ACIT, CHENNAI V. Smt. M.Kaleesuwari, CHENNAI

ITA 134/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61343 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-06-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 23-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA; VI KRAMADITYA
• Assessee Lawyers: G BASKAR
• Keywords: Business expenditure; Procedural lapse
• Section: 40A(3); 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 134/MDS/2012 (ASSESSMENT YEAR : 2002-03) THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE II(4), CHENNAI - 600 034. (APPELLANT) V. SMT. M. KALEESUWARI, 53, RAJASEKARAN STREET, MYLAPORE, CHENNAI - 600 004. PAN : ACJPK0194L (RESPONDENT) I.T.A. NOS. 135, 136 & 137/MDS/2012 (ASSESSMENT YEARS : 2002-03, 2003-04 & 2004-05) THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE II(4), CHENNAI - 600 034. (APPELLANT) V. M/S KALEESUWARI REFINERY PRIVATE LIMITED, 53, RAJASEKARAN STREET, MYLAPORE, CHENNAI - 600 004. PAN : AAACK6087A (RESPONDENT) I.T.A. NOS. 141 & 142/MDS/2012 (ASSESSMENT YEARS : 2003-04 & 2004-05) THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE II(4), CHENNAI - 600 034. (APPELLANT) V. SHRI M. ARUN, NO.64, TELUGU CHETTY STREET, OLD WASHERMANPET, CHENNAI - 600 021. PAN : AAGPA8202L (RESPONDENT) APPELLANT BY : DR. S. MOHARANA, CIT-DR & SHRI VIKRAMADITYA, JCIT RESPONDENTS BY : SHRI G. BASKAR, AD VOCATE DATE OF HEARING : 26.06.2012 DATE OF PRONOUNCEMENT : 11.07.2012 2 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS OF THE REVENUE FOR THE RESPECTI VE ASSESSMENT YEARS, ALL DIRECTED AGAINST ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-II, CHENNAI. OF THESE APPEALS, IN I.T.A. NO. 134/MDS/2012 AND I.T.A. NO. 135/MDS/2012, ASSESSEE HAS RAISED CE RTAIN OBJECTIONS UNDER RULE 27 OF APPELLATE TRIBUNAL RULES, 1963 AND THEREFORE, THESE TWO APPEALS WILL BE CONSIDERED LAST. IN ALL THE AP PEALS, REVENUE HAS TAKEN A COMMON GROUND THAT CIT(APPEALS) DELETED AN ADDITION MADE BY THE A.O. UNDER SECTION 40A(3) OF INCOME-TAX ACT, 19 61 (IN SHORT 'THE ACT'). IN SUPPORT OF ITS CASE, REVENUE IS MAINLY R ELYING ON TWO DECISIONS ONE THAT OF HONBE APEX COURT IN THE CASE OF ATTAR SINGH GURUMUKH SINGH V. ITO (191 ITR 667) AND THAT OF HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF CIT V. A.D. JAYAVEERAPANDIA NADAR & SONS (207 CTR 428). 2. THOUGH THE GROUNDS ARE SIMILAR, THE FACT SITUATI ON GIVING RISE TO THE DISALLOWANCES, AND TRANSACTIONS WHICH WERE CONSIDER ED BY THE ASSESSING OFFICER FOR SUCH DISALLOWANCES, WERE DIFF ERENT IN EACH OF THESE CASES. HENCE, EACH OF THESE CASES ARE SEPARATELY D EALT WITH. 3 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 3. IN I.T.A. NOS. 136 AND 137/MDS/2012, ASSESSEE IS A COMPANY CALLED M/S KALEESUWARI REFINERY PRIVATE LIMITED AND THE RELEVANT ASSESSMENT YEARS ARE 2003-04 AND 2004-05. APPEALS IN I.T.A. NOS. 141 AND 142/MDS/2012 ARE IN RESPECT OF THE ASSESSEE SHR I M. ARUN, AND RELEVANT ASSESSMENT YEARS ARE AGAIN 2003-04 AND 200 4-05. FIRST WE ADVERT TO THE APPEALS RELATING TO THE FORMER. 