G.Taraka Rama Rao, Vijayawada V. THE DCIT, Vijayawada

CO 28/VIZ/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0461 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D MANOJ KUMAR
• Keywords: Difference of opinion; Change of opinion
• Section: 40A(3); 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH : VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.40/VIZAG/2014 ASSESSMENT YEAR 2007-2008 THE DCIT, CIRCLE 2(1) VIJAYAWADA. VS. MR. GADDE TARAKA RAMA RAO, VIJAYAWADA PAN AIOPG2069B (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.28/VIZAG/2014 ARISING OUT OF ITA.NO.40/VIZAG/2014 ASSESSMENT YEAR 2007-2008. MR. GADDE TARAKA RAMA RAO, VIJAYAWADA PAN AIOPG2069B VS. THE DCIT, CIRCLE 2(1) VIJAYAWADA. (CROSS OBJECTOR) (RESPONDENT) FOR REVENUE : MR. D. MANOJ KUMAR FOR ASSESSEE : MR. C. SUBRAHMANYAM DATE OF HEARING : 04.03.2015 DATE OF PRONOUNCEMENT : 05.03.2015 ORDER PER SAKTIJIT DEY, J.M. THE AFORESAID APPEAL OF THE DEPARTMENT AND CROSS OBJECTION OF THE ASSESSEE ARE AGAINST THE ORDER DAT ED 12.11.2013 PASSED BY LD. CIT(A), VIJAYAWADA PERTAINING TO THE ASSESSMENT YEAR 2007-08. THE ONLY EFFECTIVE GROUND RAISED BY T HE DEPARTMENT IS AS UNDER. THE DECISION OF THE LD. CIT(A) THAT THE ENDS JUSTI CE WOULD MEET, IF THE DISALLOWANCE OF FREIGHT CHARGES IS EST IMATED AT 2% IS ARBITRARY AND IT IS NOT IN ACCORDANCE WITH SE CTION 40A(3) PARTICULARLY THE PROVISO TO SECTION 40A(3) O F THE I.T. ACT. 2 ITA.NO.40/VIZAG/2014 & CO.NO.28/VIZAG/2014 SRI GADDE TARAKA RAMA RAO, VIJAYAWADA. 2. WHEREAS, IN THE CROSS OBJECTIONS THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS : 1.0. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE ISSUE OF NOTICE U/S.148 OF THE I.T. ACT AND COMPLETION OF ASSESSMENT THERETO IS NOT CORRECT WHE N THERE WAS NO INCOME ESCAPING ASSESSMENT. 1.1. THE LEARNED CIT(A) FAILED TO DISPOSE OFF THE F OLLOWING GROUND RAISED BEFORE HER AND TO THIS EXTENT THE ASSESSEE IS AGGRIEVED BY IT : 'THE LEARNED ASSESSING OFFICER HAVING THE RELEVANT MATERIAL AT HIS DISPOSAL, IN THE ORIGINAL PROCEEDIN GS, HAVING COMPLETED THE ASSESSMENT U/S.143(3) OF THE I .T. ACT, ON THE SAME SET OF FACTS THE AO NOW CLAIMS TO HAVE FORMED A BELIEF FOR ESCAPEMENT OF INCOME, CAUSING ISSUE NOTICE U/S, 148, WHICH ACTION IS AGAINST PROVISIONS OF LAW. RATHER AO WANTED TO REVIEW THE ASSESSMENT ON MERE CHANGE OF OPINION WHICH IS LEGAL LY NOT TENABLE.' 1.2. THE LEARNED C1T(A) ERRED IN LAW IN ESTIMATING THE DISALLOWANCE OF FREIGHT CHARGES AT 2% WHEN THE FACT S OF THE CASE DOES NOT WARRANT SO. 1.3. FOR THESE AND OTHER REASONS THAT ARE TO BE URG ED AT THE TIME OF HEARING OF THE CASE THE APPELLANT PRAYS THA T JUSTICE MAY BE DONE TO THE EXTENT OF GROUNDS RAISED HEREIN ABOVE AND DISMISS THE DEPT. APPEAL. 