Treating expenses bogus without appreciating replies received u/s 133(6) unfair. AO always expected to examine replies of the recipients of such expenditure.
ABACUS Case Law Citation
ABCAUS 3355 (2020) (08) HC
In the instant case, the assessee had filed the Writ Petition under articles 226 and 227 of the constitution of India praying the Hon’ble High Court to quash the impugned assessment order passed as being violative of article of article 14, article 19 (1) (g) of the constitution.
The Petitioner (assessee) was a limited company. The Assessing Officer (AO), while passing he impugned assessment order, had treated the payments made by the assessee to contractors as bogus and added the same to the income of the assessee giving rise to the tax demand.
Further, the AO had instructed the bank of the assessee to freeze assessee’s Bank account for non-payment of tax demanded.
The assessee filed an application before the AO seeking stay of assessment order which was rejected.
Thereafter, the assessee filed an application for stay before the Principal Commissioner of Income Tax (the PCIT) under Section 246A of Income Tax Act, 1961.
Since no orders were passed by the PCIT, the petitioner had approached Hon’ble High Court with a prayer to quash the assessment order.
The Hon’ble High Court was informed that during the pendency of the writ petition, the PCIT had passed an order directing petitioner to deposit 20% of the tax amount in six installments.
It was stated that the said order of PCIT had been passed without notice and without hearing the petitioner.
The assessee submitted that the AO had disallowed expenditure which the petitioner had incurred by making payment to its contractors. The list of eighteen such contractors had been recorded in the assessment order. Notices were issued to the said contractors and they have given reply. However, without properly appreciating the replies, the AO had disallowed the expenditure and assessed the payment of tax in crores.
The assessee adverted to letters written by two contractors and submitted that those replies were given prior to date of assessment order.
The assessee argued that though this was the factual matrix, the AO had called those expenses as ‘bogus expenses’ and disallowed.
It was submitted that the assessee was not liable to pay any tax and therefore, the conditional order passed by the PCIT directing to deposit 20% of the amount assessed was also not sustainable in law.
On the contrary, the Revenue contended that the appeal was pending before the appellate authority and the PCIT had partly allowed the stay application and directed payment of 20% tax amount in six easy installments.
It was contended that when the appeal is pending, a writ petition challenging the assessment order is not maintainable.
Expenses can not be treated bogus without considering replies received u/s 133(6)
The Hon’ble High Court noted that it was not in dispute that two parties had sent their reply to the Income Tax Officer before the date of passing the assessment order.
According to the Hon’ble High Court, it was prima facie evident that the the AO had not taken note of the said two letters while passing the assessment order and disallowed the expenditure in crores, by calling it as ‘bogus’.
The Hon’ble High Court stated that when the replies received u/s 133(6) of two contractors were admittedly received prior to the date of assessment order, saddling on the assessee to pay taxes by disallowing the expenditure without appreciating replies will meet an assessee with consequences of making the payment.
The Hon’ble High Court stated that it is always expected of the AO to take note of and examine the replies of the recipients of such expenditure which was overlooked in this case.
The Hon’ble High Court also observed that the PCIT had disposed of the application filed for stay of demand without hearing the petitioner.
The Hon’ble High Court stated that Generally, in all cases, an application filed before any quasi judicial authority is required to be heard before any orders are passed and more so, in the case of this nature, where the assessee becomes liable to pay huge taxes.
Accordingly, the Hon’ble High Court directed the PCIT to grant an opportunity to the assessee to put forth its case in the application for stay and no coercive steps to recover the tax amount shall be initiated till PCIT passes his order.
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