4. FOR THE IMPUGNED ASSESSMENT YEARS, ASSESSING OFF ICER HAD MADE DISALLOWANCES FOR PAYMENTS EFFECTED OTHERWISE THAN BY ACCOUNT PAYEE CHEQUES, FOR SUMS EXCEEDED ` 20,000/-. RELYING ON SECTION 40A(3) OF THE ACT, 20% OF THE EXPENDITURE CLAIMED WAS DISALLO WED. SUCH DISALLOWANCE FOR ASSESSMENT YEAR 2003-04 CAME TO ` 9,17,400/- AND FOR ASSESSMENT YEAR 2004-05, IT CAME TO ` 50,00,963/-. APPENDED TO THE RELATED ASSESSMENT ORDERS ARE THE ACCOUNT COPIES OF THESE CONCERNS IN THE BOOKS OF THE ASSESSEE TO WHICH PAYMENTS WERE EF FECTED IN CASH. THE PAYMENTS SO EFFECTED WERE ALL TO SISTER CONCERN S OF THE ASSESSEE- COMPANY. NAMES OF THE SISTER CONCERNS WERE ANANDA OIL CORPORATION, ARUN OIL TRADE, MKA TRANSPORT, GMS TRADERS AND KALE ESWARI OIL STORE. AS PER THE A.O., SUCH PAYMENTS WERE AGAINST EXPENDI TURE INCURRED BY THE ASSESSEE. AS PER THE ABOVE MENTIONED ANNEXURES TO THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2003-04, THE O PENING BALANCE IN 4 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 THE ACCOUNTS OF ANANDA OIL CORPORATION, ARUN OIL TR ADE AND GMS TRADERS, WERE IN THE DEBIT SIDE, WHEREAS IN THE CAS E OF ACCOUNT OF MKA TRANSPORT, THE OPENING WAS IN THE CREDIT SIDE. IN THE CASE OF ACCOUNT OF KALEESWARI OIL STORE, THERE WAS NO OPENING BALANCE WHATSOEVER. IN NONE OF THESE ACCOUNTS, THERE WERE ANY ENTRIES FOR PURCHASE ON CREDIT MADE BY THE ASSESSEE FROM SUCH CONCERNS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2003-04. FOR PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05, THE ANNEXURES TO THE ASSES SMENT ORDER SHOW THAT IN THE CASES OF ACCOUNT OF MKA TRANSPORT, GMS TRADERS, KALEESWARI OIL STORE AND ARUN OIL TRADE, THERE WERE OPENING DEBIT BALANCES, WHEREAS, IN THE CASE OF ANANDA OIL CORPOR ATION, THERE WAS AN OPENING CREDIT BALANCE. NONE OF THESE ACCOUNTS FOR PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05 ALSO SHOW ANY C REDIT PURCHASES EFFECTED FROM THE MENTIONED CONCERNS. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT THESE WERE ALL PAYMENTS AGA INST EXPENDITURE AND WARRANTED APPLICATION OF SECTION 40A(3) OF THE ACT RESULTING TO THE IMPUGNED DISALLOWANCES. 5. IN THE CASE OF ASSESSEE SHRI M. ARUN ALSO, SIMIL AR DISALLOWANCES WERE MADE FOR BOTH THE ASSESSMENT YEARS. IN THE AC COUNT COPIES ANNEXED TO THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2003-04 THERE WERE OPENING CREDIT BALANCES IN THE ACCOUNTS OF KAL EESUWARI REFINERY 5 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 PVT. LTD. AND ARUN OIL TRADE. FOR ASSESSMENT YEAR 2004-05, THERE IS AN OPENING CREDIT BALANCE IN THE NAME OF ARUN OIL TRAD E, BUT THERE ARE NO OPENING BALANCES IN THE NAMES OF ANANDA OIL CORPORA TION AND ASHOK OIL TRADE. HOWEVER, AS PER THE A.O., CASH PAYMENTS EFF ECTED TO THESE PARTIES ALSO ATTRACTED RIGOURS OF SECTION 40A(3) OF THE ACT. DISALLOWANCE MADE IN THE CASE OF SHRI M. ARUN WAS ` 9,65,000/- FOR ASSESSMENT YEAR 2004-05 AND ` 12,07,313/- FOR ASSESSMENT YEAR 2003-04. 