GAJANANA SHAMANNA TALAGERI,GADAG vs. INCOME TAX OFFICER, WARD-1, GADAG

The brief facts of the case are that the assessee is an individual and filed his return of income on 17/10/2016. The assessee is extracting and trading in granite blocks. The AO had reopened the assessment and notice u/s. 148 was issued. The assessee filed the details. The AO based on the

As against the said order, the assessee filed an appeal before the Ld.CIT(A). Even though the assessee had submitted written submissions and several documents, the Ld.CIT(A) in a cryptic order had confirmed the additions. The Ld.CIT(A) had not considered the ledger copies filed, to show that there is no excess payment and therefore there is no violation of section 40A(3) of the Act. The Ld.CIT(A), without discussing the issue in detail, had confirmed the additions.

As against the said order, the present appeal has been filed by the assessee, with a delay of 7 days. The assessee also filed an application to condone the said delay of 7 days.

We have considered the reasons and the number of days delayed and satisfied that there is a sufficient cause and condoned the said delay and proceeded to decide the appeal.

At the time of hearing, the Ld.AR submitted that the assessee is operating the quarry in a remote area and therefore they have to incur the expenses by cash only. The Ld.AR further submitted that in spite of the above said fact, the assessee had not exceeded the limit prescribed u/s. 40A(3) of the Act. The Ld.AR further submitted that the ledger extracts relating to the various expenses were not considered by the Ld.CIT(A) even though the same were filed before him. The Ld.AR further submitted that the books are audited u/s. 44AB of the Act and without finding any error in the books of accounts and also without rejecting the books of accounts,

The Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.

We have heard the arguments of both sides and perused the materials available on record.

We have perused the assessment order from which it is evident that the AO on assumption had come to the conclusion that the assessee might have paid the expenses by cash violating section 40A(3) of the Act. On such assumption, the AO had disallowed the 2% of the expenses u/s. 40A(3) of the Act. We have considered the submissions made by the assessee along with the documents furnished by the assessee. We have also perused the bank statements, TDS payment details and ledger extracts relating to the expenses. The assessee had paid the expenses through banking channel whenever the payment exceeds Rs. 20,000/-. Similarly, the assessee had deducted TDS in appropriate cases. In all other expenses incurred by the assessee, the ledger extracts would indicate that there are no payment exceeding the limit prescribed u/s. 40A(3) of the Act. Even though all the details were furnished by the assessee, the Ld.CIT(A) had not dealt with the said documents. In such circumstances, the order of the lower authorities by disallowing the expenses u/s. 40A(3) of the Act could not be sustained.

In respect of the second dispute, the AO had estimated the book profit at 2% and on that basis, addition was made. We have considered the fact that the books were audited u/s. 44AB of the Act and the AO had also not found any mistakes in the maintenance of books of accounts. The AO had also not relied on any data available for the industry to estimate the profit at 2%. Moreover the AO had not rejected the books of accounts for making the estimated addition. When there are no circumstances available before the

The Ld.CIT(A) also without discussing the issue in detail, had confirmed the addition, which in our opinion is also not in accordance with the principles of natural justice.

For all the foregoing reasons, we have no hesitation to set aside the orders of the lower authorities.

In the result, the appeal filed by the assessee is allowed.