Kesava Rao & Associates, Hyderabad, Hyderabad V. ITO, Ward-8(3), Hyderabad, Hyderabad

ITA 204/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2391 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 09-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A V RAGHURAM
• Keywords: Depreciation; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 40A(3); 143(3); 133A; 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 204/HYD/2017 ASSESSMENT YEAR: 2006-07 M/S. KESAVA RAO & ASSOCIATES, HYDERABAD [PAN: AAIFK0849B] VS INCOME TAX OFFICER, WARD-8(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHU RAM, AR FOR REVENUE : SHRI RAVI BABU, DR DATE OF HEARING : 08-11-2017 DATE OF PRONOUNCEMENT : 22-11-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-2, HYDERABAD, DATED 03-11-2016, FOR THE AY. 2006-07. 2. THE GROUNDS RAISED BY ASSESSEE ARE AS UNDER: 1. THE ORDER OF THE LEARNED CIT(A) IS NOT ONLY ERR ONEOUS BOTH IN LAW AND ON FACTS BUT ALSO PERVERSE TO THE EXTENT IT IS PREJ UDICIAL TO THE INTEREST OF THE ASSESSEE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PRO CEEDINGS U/S. 147 ARE VALIDLY INITIATED IN SPITE OF REPRODUCING THE FACTS WHICH GO TO SHOW THAT THERE WAS NO NEW MATERIAL TO INITIATE PROCEEDINGS U /S. 147 ON AN ASSESSMENT THAT WAS MADE AFTER SCRUTINY, AND FURTHE R IN NOT FOLLOWING ANY OF THE JUDICIAL PRONOUNCEMENTS THAT ARE CITED. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWA NCE OF RS. 25,19,660/- MADE U/S. 40(A)(3) WITHOUT APPRECIATING THE FACT TH AT THE SITE WAS NOT PURCHASED BY THE ASSESSEE AND THAT NO CASH PAYMENT MADE TO A SINGLE PARTY HAS EXCEEDED RS. 20000/ - PER DAY, TOWARDS PU RCHASE OF MATERIALS. I.T.A. NO. 204/HYD/2017 :- 2 - : 4. THE LEARNED CIT(A) ERRED IN CONFIRMING LEVY OF I NTEREST U/S. 234-B IN REASSESSMENT ORDER THOUGH IT SHOULD NOT HAVE BEEN A S THERE WAS NO INTEREST IN THE ORIGINAL ORDER. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING LEVY OF I NTEREST U/S. 234-C IN THE REASSESSMENT ORDER THOUGH NO SUCH INTEREST IS LEVIE D IN THE ORIGINAL ORDER. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 3. BRIEFLY STATED, ASSESSEE, AN AOP FILED RETURN OF IN COME FOR THE AY. 2006-07 ON 30-10-2006 ADMITTING TOTAL INCOME OF RS. 17,90,500/-. A SURVEY U/S. 133A OF THE INCOME TAX A CT [ACT] WAS CONDUCTED ON 25-01-2006 IN THE CASE OF M/S. SRI KESAV A CONSTRUCTION AND CONSEQUENT TO THAT, AOP FILED RETURNS WH ICH WAS STATED IN PARA 1 OF THE ORDER U/S. 143(3) DT. 26-12-200 8. IN THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICER (AO) EXAMI NED THE BOOKS OF ACCOUNT AND VOUCHERS AND DISALLOWED AN AMOU NT OF RS. 1,61,150/- IN RESPECT OF DEFECTIVE VOUCHERS. SUBSEQUE NTLY, THE ASSESSMENT WAS REOPENED BY RECORDING A SATISFACTION, AFTER FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR BUT BEFORE S IX YEARS, ON THE REASON THAT THE ASSESSEE HAD PAID AMOUNT IN CASH WH ICH ATTRACT DISALLOWANCE U/S. 40A(3). IN THE REASSESSMENT PROCEEDINGS, ASSESSEE HAS EXPLAINED THAT THE PAYMENTS FOR PURCHASE O F SITE WAS MADE BY PARTNERS IN THEIR INDIVIDUAL CAPACITY AND ONL Y ENTRIES WERE PASSED BY THE AOP AND REGARDING CONSTRUCTION EXPENSE S, THE PAYMENTS ARE LESS THAN RS. 20,000/- EACH AND SO, NO D ISALLOWANCE IS WARRANTED. IT WAS ALSO CONTENDED THAT THE SAME WAS EX PLAINED IN A STATEMENT U/S. 133A AS WELL. 4. AO, HOWEVER, DID NOT AGREE. WHILE RECORDING THAT THOUGH THE DOCUMENTS WERE REGISTERED IN THE INDIVIDUAL NAMES AND PURCHASED FROM THEIR OWN SOURCES, AO CONSIDERED THE AMOUNT OF I.T.A. NO. 204/HYD/2017 :- 3 - : RS. 1,20,00,000/- (WRONGLY RECORDED AS RS. 1,20,000 /- IN THE SATISFACTION NOTE) AND ALSO THE PAYMENTS WHICH ARE VER IFIED IN THE SCRUTINY, TO DISALLOW AN AMOUNT OF RS. 25,19,660/- IN THE REASSESSMENT U/S. 143(3) R.W.S. 147. 