6. ASSESSEES MOVED IN APPEAL BEFORE CIT(APPEALS) FO R ALL THESE YEARS. ARGUMENT OF THE ASSESSEE AGAIN WAS THAT THE SE WERE RUNNING ACCOUNTS AND SECTION 40A(3) WAS NOT ATTRACTED. ACC ORDING TO IT, CASH PAYMENTS WERE SMALL WHEN COMPARED TO THE TOTAL PAYM ENTS, AND PAYMENTS WERE ALL MADE TO SISTER CONCERNS. CIT(APP EALS) WAS APPRECIATIVE OF THESE CONTENTIONS. HE CANCELLED TH E ADDITION MADE BY THE A.O. UNDER SECTION 40A(3) OF THE ACT. ACCORDIN G TO HIM, THE RUNNING ACCOUNTS CLEARLY SHOWED THAT THE RECEIPTS DID NOT M ATCH WITH PURCHASES AND SALES AND THEREFORE, IT COULD NOT BE TAKEN THAT THE PAYMENTS MADE WERE LINKED TO ANY SPECIFIC EXPENDITURE. HE ALSO N OTED THAT THE PAYMENTS EFFECTED WERE ALL TO SISTER CONCERNS. 7. NOW BEFORE US, LEARNED D.R. ASSAILING THE ORDER OF CIT(APPEALS) IN ALL THESE CASES, SUBMITTED THAT IN VIEW OF THE DECI SION OF HONBLE APEX 6 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 COURT IN THE CASE OF ATTAR SINGH GURUMUKH SINGH (SU PRA) AND ALSO THAT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF A.D. JAYAVEERAPANDIA NADAR & SONS (SUPRA), ORDERS OF THE CIT(APPEALS) HA D TO BE UPTURNED. ACCORDING TO HIM, IN THE FIRST PLACE, IT WAS NOT NE CESSARY THAT PAYMENTS SHOULD NECESSARILY BE LINKED TO EXPENDITURE AND IN THE SECOND PLACE, EVEN WHERE PAYMENTS WERE MADE TO SISTER CONCERNS, S ECTION 40A(3) WAS ATTRACTED. 8. PER CONTRA, LEARNED A.R. IN SUPPORT OF THE ORDER S OF CIT(APPEALS), SUBMITTED THAT IN THE CASE OF THE ASSESSEE M/S KALE ESUWARI REFINERY PVT. LTD., FOR ASSESSMENT YEAR 2003-04, OPENING CRE DIT BALANCE WAS THERE IN THE CASE OF ONLY M/S MKA TRANSPORTS. FOR ASSESSMENT YEAR 2004-05, NO OPENING CREDIT BALANCE WAS THERE IN ANY OF THE ACCOUNTS EXCEPT FOR THE ACCOUNTS OF M/S ANANDA OIL CORPORATI ON. THEREFORE, ACCORDING TO HIM, AT LEAST FOR THE PAYMENTS MADE BY THESE COMPANIES, THE QUESTION OF APPLICATION OF SECTION 40A(3) DID N OT ARISE. IN THE CASE OF SHRI M. ARUN, SUBMISSION OF LEARNED A.R. WAS THAT T HERE WERE NO PURCHASES EFFECTED DURING THE RELEVANT PREVIOUS YEA RS WARRANTING DISALLOWANCE. FURTHER ACCORDING TO HIM, PAYMENTS M ADE TO MKA TRANSPORTS AND ARUN OIL TRADE COULD NOT BE CONSIDER ED FOR DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT FOR A REASON THAT B OTH WERE PROPRIETORSHIP CONCERNS OF THE ASSESSEE. FOR ASSES SMENT YEAR 2004-05, 7 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 IN THE CASE OF SHRI M. ARUN, SUBMISSION OF THE LEAR NED A.R. WAS THAT THERE WAS ONLY ONE PAYMENT TO ANANDA OIL CORPORATIO N AND THIS WAS NOT AGAINST ANY PURCHASE. THAT WAS ONLY A SIMPLE ADVAN CE OR LOAN. SIMILARLY FOR PAYMENTS MADE TO ASHOK OIL TRADE ALSO , LEARNED A.R. SUBMITTED THAT THERE WAS NO OPENING BALANCE, BUT, W ERE IN THE NATURE OF ADVANCE OR LOAN. AS FOR THE PAYMENTS MADE TO MKA T RANSPORTS AND ARUN OIL TRADE, LEARNED A.R. SUBMITTED THAT THESE W ERE PROPRIETORSHIP CONCERNS OF THE SAME ASSESSEE AND THERE COULD NOT B E APPLICATION OF SECTION 40A(3) OF THE ACT. 9. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WE WILL FIRST TAKE THE CASE OF ASSESSEE M/S KALEESUWAR I REFINERY PVT. LTD. ASSESSING OFFICER HAD CONSIDERED TRANSACTIONS OF TH E SAID ASSESSEE WITH M/S ANANDA OIL CORPORATION, ARUN OIL TRADE, MKA TRA NSPORTS, GMS TRADERS AND KALEESWARI OIL STORE, WHICH WERE ALL SI STER CONCERNS OF THE ASSESSEE. AS ON 1.4.2002, IN THE ACCOUNTS OF ANAND A OIL CORPORATION, THERE WAS OPENING DEBIT BALANCE OF ` 1,95,60,352.93, IN THE CASE OF ARUN OIL TRADE, THERE WAS AN OPENING DEBIT BALANCE OF ` 4,33,04,817.54 AND IN