3. AS CAN BE SEEN THE COMMON ISSUE IN THE APPEAL OF THE DEPARTMENT AND THE CROSS OBJECTION OF THE ASSESSEE IS WITH REGARD TO THE DECISION OF THE LD. CIT(A) IN DISALLOWING FR EIGHT CHARGES AT 2% ON ESTIMATE BASIS. BRIEFLY, THE FACTS RELATING T O THE AFORECITED ISSUE ARE, ASSESSEE, AN INDIVIDUAL, IS ENGAGED IN T HE BUSINESS OF TRANSPORT CONTRACT. FOR THE YEAR UNDER CONSIDERATIO N, ASSESSEE FILED ITS RETURN OF INCOME ON 24.10.2007 DECLARING TOTAL INCOME OF RS.8,52,170 BESIDES AGRICULTURAL INCOME OF RS.30,00 0. IN THE CASE OF ASSESSEE, ORIGINAL ASSESSMENT WAS COMPLETED UNDE R SECTION 3 ITA.NO.40/VIZAG/2014 & CO.NO.28/VIZAG/2014 SRI GADDE TARAKA RAMA RAO, VIJAYAWADA. 143(3) OF THE I.T. ACT, 1961 VIDE ORDER DATED 30.11 .2009. HOWEVER, SUBSEQUENTLY, ON THE BASIS OF CERTAIN INFO RMATION, ASSESSING OFFICER REOPENED THE ASSESSMENT UNDER SEC TION 147 OF THE ACT BY ISSUING NOTICE UNDER SECTION 148 ON 22.0 3.2012. DURING THE RE-ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT FOUND T HAT AMOUNT OF RS.6,14,54,915 WAS DEBITED TO THE P & L ACCOUNT UND ER THE HEAD FREIGHT CHARGES. HE NOTED THAT THE AFORESAID AMOU NT COMPRISES OF CASH PAYMENTS EXCEEDING RS.20,000 TO EACH PARTY IN CONTRAVENTION TO THE PROVISIONS OF SECTION 40A(3). ASSESSING OFFICER, THEREFORE, CALLED UPON THE ASSESSEE TO EXP LAIN WHY DISALLOWANCE SHALL NOT BE MADE UNDER THE PROVISIONS OF SECTION 40A(3). OBJECTING TO THE PROPOSED DISALLOWANCE, ASS ESSEE SUBMITTED THAT DURING THE FINANCIAL YEAR 2006-07, A N AMOUNT OF RS.6,14,54,915/- WAS DEBITED TO P & L ACCOUNT TOWAR DS FREIGHT CHARGES AND ALSO BY CREDITING TO FREIGHT CHARGES PA YABLE ACCOUNT. ASSESSEE SUBMITTED THAT HE HAS NOT MADE ANY CASH PA YMENTS TO THE CONCERNED PERSONS AND IT IS ONLY A JOURNAL ENTR Y MADE IN THE BOOKS OF ACCOUNT. THEREFORE, SINCE NO CASH PAYMENTS WERE MADE DURING THE YEAR, THERE IS NO VIOLATION OF THE PROVI SIONS CONTAINED UNDER SECTION 40A(3). THE ASSESSING OFFICER, HOWEVE R, WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE. HE OBSERVED THAT THE AMOUNTS ARE PETTY AND ARE PAYABLE TO VARIOUS TR UCK/LORRY OWNERS WHO WILL NOT WAIT FOR THE ENTIRE YEAR. HE OB SERVED THAT THE TRUCK/LORRY OWNERS INSIST ON SPOT PAYMENT EITHER BE FORE THE GOODS ARE DELIVERED OR IMMEDIATELY AFTER THE TASK I S OVER. HE OBSERVED, EVEN ASSUMING THAT PAYMENTS WERE MADE IN SUBSEQUENT YEAR WHICH MAY NOT BE TRUE IN ALL CASES. ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WAS ALSO NOT ABL E TO PRODUCE ANY EVIDENCE WHETHER THE PAYMENTS HAVE BEEN MADE IN CASH OR CHEQUE IN THE SUBSEQUENT YEAR. HE THEREFORE, CONCLU DED THAT 4 ITA.NO.40/VIZAG/2014 & CO.NO.28/VIZAG/2014 SRI GADDE TARAKA RAMA RAO, VIJAYAWADA. PAYMENTS HAVING BEEN MADE IN CASH EXCEEDING RS.20,0 00 THERE IS VIOLATION OF PROVISIONS OF SECTION 40A(3). ACCORDIN GLY, HE DISALLOWED 2% OF THE TOTAL EXPENDITURE DEBITED, WHI CH AMOUNTED TO RS.1,22,90,983. BEING AGGRIEVED OF SUCH DISALLOW ANCE, ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLAT E AUTHORITY. 4. LD. CIT(A) THOUGH, OBSERVED THAT PROVISIONS OF SECTION 40A(3) OF THE ACT WILL NOT BE APPLICABLE TO THE FRE IGHT CHARGES OF RS.6,14,54,915 AND DELETED THE DISALLOWANCE MADE UN DER SECTION 40A(3), BUT HE NEVERTHELESS HELD THAT DISALLOWANCE OF 2% OUT OF THE FREIGHT CHARGES SHOULD BE MADE. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. IT IS VERY MUCH EV IDENT FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS MAD E THE DISALLOWANCE UNDER SECTION 40A(3) ON THE ASSUMPTION THAT ASSESSEE HAS MADE CASH PAYMENTS EXCEEDING RS.20,000 IN SO FAR AS THE FREIGHT CHARGES OF RS.6,14,54,915 IS CONCERN ED. HOWEVER, IT IS CLEAR FROM THE OBSERVATION MADE BY THE LD. CIT(A ) THAT ON VERIFICATION OF RECORD, HE HAS FOUND THAT ACTUALLY NO CASH PAYMENT HAS BEEN MADE BUT THE ASSESSEE HAS BOOKED T HE EXPENDITURE BY WAY OF JOURNAL ENTRY AND THE ENTIRE EXPENDITURE REMAINED PAYABLE AT THE END OF THE RELEVANT PREVIOU S YEAR. THAT BEING THE CASE, WHEN ACTUALLY, NO CASH PAYMENT HAS BEEN MADE DURING THE RELEVANT PREVIOUS YEAR, PROVISIONS OF SE CTION 40A(3) COULD NOT HAVE BEEN INVOKED. IN OUR VIEW, ONCE, IT WAS FOUND THAT PROVISIONS OF SECTION 40A(3) ARE NOT APPLICABLE, NO DISALLOWANCE COULD BE MADE UNDER THAT PROVISION. THAT BEING THE CASE, LD. CIT(A) SHOULD NOT HAVE MADE DISALLOWANCE ON ADHOC B ASIS OUT OF THE FREIGHT CHARGES BY APPLYING RATE OF 2% AS THERE IS ABSOLUTELY NO BASIS FOR SUCH DISALLOWANCE. SINCE THE ASSESSING OFFICER HAS NOT RAISED ANY OBJECTION WITH REGARD TO GENUINENESS OF 5 ITA.NO.40/VIZAG/2014 & CO.NO.28/VIZAG/2014 SRI GADDE TARAKA RAMA RAO, VIJAYAWADA. EXPENDITURE INCURRED TOWARDS FREIGHT CHARGES AND HA S DISALLOWED THE EXPENSES BY APPLYING PROVISIONS OF SECTION 40A( 3), LD. CIT(A), IN OUR VIEW, WAS NOT JUSTIFIED IN DISALLOWING 2% OF THE FREIGHT CHARGES ON ADHOC BASIS THAT TOO, WITHOUT SHOWING AN Y VALID REASON. IN THE AFORESAID VIEW OF THE MATTER, WE HOL D THAT 2% DISALLOWANCE OF FREIGHT CHARGES DIRECTED BY THE LD. CIT(A) IS NOT SUSTAINABLE. ACCORDINGLY, WE DELETE THE ADDITION DI RECTED TO BE MADE BY LD. CIT(A). THE GROUND RAISED ON THIS ISSUE BY THE DEPARTMENT IS DISMISSED, WHEREAS, ASSESSEES CROSS- OBJECTION ON THIS ISSUE IS ALLOWED. 6. THE ASSESSEE HAS ALSO RAISED GROUNDS IN CO URGI NG THAT LD. CIT(A) HAS FAILED TO DISPOSE OF THE GROUND S RAISED BY THE ASSESSEE WITH REGARD TO VALIDITY OF THE PROCEEDINGS INITIATED UNDER SECTION 147 OF THE ACT. THOUGH, IN PRINCIPLE WE AGR EE WITH THE ASSESSEE THAT LD. CIT(A) SHOULD HAVE DECIDE THE GRO UND RAISED BY THE ASSESSEE WITH REGARD TO ISSUE OF REOPENING OF A SSESSMENT UNDER SECTION 147, BUT, CONSIDERING THE FACT THAT W E HAVE DELETED 2% DISALLOWANCE DIRECTED BY THE LD. CIT(A), WHICH I S THE ONLY ADDITION CONTESTED BY BOTH THE PARTIES, THESE GROUN DS HAVE BEEN REDUCED TO MERE ACADEMIC INTEREST. HENCE, THERE IS NO NEED TO ADJUDICATE THEM. HENCE, THESE GROUNDS ARE DISMISSED . 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.0 3.2015. SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VISAKHAPATNAM, DATED 04 TH MARCH, 2015. VBP/- 6 ITA.NO.40/VIZAG/2014 & CO.NO.28/VIZAG/2014 SRI GADDE TARAKA RAMA RAO, VIJAYAWADA. COPY TO 1. THE DCIT, CIRCLE 2(1), CENTRAL REVENUE BUILDING, M.G. ROAD, VIJAYAWADA 520 002. 2. MR. GADDE TARAKA RAMA RAO, FLAT NO.4, VINAY APARTMENTS, NALANDA GIRLS HOSTEL ROAD, GAYATRI NAGA R, VIJAYAWADA 8. 3. COMMISSIONER OF INCOME TAX (APPEALS), VIJAYAWADA 4. ADDL. CIT, RANGE-2, VIJAYAWADA 5. D.R. ITAT, VISAKHAPATNAM BENCH, VISAKHAPATNAM. 6. GUARD FILE