5. BEFORE THE LD.CIT(A), ASSESSEE CONTENDED THAT THE PRO VISIONS OF SECTION 40A(3) ARE NOT ATTRACTED AND FURTHER REOPENIN G OF ASSESSMENT U/S. 147 IS NOT AS PER THE PROVISIONS OF L AW. THE DETAILED SUBMISSIONS AND CASE LAW RELIED WERE METICUL OUSLY EXTRACTED BY THE LD.CIT(A) IN HIS ORDER FROM PAGE NO. 6 TO 11, BUT UNFORTUNATELY, LD.CIT(A) DID NOT ADJUDICATE ANY OF THE CONTENTIONS AND REJECTED THEM SUMMARILY BY STATING AS UNDER: 5.2. 1 HAVE GONE THROUGH THE AO'S OBSERVATIONS AND ARS CONTENTIONS. IT IS SEEN FROM THE FACTS THAT THE AO HAS DISALLOWED A N AMOUNT OF RS.25,19,660/- STATING THAT THE ASSESSEE HAS VIOLAT ED THE PROVISIONS OF SEC. 40A(3) OF THE, ACT BY MAKING TOTAL CASH PAYMEN TS OF RS.1,25,98,300/- AND THEREFORE, 20% OF THE SAME IS TO BE DISALLOWED. 5.3. DURING THE APPEAL PROCEEDINGS ALSO, THE AR COU LD NOT ADDUCE ANY EVIDENCE REBUTTING THE CONCLUSIONS DRAWN BY THE AO. THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE AO IS JUSTIFIED IN DISALLO WING THE AMOUNT OF RS.25,19,660/- BEING 20% OF TOTAL CASH PAYMENTS OF RS.L,25,98,300/- MADE BY THE ASSESSEE VIOLATING THE PROVISIONS OF SE C.40A(3) OR THE ACT AND HENCE, THE SAME IS HEREBY CONFIRMED. AS A RESULT, T HE GROUNDS RAISED ARE DISMISSED. 5.1. AS CAN BE SEEN, LD. CIT(A) HAS NOT CONSIDERED TH E FACTS SUBMITTED NOR THE CASE LAW RELIED. 6. IT WAS THE SUBMISSION OF LD. COUNSEL THAT THE CIT(A) HAS NOT APPLIED HIS MIND TO ANY OF THE CONTENTIONS OF ASSESSEE IN THE WRITTEN SUBMISSIONS. IT WAS SUBMITTED THAT THE ASSESSMENT ORIGINALLY WAS COMPLETED AFTER EXAMINING THE BOOKS OF ACCOUNT, NOT I.T.A. NO. 204/HYD/2017 :- 4 - : ONLY DURING THE SURVEY U/S. 133A BUT ALSO SUBSEQUENTLY WHEN THE RETURN OF INCOME WAS FILED. REOPENING AFTER FOUR YE ARS FROM THE END OF ASSESSMENT REQUIRES FAILURE ON THE PART OF ASS ESSEE IN FILING NECESSARY INFORMATION, WHICH IS NOT THE CASE HERE. H E REFERRED TO SATISFACTION NOTE PLACED IN PAPER BOOK AT PAGE 14 AND OBJECTION FILED BEFORE AO VIDE THE LETTER DT. 04-12-2013 AND HOW THE SAME ARE REJECTED BY AO IN PARA 4 OF IMPUGNED ORDER. IT WAS ALSO FURTHER CONTENDED THAT LD.CIT(A) HAS NOT ADJUDICATED THE ISSUE AT ALL. 7. LD.DR, HOWEVER, SUBMITTED THAT ASSESSEE HAS NOT FULL Y DISCLOSED THE INFORMATION AS CAN BE SEEN FROM THE SATIS FACTION NOTE AND THE INFORMATION CALLED IN SURVEY WAS NOT USED BY TH E AO IN THE ASSESSMENT U/S. 143(3) ORIGINALLY. SO, THE REOPENING U/S. 147 IS AS PER THE FACTS AND LAW. 8. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND FACTS P LACED ON RECORD. IT IS A FACT THAT SURVEY OPERATIONS WERE CONDUC TED DURING THE FINANCIAL YEAR ITSELF AND THE AO CAME TO KNOW THAT TH E AOP WAS DOING BUSINESS FROM 01-01-2005 AND RETURNS WERE YET TO BE FILED. IT IS ON RECORD THAT THE MEMBERS PURCHASED THE SITE FRO M THEIR OWN SOURCES IN THEIR INDIVIDUAL CAPACITY AND FORMED THE A OP TO DO BUSINESS. HOW THE PAYMENTS ARE TO BE CONSIDERED IN THE HANDS OF THE AOP IS NOT EXPLAINED BY THE AO, WHILE CONSIDERING THE SAME FOR VIOLATION OF SECTION 40A(3). MOREOVER, REGARDING THE SO CALLED CASH PAYMENTS UNDER THE HEAD CONSTRUCTION ETC., THE SAME WERE VERIFIED BY THE AO IN THE EARLIER SCRUTINY ASSESSMENT AND DISA LLOWED THE ENTIRE AMOUNT OF VOUCHERS WHICH WERE DEFECTIVE. HOW THE SAME ALSO CAN BE CONSIDERED FOR DISALLOWANCE U/S. 40A(3) IS A LSO NOT EXPLAINABLE. THE EARLIER ASSESSMENT ORDER OF AO IND ICATES THAT HE I.T.A. NO. 204/HYD/2017 :- 5 - : HAS CONSIDERED THE FACTS AND MADE ASSESSMENT DISALLOWI NG CERTAIN DEFECTIVE VOUCHERS. THUS, THE CONTENTIONS OF PRESENT AO WHILE REOPENING ASSESSMENT IS DEVOID OF MERIT. 9. COMING TO THE ISSUE OF REOPENING CONTESTED BY ASSE SSEE ALL ALONG, THE FACTS INDICATE THAT THERE IS NO FAILURE ON THE PART OF ASSESSEE, AS REQUIRED UNDER THE PROVISIONS AS AN ASS ESSMENT U/S. 143(3) WAS COMPLETED. THE SATISFACTION NOTE RECORDED I S AS UNDER: ON VERIFICATION OF THE RECORD, IT IS SEEN THAT THE ASSESSEE, AN AOP, COMMENCED BUSINESS DURING THE PREVIOUS YEAR RELEVAN T FOR THE AY 2006-07 AND FILED THE ROI ON 30-10-2006 DECLARING A TOTAL I NCOME OF RS.17,20,500/- AND THE SAME WAS DETERMINED U/S143(3 ) OF THE ACT AT RS.19,51,650/- ON 26-12-2008. (2) AS PER THE ANNEXURE -A TO THE DECLARATION MADE BY K.CHENNA KESAVA RAO AT THE TIME OF SURVEY U/S133A OF THE ACT ON 25- 01-2006 THAT OUT OF PAYMENT OF RS.L,30,64,800/- MADE AN AMOUNT OF RS.L, 20,000/- WAS PAID BY WAY OF CASH FOR PURCHASE OF SITE ADMEASURING 100 0 SQUARE YARDS' FROM M/S. JAYABHERI ENCLAVE DURING THE PERIOD OF JAN-MAR CH. 2005. FURTHER, AS SEEN FROM COPIES OF CASH BILLS PLACED ON RECORD, OU T OF RS.13,34,294/- DEBITED, AN AMOUNT OF RS.5,98,300/- WAS PAID BY WAY OF CASH TOWARDS BRICKS, SAND, ETC., . (3) FROM THE ABOVE PAYMENT MADE BY THE ASSESSEE, IT IS CLEAR THAT THE ASSESSEE VIOLATED PROVISIONS OF SEC. 40A(3) OF THE ACT ACCORDING TO WHICH THE DISALLOWANCE IS REQUIRED TO BE MADE TOWARDS UND ER ASSESSMENT OF INCOME TO THE TUNE OF RS.25, 19,660/- (20% OF THE C ASH PAYMENTS OF RS.1,20,00,000 + 5,98,300= 12598300): AND BE BROUGH T TO TAX. THIS INFORMATION WAS NEITHER FURNISHED IN THE SUBMISSION S MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S NOR BROUGHT TO THE NOTICE OF THE AO. FURTHER, ON VERIFICATION OF THE 3 CD REPORT ENCLOSED TO THE ROI, AGAINST COL. NO. 17(H) WHICH IS MEANT FOR THE DISALLOWANCE UNDER SEC. 40A(3), IT WAS MENTIONED AS NIL THEREFORE, THE AO W AS MISGUIDED BY THE REMARKS APPEARING AGAINST COL. NO. L7(H) OF THE AUD IT REPORT ALSO. THIS CLEARLY PROVES THE FAILURE ON THE PART OF THE ASSES SEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR, THE ASSESSM ENT. SINCE THE INGREDIENTS OF SEC. 147 ARE FULFILLED, I HAVE REASO N TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX IN THE FORM OF DISALLOWANC E OF THE EXPENDITURE INCURRED IN CASH AS PER PROVISIONS OF SEC. 40A(3) I S AN ESCAPED ASSESSMENT FOR THE AY 2006-07. IN THE CIRCUMSTANCES , I HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. I.T.A. NO. 204/HYD/2017 :- 6 - : 9.1. THIS INDICATE THAT THE BASIS OF REOPENING IS THE R ECORD ONLY AND THERE IS NO FAILURE ON THE PART OF