THE CASE OF GMS TRADERS, THERE WAS AN OPENING DE BIT BALANCE OF ` 38,62,639.80. THE ONLY OPENING CREDIT BALANCE APPE ARED IN THE ACCOUNT OF MKA TRANSPORTS ` 4,60,101.08. IN THE CASE OF KALEESWARI OIL STORE, THERE WAS NO OPENING AS ON 1.4.2002. IF WE TAKE UP PREVIOUS YEAR 8 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 RELEVANT TO ASSESSMENT YEAR 2004-05, IN THE CASE OF M/S MKA TRANSPORTS THERE WAS AN OPENING DEBIT BALANCE OF ` 25,59,322.05, IN THE CASE OF GMS TRADERS THERE WAS AN OPENING DEBIT BALA NCE OF ` 89,87,661.07, IN THE CASE OF KALEESWARI OIL STORE T HERE WAS AN OPENING DEBIT BALANCE OF ` 43,38,623.17, AND IN THE CASE OF ARUN OIL TRADE AN OPENING DEBIT BALANCE OF ` 5,37,45,363.57. THE ONLY OPENING CREDIT BALANCE APPEARED IN THE ACCOUNT OF ANANDA OIL CORPO RATION WHICH WAS ` 2,96,148.45. FOR PREVIOUS YEAR RELEVANT TO ASSESSM ENT YEAR 2003-04, I.E. PREVIOUS YEAR STARTING ON 1.4.2002, THE ONLY P AYMENT MADE TO ANANDA OIL CORPORATION WAS ` 7,00,000/-, WHICH WAS IN CASH. ANANDA OIL CORPORATION WAS HAVING AN OPENING DEBIT BALANCE . THEREFORE, WE CANNOT SAY THAT SUCH PAYMENT WAS AGAINST ANY PURCHA SES MADE BY THE ASSESSEE. IF IT WAS AGAINST ANY PURCHASE MADE BY T HE ASSESSEE, THEN THE OPENING BALANCE WOULD HAVE BEEN ONLY IN THE CRE DIT. SIMILAR IS THE CASE WITH ARUN OIL TRADE ALSO. HOWEVER, IN THE CAS E OF MKA TRANSPSORTS, THERE IS AN OPENING CREDIT BALANCE OF ` 4,60,101.08. HOWEVER, THE PAYMENTS MADE IN CASH IN EXCESS OF ` 20,000/- CAME TO ` 75,000/- ONLY. ALL OTHER PAYMENTS WERE OF ` 20,000/- EACH. IN THE CASE OF PAYMENTS MADE TO M/S GMS TRADERS, THE OPENING WA S DEBIT BALANCE AND HENCE, IT COULD NOT BE STATED THAT THE PAYMENTS , EVEN THOUGH IT EXCEEDED ` 20,000/- IN EACH INSTANCE, EXCEPT FOR THREE, WERE AGAINST ANY 9 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 PURCHASES. IN THE CASE OF PAYMENTS MADE TO KALEESW ARI OIL STORE, THERE ARE NO OPENING BALANCE, BUT ONLY CASH PAYMENTS. E XCEPT ONE ITEM OF ` 20,000/-, ALL WERE IN EXCESS OF ` 20,000/-, BUT STILL THESE COULD NOT BE CONSIDERED AS PAYMENTS FOR ANY EXPENDITURE BECAUSE THERE WERE MERE LOANS OR ADVANCE BY ITS VERY NATURE. FOR PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05, IN THE CASE OF MKA TRANSPO RTS, THE OPENING WAS A DEBIT BALANCE AND THERE WAS ONLY ONE PAYMENT MADE IN CASH IN EXCESS OF ` 20,000/-, WHICH WAS ` 25,000/- ON 7.7.2003. IN THE CASE OF GMS TRADERS ALSO, THE OPENING WAS A DEBIT BALANCE A ND THEREFORE, THE PAYMENTS CANNOT BE CONSIDERED AGAINST ANY EXPENDITU RE. SIMILARLY, IN THE CASE OF KALEESWARI OIL STORE AS WELL AS ARUN OI L TRADE ALSO, THERE WERE OPENING DEBIT BALANCES AND THEREFORE, THE PAYM ENTS CANNOT BE CONSIDERED AS TO HAVE BEEN MADE AGAINST ANY CREDIT PURCHASE OR EXPENDITURE. HOWEVER, IN THE CASE OF ANANDA OIL C ORPORATION, THERE WAS OPENING CREDIT BALANCE OF ` 2,96,148.45 AND EVERY ONE OF THE PAYMENTS TOTALLING TO ` 88,50,368.45 EXCEEDED ` 20,000/- AND WERE IN CASH. NEVERTHELESS, THE PAYMENTS IN EXCESS OF OPEN ING CREDIT BALANCE MADE BY THE ASSESSEE TO M/S ANANDA OIL CORPORATION CANNOT BE CONSIDERED AS PAYMENT MADE FOR ANY EXPENDITURE AT A LL. THESE COULD AT THE BEST BE CONSIDERED AS LOANS OR ADVANCES. THUS , IN OUR OPINION, THE MAXIMUM AMOUNT THAT COULD BE CONSIDERED FOR DISALLO WANCE UNDER 10 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 SECTION 40A(3) OF THE ACT WAS ` 75,000/- FOR ASSESSMENT YEAR 2003-04 AND ` 2,96,148.45 FOR ASSESSMENT YEAR 2004-05. THE CIT( APPEALS), IN OUR OPINION, FELL IN ERROR IN DELETING THE DISALLOW ANCE TO THIS EXTENT, FOR THE SIMPLE REASON THAT HONBLE APEX COURT IN THE CASE O F ATTAR SINGH GURUMUKH SINGH (SUPRA) CLEARLY HELD THAT THE WORD EXPENDITURE MENTIONED IN SECTION 40A(3) OF THE ACT WAS ONE OF W IDE IMPORT AND IT INCLUDED ALL OUTGOINGS. HOWEVER, IN OUR OPINION, T HE DECISION OF HONBLE APEX COURT CANNOT BE EXTENDED TO MEAN THAT EVEN LOA NS AND ADVANCES WILL BE COVERED UNDER SECTION 40A(3) OF THE ACT. H ONBLE APEX COURT WAS DEALING WITH THE ISSUE OF PAYMENTS MADE AGAINST CREDITS ARISING OUT OF PURCHASE OF STOCK-IN-TRADE. THE CREDIT BALANCES ARISING ON ACCOUNT OF PURCHASES WERE PAID LATER IN CASH AND ARGUMENT OF T HE ASSESSEE WAS THAT PAYMENTS EFFECTED LATER AGAINST SUCH CREDIT BA LANCES COULD NOT BE CONSIDERED AS PAYMENTS AGAINST EXPENDITURE AS SUCH, BUT ONLY AS PAYMENT AGAINST DUES TO THE CONCERNED PARTIES. IT IS IN THIS CONTEXT, HONBLE APEX COURT HELD THAT THE WORD EXPENDITURE APPEARING IN SECTION 40A(3) HAD A WIDE IMPORT. WITHOUT DOUBT, EXPENDITURE MENTIONED IN SECTION 40A(3) WILL COVER ALL PAYMENTS TO SQUARE UP THE CREDIT BALANCES SUBJECT TO THE CONDITION THAT SUCH CREDIT BALANCES AROSE ON ACCOUNT OF TRANSACTIONS, WHICH WERE IN THE NATUR E OF BUSINESS EXPENDITURE. IF WE TAKE THAT EVERY TYPE OF PAYMENT WILL BE COVERED, THEN 11 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 SECTION 269SS OF THE ACT WILL BECOME OTIOSE. HONB LE APEX COURT IN THE CASE OF CIT V. SUN ENGINEERING WORKS PVT. LTD. (199 2) (198 ITR 297) (SC) CLEARLY HELD THAT FINDINGS GIVEN SHOULD NOT BE TAKEN DIVORCED OUT OF THE CIRCUMSTANCES AND FACTS SITUATION AND WE HAVE T O BE CAREFUL IN APPLYING THE LAW LAID DOWN AND SUCH APPLICATION SHO ULD BE AFTER CONSIDERATION OF THE FACTS ON RECORD IN EACH CASE. 10. INSOFAR AS THE CLAIM OF THE ASSESSEE THAT THE P AYMENTS WERE ALL MADE TO SISTER CONCERNS, THERE IS NO EXEMPTION GIVE N UNDER SECTION 40A(3) FOR PAYMENTS EFFECTED TO SISTER CONCERNS AND THIS HAS BEEN MADE CLEAR BY THE HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF A.D. JAYAVEERAPANDIA NADAR & SONS (SUPRA). 11. IN THE RESULT, WE SET ASIDE THE ORDERS OF CIT(A PPEALS) IN THE CASE OF KALEESUWARI REFINERY PVT. LTD. FOR ASSESSMENT YEARS 2003-04 AND 2004- 05, BUT DIRECT THAT APPLICATION OF SECTION 40A(3) O F THE ACT BE LIMITED TO SUMS OF ` 75,000/- FOR ASSESSMENT YEAR 2003-04 AND ` 2,96,148.45 FOR ASSESSMENT YEAR 2004-05. 12. NOW TAKING UP THE APPEALS OF REVENUE IN THE CAS E OF SHRI M. ARUN, FOR THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2 003-04, IN THE ACCOUNT OF KALEESUWARI REFINERY PRIVATE LIMITED, TH ERE WAS AN OPENING CREDIT BALANCE OF ` 4,33,04,817.54. EVERY ONE OF CASH PAYMENT MADE TO 12 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 THE SAID PARTY EXCEEDED ` 20,000/-. THERE IS NO CASE FOR THE ASSESSEE THAT OPENING CREDIT BALANCE AROSE NOT DUE TO ANY SE RVICE RENDERED