenged by the assessee before the CIT(A) on merit as well as on the assumption of jurisdiction by the AO. The CIT(A) considering the submissions upheld the action of the AO. Aggrieved by this, the assessee is in appeal before the ITAT. 4. The ld. AR in the course of the assessment, took various objections to the departmental actions. It was his submission that the addition having been made in response to the audit objection as such it was bad in law. It was also his submission that the issue of cash payments to the transporters in the case of the assessee who was trading in tiles, had been looked into by the AO in the course of the assessment proceedings in the 143(3) order wherein a specific query was raised by the AO on the issue vide his query No. 5 as per questionnaire dated 23.07.2012 available at page 21 which reads as under : “Detail of freight and labour charges paid at Rs. 32,70,584/- giving mode of payment. Also intimate whether tax was deducted at source. “ 4.1. Inviting attention to Paper Book page 23, it was submitted that it had been replied to by the assessee vide letter dated 22.08.2012. It was his submission that the AO, considering the replies, ultimately made an addition on estimating the profit. Accordingly, it was his submission that it is a case of change of opinion as there was no new information and the present case falls in the realm of revision of decision of the AO and thus, cannot be upheld. Reliance was placed upon Jivraj Tea Co. V DCIT 88 Taxmann.com 539 GUJ-HC,CIT Vs Jet Speed Audio (P) Ltd. 55 taxmann.com 531 BOM-HC.

ITA 186/CHD/2018 A.Y. 2010-11 Page 3 of 5

4.2 On merits, it has been argued that the payments were made to the transporters on account of business expediency which fact has been argued before the CIT(A) also as would be evident from page 8 of the impugned order. Relevant extract is reproduced hereunder :

“On merits it may be explained that the transporters are not known to the assessee and are agents of the vehicle owners hiring their services. The assessee is engaged in the business of purchase and sale of ceramic tiles and the premises of the suppliers are located at far flung place in Gujrat and the distance to the premises of the assessee is around 2000 kms. The payments are insisted in cash because the drivers, after unloading the material, have to rush back. They have also to incur many expenses e.g. on fuel, repairs to the vehicle, diet etc. The payments made are adjusted towards the transportation charges for which the vehicles are arranged by Shree Bhagwati Roadliners who are concerned with only their foremanship charges. The transportation charges are passed over by them to the owners of the vehicles. During the course of assessment proceedings the Id. A.O identified amounts aggregating to Rs. 9,22,184/- as having been made in violation of the provisions of section 40A(3) and issued show cause as to why the same may not be disallowed. Vide explanation filed on 30.06.2015 it was explained that the sum of Rs. 53,8867- was paid on 03.01.2010 which happened to be Sunday. For this reason it I would be out of the pale of section 40A(3). Regarding others it was explained that the drivers, covering distance of more than 2000 kms reach their destination insist on immediate unloading of the vehicle and since banks are not opened at that time, there is no way but to make the payment in cash. During the course of assessment proceedings the Id. A.O made enquiries as to whether the payments made were genuine or not? As per last para at page 5 of the assessment order it is mentioned that the Id. A.O made enquiries regarding genuineness of the payment made by issuing commission in the name of The Income-tax Officer, Ward- 2, Gandhidham who submitted his report under reference No. ITOA/V-2/Gim/Misc./2015- 16dated 26.05.2015, the contents of which have been discussed in later part of the para which are as under-

ITA 186/CHD/2018 A.Y. 2010-11 Page 4 of 5

AO are relied upon. It was his submission that no doubt, the audit objection flagged the issue for the AO, however, the AO has formed his own independent view on going through the record It was also his submission that on merits also, the assessee has no case as bank facilities are available in almost all the places and actively, there is a policy for encouraging the usage of banking facilities and the assessee has crossed the limit of cash purchase. Thus, the impugned order, it was his submission, may be upheld. 6. The ld. AR in rebuttal submitted that in the facts of the present case, the AO vide his order u/s 143(3) dated 31.10.2012 having rejected the book results could not rely on very same books for making the additions even u/s 40(A)(3). Reliance was placed upon decision of the jurisdictional High Court in the case of CIT (Central) Ludhiana Vs Gobind Ram (2015) Taxmann.491 (P&H). 7. We have heard the rival submissions and perused the material on record. We find that in the facts of the present case, the subject matter for consideration i.e. payments made in cash to the various transporters has specifically been looked into by the AO in the course of the original scrutiny proceedings. Our attention has been invited to pages 27 to 39 of the Paper Book which contains details of freight and labour. A perusal of the same shows that payment have been made not only to Shri Bagwati Roadlines which is subject matter of major addition in the facts of the present case but payments in cash have been made to almost all the transporters which include Chaudhary Transport ; Shri Bikaner Transport Company ; Jodhpur Bikaner Transport ; Highway Transport Company ; Vishnu Freight Carrier ; Shri Sachiyay Transport Company ; J.P. Shahpur Roadlines ; Highway Roadlines etc. which evidently demonstrates the assessee's claim that payments made through the truck drivers etc. as payments were made to the drivers for carrying the assessee's goods, unloading them and to meet their on-road expenses of fuel, repair, diet etc. Thus, the very nature of the assessee’s expense necessitates it. In the facts of the present case, it is change of opinion. It is further seen that when books of account have been rejected and the addition has been made on estimates, the occasion to rely upon the very same books proposing the addition of this nature does not arise. Accordingly, we find that in the

ITA 186/CHD/2018 A.Y. 2010-11 Page 5 of 5

facts and circumstances of the present case, the assessee succeeds not only on the jurisdictional issue but also on merits.

Order pronounced in the Open Court on 16th July 2018.

Sd/- Sd/- ( Dr.B.R.R.KUMAR) ( DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

‘Poonam’ Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR Asstt. Registrar ITAT,Chandigarh.