ASSESSEE. MORE OVER, NOT ONLY DURING SURVEY BUT ALSO IN THE COURSE OF ASSESSMENT, THE BOOKS OF ACCOUNT WERE EXAMINED BY THE AO. SO, THE ARGUMENT OF A O IS THAT 3CD REPORT IS MISLEADING CANNOT BE ACCEPTED. IN FACT , WHEN ENTRIES ARE PASSED IN AOP BOOKS ABOUT THE CAPITAL CONTRIBUTION, THE SAME CANNOT BE CONSIDERED AS PAYMENT BY AOP FOR PURCHASE O F PROPERTY, WHICH HAPPENED IN INDIVIDUAL HANDS OF MEMBERS. THUS , THE REOPENING PER SE IS ON WRONG APPRECIATION OF FACTS AND COMES WITHIN THE PURVIEW OF CHANGE OF OPINION. 10. THE REOPENING WAS DONE AFTER FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. THE PROVISIONS OF SECTION 147 ARE A S UNDER: 147. IF THE ASSESSING OFFICER HAS REASON TO BELIEV E THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSESS SUCH INC OME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANC E, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTIO N AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASS ESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSE E TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SEC TION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FAC TS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR : (EMPHASIS SUPPLIED) EXPLANATION 3.FOR THE PURPOSE OF ASSESSMENT OR REA SSESSMENT UNDER THIS SECTION, THE ASSESSING OFFICER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE, WHICH HAS ESCAPED ASSESSMENT, AND SUCH ISSUE COMES TO HIS NOT ICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THA T THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB-SEC TION (2) OF SECTION 148. I.T.A. NO. 204/HYD/2017 :- 7 - : 11. THE PROVISO TO SECTION IS VERY CLEAR THAT THERE SHOU LD BE FAILURE ON THE PART OF ASSESSEE, IF A SCRUTINY ASSESSM ENT WAS COMPLETED EARLIER, IF THE REOPENING WAS AFTER FOUR Y EARS FROM THE END OF ASSESSMENT YEAR. THERE IS NO DOUBT THAT THE FACTS WERE EXAMINED NOT ONLY DURING THE SURVEY BUT ALSO IN THE SC RUTINY DONE EARLIER. THE SATISFACTION RECORDED ALSO INDICATES THAT A O CONSIDERED THE INFORMATION ON RECORD AND NO FRESH INFORMATION CAM E ON RECORD. IT ALSO AMOUNTS TO CHANGE OF OPINION BY SUCCES SOR OFFICER. SINCE THERE IS NO FAILURE ON THE PART OF ASSESSEE IN D ISCLOSING THE MATERIAL INFORMATION, REOPENING OF COMPLETED ASSESSM ENT AFTER FOUR YEARS FROM THE END OF ASSESSMENT YEAR IS BAD IN LAW A CCORDING TO THE CLEAR MANDATE OF THE PROVISIONS. FURTHER, THE PAYMEN TS WERE ALSO NOT MADE BY AOP SO AS TO DISALLOW UNDER THE PROV ISIONS. WITH REFERENCE TO CASH PAYMENTS ALSO, THE CONTENTION OF AO SE EMS TO BE WRONG. THUS, THERE IS ALSO NO MERIT IN DISALLOWANCES MADE BY AO. IN VIEW OF THE ABOVE, I HAVE NO HESITATION IN CANCELLI NG THE REASSESSMENT PROCEEDINGS, AS THEY ARE BAD IN LAW. TH E ORIGINAL ASSESSMENT ORDER OF AO IS CONSEQUENTLY RESTORED. 12. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND NOVEMBER, 2017 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 22 ND NOVEMBER, 2017 TNMM I.T.A. NO. 204/HYD/2017 :- 8 - : COPY TO : 1. M/S. KESAVA RAO & ASSOCIATES, C/O. K. VASANT KUM AR, A.V. RAGHU RAM, P. VINOD & M. NEELIMA DEVI, ADVOATE S, 610, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-8(3), HYDERABAD. 3. CIT (APPEALS)-2, HYDERABAD. 4. PR.CIT-2, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.