BY THE SAID CONCERN OR PURCHASE OF GOODS FROM THE SAID CON CERN. HOWEVER, IN THE CASE OF PAYMENTS MADE TO ARUN OIL TRADE, ADMITT EDLY, BOTH MKA TRANSPORTS AND ARUN OIL TRADE WERE THE PROPRIETORSH IP CONCERNS OF THE ASSESSEE ITSELF. SO, THE PAYMENTS EFFECTED WHETHER TO MKA TRANSPORTS OR ARUN OIL TRADE, CAN ONLY BE CONSIDERED AS TRANSF ER OF MONEY FROM LEFT HAND TO RIGHT HAND, BECAUSE THE PROPRIETOR WAS ASSE SSEE HIMSELF. A TRANSFER FROM LEFT HAND TO RIGHT HAND CANNOT BE CON SIDERED AS A TRANSACTION AT ALL. DEFINITELY IT CANNOT BE CONSID ERED AS AN EXPENDITURE, SINCE ONE CANNOT EFFECT A PAYMENT TO ONE SELF. THE REFORE, APPLICATION OF SECTION 40A(3) FOR ASSESSMENT YEAR 2003-04 WAS LIMI TED TO THE TRANSACTION WITH REGARD TO KALEESUWARI REFINERY PVT . LTD. THE TOTAL AMOUNT OF CASH PAYMENT MADE TO THAT CONCERN WAS ` 32,36,569/-. FOR ASSESSMENT YEAR 2004-05, THE PAYMENTS MADE BY THE A SSESSEE TO ANANDA OIL CORPORATION WAS ` 4 LAKHS AND THIS WAS NOT AGAINST ANY OPENING CREDIT OR DEBIT BALANCE. SIMILARLY, THE PA YMENT OF ` 72,55,229.95 MADE TO ASHOK OIL TRADE WAS ALSO NOT A GAINST ANY EXPENDITURE OR DEBIT BALANCE. THERE WAS A CREDIT B ALANCE ONLY IN THE ACCOUNT OF ARUN OIL TRADE. BUT, BOTH ARUN OIL TRAD E AND MKA TRANSPORTS WERE PROPRIETORSHIP CONCERNS OF ASSESSEE . THEREFORE, IN 13 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 NONE OF THESE CASES, APPLICATION OF SECTION 40A(3) WAS CALLED FOR. THUS, IN VIEW OF THE DECISION OF HONBLE APEX COURT IN TH E CASE OF ATTAR SINGH GURUMUKH SINGH (SUPRA) AND THAT OF HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF A.D. JAYAVEERAPANDIA NADAR & SONS (SUPR A), WE ARE OF THE OPINION THAT APPLICATION OF SECTION 40A(3) IS ATTRA CTED ONLY IN RESPECT TO PAYMENTS OF ` 32,36,569/- TO M/S KALEESUWARI REFINERY PVT. LTD. FOR ASSESSMENT YEAR 2004-05, NO DISALLOWANCE IS REQUIRE D UNDER SECTION 40A(3) OF THE ACT. ORDERS OF CIT(APPEALS) ARE SET ASIDE TO THIS EXTENT. A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE AS PE R SECTION 40A(3) AT 20% OF ` 32,36,569/- BEING PAYMENTS MADE TO KALEESUWARI REF INERY PVT. LTD. FOR ASSESSMENT YEAR 2003-04. 13. IN THE RESULT, APPEALS OF THE REVENUE FOR ASSE SSMENT YEARS 2003-04 AND 2004-05 IN THE CASE OF KALEESUWARI REFINERY PVT . LTD. ARE PARTLY ALLOWED. APPEAL OF THE REVENUE IN THE CASE OF SHRI M. ARUN FOR ASSESSMENT YEAR 2003-04 IS ALSO PARTLY ALLOWED, WHE REAS, APPEAL OF THE REVENUE IN THE CASE OF SHRI M. ARUN FOR ASSESSMENT YEAR 2004-05 IS DISMISSED. 14. NOW WE TAKE UP APPEALS OF THE REVENUE IN I.T.A. NO. 134/MDS/2012 AND I.T.A. NO. 135/MDS/2012, WHERE ASS ESSEE HAS FILED OBJECTIONS UNDER RULE 27 OF APPELLATE TRIBUNAL RULE S, 1963. IN THESE 14 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 CASES ALSO, DISALLOWANCES WERE MADE UNDER SECTION 4 0A(3) OF THE ACT BY THE ASSESSING OFFICER FOR PAYMENT MADE IN CASH T O THE SISTER CONCERNS. BUT, THE DIFFERING FACTOR, WHEN COMPARED TO THE OTHER YEARS, IS THAT THE PROCEEDINGS FOR THESE YEARS WERE INITIATED BY ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT. IN THE CASE OF ASSES SEE SMT. M. KALEESUWARI, SUCH NOTICE WAS ISSUED ON 31.3.2009 AN D RETURN, PURSUANT TO THE NOTICE, WAS FILED BY THE ASSESSEE ON 11.5.20 09. IN THE CASE OF KALEESUWARI REFINERY PVT. LTD. ALSO NOTICE UNDER SE CTION 148 WAS ISSUED ON 31.3.2009, BUT THE RETURN WAS FILED ON 21.7.2010 . IT IS NOT CLEAR FROM THE ASSESSMENT ORDER WHETHER THE CONCERNED ASSESSEE HAD FILED THE RETURN OF INCOME ORIGINALLY UNDER SECTION 139 OF TH E ACT OR NOT. HOWEVER, THE ASSESSEE SMT. M. KALEESUWARI HAS MENTI ONED IN HER PETITION FILED UNDER RULE 27 OF APPELLATE TRIBUNAL RULES, 1963 THAT ORIGINAL RETURN WAS FILED BY HER ON 25.9.2002. M/S KALEESUWARI REFINERY PVT. LTD. IN ITS APPLICATION UNDER RULE 27 OF APPEL LATE TRIBUNAL RULES, 1963 HAS MENTIONED THAT ORIGINAL RETURN WAS FILED B Y IT ON 18.10.2002. WHEN THE NOTICES WERE ISSUED UNDER SECTION 148 OF T HE ACT ON 31.3.2009 TO THE CONCERNED ASSESSEES, THEY HAD MADE A SPECIFIC REQUEST TO THE ASSESSING OFFICER FOR SUPPLYING THE REASONS FOR REOPENING. AS PER THE ASSESSEES, THE ASSESSING OFFICER DESPITE THIS SPECIFIC 15 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 REQUEST, DID NOT SUPPLY THE REASONS RECORDED FOR RE OPENING THE ASSESSMENT. 15. IN THE APPEALS BEFORE CIT(APPEALS), ASSESSEES R AISED THIS POINT AND OBJECTED TO THE REOPENING SINCE REASONS WERE NO T SUPPLIED TO THEM. RELIANCE WAS PLACED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF GKN DRIVE SHAFT V. ITO (259 ITR 15). HOWEVER, T HE CIT(APPEALS) DID NOT ACCEPT THIS GROUND AND HELD AS UNDER:- 6. I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED A.R. AND VERIFIED THE RECORD. IT IS SEEN FROM THE RECORD TH AT THE A.O. RECORDED THE REASONS FOR REOPENING THE ASSESSMENT, OBTAINED THE PRIOR APPROVAL OF ADDITIONAL CIT, AND THEN ISSU ED THE NOTICE UNDER SEC.148 TO THE APPELLANT. THOUGH THE REASONS R ECORDED WERE NOT FURNISHED DURING THE ASSESSMENT PROCEEDING S AMPLE OPPORTUNITY ON THE ISSUE FOR REOPENING WAS GIVEN BY THE A.O. DURING THE ASSESSMENT PROCEEDINGS. I, THEREFORE, F IND NO INFIRMITY IN THE NOTICE ISSUED UNDER SEC.148 OF THE I .T. ACT. ACCORDINGLY, THIS GROUND OF APPEAL OF THE APPELLANT IS DISMISSED. 16. NOW BEFORE US, LEARNED A.R. SUBMITTED THAT THOU GH THE CIT(APPEALS) DELETED THE DISALLOWANCE MADE UNDER SE CTION 40A(3) OF THE ACT, HE RULED AGAINST ASSESSEE ON THE ISSUE OF NON-SUPPLY OF REASONS FOR REOPENING. THEREFORE, HE WAS SUPPORTING THE OR DERS OF CIT(APPEALS) UNDER RULE 27 OF APPELLATE RULES, 1963 BASED ON THE GROUND WHICH HAS BEEN DECIDED AGAINST IT. 16 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 17. PER CONTRA, LEARNED D.R. DID NOT DISPUTE THAT R EASONS FOR REOPENING WAS NOT GIVEN TO THE ASSESSEES DESPITE THEIR REQUES T. HOWEVER, ACCORDING TO HIM, AT THE BEST IT COULD BE CONSIDERE D ONLY AS PROCEDURAL LAPSE. AS PER THE LEARNED D.R., IT WOULD NOT RENDE R THE ASSESSMENTS THEMSELVES VOID. 18. AD LIBITUM, LEARNED A.R. SUBMITTED THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF K.S. SURESH V. DCIT (279 ITR 6 1) HAD HELD THAT RE- ASSESSMENTS DONE WITHOUT GIVING REASONS FOR REOPENI NG AND WITHOUT CONSIDERING THE OBJECTIONS FILED, WERE LIABLE TO BE QUASHED. 19. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IN THE CIRCUMSTANCES OF THE CASE, WE DEEM IT FIT TO FI RST DECIDE ON THE OBJECTIONS RAISED BY THE ASSESSEE UNDER RULE 27 OF APPELLATE TRIBUNAL RULES, 1963. ADMITTEDLY, HERE REASONS WERE REQUEST ED BY THE ASSESSEES BUT WERE NOT GIVEN BY THE ASSESSING OFFIC ER. ORIGINAL RETURNS FILED BY THE ASSESSEES WERE SEEMINGLY PROCESSED UND ER SECTION 143(1) OF THE ACT. THERE WERE REOPENINGS INITIATED BY ISS UE OF NOTICE UNDER SECTION 148 OF THE ACT. HONBLE APEX COURT IN THE CASE OF GKN DRIVE SHAFT (SUPRA) HAS CLEARLY HELD THAT WHEN A NOTICE U NDER SECTION 148 WAS ISSUED AND ASSESSEE, AFTER FILING THE RETURN, SOUGH T REASONS FOR THE NOTICE, ASSESSING OFFICER WAS BOUND TO FURNISH THE REASONS WITHIN A 17 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 REASONABLE TIME. THEIR LORDSHIP ALSO NOTED THAT WH EN ANY OBJECTIONS WERE FILED BY THE ASSESSEE, ASSESSING OFFICER WAS B OUND TO DISPOSE OF SUCH OBJECTIONS BY PASSING A SPEAKING ORDER. IN TH E CASE BEFORE THE HONBLE APEX COURT, REASONS WERE DISCLOSED BY THE A SSESSING OFFICER, BUT THE OBJECTIONS FILED BY THE ASSESSEE WERE NOT D ISPOSED OF. NO DOUBT, HONBLE APEX COURT IN THE CASE OF GKN DRIVE SHAFT ( SUPRA), HAS MANDATED THAT AN A.O. HAS TO PROVIDE WITH AN ASSESS EE REASONS FOR REOPENING IF IT WAS SOUGHT AND DISPOSE OF THE OBJEC TIONS OF THE ASSESSEE IN THIS REGARD. HOWEVER, IN OUR OPINION, THIS BY I TSELF WILL NOT RENDER THE WHOLE PROCEEDINGS UNLAWFUL OR ILLEGAL. HONBLE APE X COURT LAID DOWN THE PROCEDURE WHICH WAS TO BE FOLLOWED WHEN A NOTICE UN DER SECTION 148 WAS ISSUED. IF THE SAID PROCEDURE IS NOT FOLLOWED, THE ORDERS OF LOWER AUTHORITIES HAVE TO BE SET ASIDE AND THE MATTER REM ITTED BACK TO THE FILE OF THE A.O. FOR RE-ADJUDICATION AFTER SUPPLYING COP IES OF REASONS RECORDED. IT IS A CURABLE PROCEDURAL INFIRMITY AND THE MATTER HAS TO GO BACK TO POINT WHEN THE DEFECT OCCURRED, SO AS TO FA CILITATE CURING SUCH DEFECT AND FOR PROCEEDING IN THE MATTER IN ACCORDAN CE WITH LAW. WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELO W AND REMIT THE PROCEEDINGS BACK TO THE FILE OF THE A.O. FOR SERVIN G THE ASSESSEES THE REASONS FOR REOPENING SO THAT IT CAN FILE ITS OBJEC TIONS. THE A.O. SHALL PROCEED IN ACCORDANCE WITH LAW. 18 I.T.A. NOS. 134 TO 137/MDS/12 I.T.A. NOS. 141 & 142/MDS/12 20. IN THE RESULT, OBJECTIONS RAISED BY THE ASSESSE E IN THEIR APPLICATIONS UNDER RULE 27 OF APPELLATE TRIBUNAL RULES, 1963 ARE ALLOWED FOR STATISTICAL PURPOSES. SINCE WE HAVE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND SENT THE MATTER BACK TO FILE OF THE A.O. FOR CONSIDERATION AFRESH, APPEALS OF THE REVENUE ARE TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. IT MAY BE NOTED THAT A.O. WHEN HE PROCEE DS AFRESH, WILL PASS ORDERS UNTRAMMELED BY THE FINDING OF LD. CIT(APPEAL S) ON MERITS. 21. TO SUMMARISE THE RESULT, REVENUES APPEALS IN I .T.A. NOS. 134 & 135/MDS/2012 ARE ALLOWED FOR STATISTICAL PURPOSES, APPEALS IN I.T.A. NOS. 136, 137 AND 141/MDS/2012 ARE PARTLY ALLOWED, WHERE AS, APPEAL IN I.T.A. NO. 142/MDS/2012 IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON WEDNESDAY, THE 11 TH OF JULY, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH JULY, 2012. KRI. COPY TO: APPELLANT/RESPONDENTS/CIT(A)-II, CHENNAI/ CIT, CENTRAL-II, CHENNAI/D.R./GUARD FILE