C.I.T.AMRITSAR vs. M/S SURINDER SUGAR STORE AMRITSAR

ITR/56/1990HC Punjab & HaryanaPHHC01021607199013 October 2006Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE ADARSH KUMAR GOEL2 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Appellate Tribunal was right in law in deleting the addition of Rs. 1,04,774/- made under Section 40A(3) of the Income-tax Act, 1961. The reasoning was based on the principle that where a gross profit rate is applied to the turnover, there is no justification for making a separate disallowance under Section 40A(3) for cash payments exceeding Rs. 2500/-. This principle was supported by the High Court's own prior decision in Commissioner of Income-tax (Central), Ludhiana v. Smt.Santosh Jain and the Allahabad High Court's judgment in Commissioner of Income-Tax v. Banwari Lal Banshidhar. The ratio decidendi is that the application of a GP rate inherently accounts for all expenses, including those that might otherwise be disallowed under Section 40A(3). The operative direction was to answer the reference against the Revenue and in favour of the assessee, disposing of the reference accordingly.

What were the facts?

The Revenue, Commissioner of Income-tax, Amritsar, has referred a question of law to the High Court of Punjab and Haryana arising from an Income-tax Appellate Tribunal (ITAT) order. The assessment year in question is 1975-76. A search and seizure operation on the assessee, M/s Surinder Sugar Store, Amritsar, on August 24, 1977, led to the recovery of documents. During assessment, the Income-tax Officer disallowed expenses of Rs. 1,04,774/- under Section 40A(3) of the Income-tax Act, 1961, for payments exceeding Rs. 2500/-. The Assessing Officer also applied a gross profit rate on disclosed and undisclosed turnover. The Commissioner of Income-tax (Appeals) upheld the disallowance. The ITAT, however, deleted the addition, leading to this reference.

What were the issues?

The Tribunal had to decide the following question of law: 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in deleting the addition of Rs. 1,04,774/- made by the Income-tax Officer under Section 40A(3) of the Income-tax Act, 1961 and sustained by the Commissioner of Income-tax (Appeals)? The Revenue contended that the addition made under Section 40A(3) was justified. The Assessee argued that the disallowance under Section 40A(3) was not warranted when a gross profit rate was applied to the turnover. The Tribunal accepted the assessee's plea. The High Court referred to its own prior decision in ITA No. 512 of 2005 (Commissioner of Income-tax (Central), Ludhiana v. Smt.Santosh Jain) and the Allahabad High Court's judgment in Commissioner of Income-Tax v. Banwari Lal Banshidhar (1998) 229 ITR 229, which held that disallowance under Section 40A(3) is not justified when a gross profit rate is applied.

Which sections of the Income-tax Act were involved?

Section 40A(3),Section 256(1)

AI-generated summary — verify with the full judgment below

I.T.R. No.56 of 1990 [1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R.No.56 of 1990 Date of decision: 13.10.2006 The Commissioner of Income-tax, Amritsar ..Applicant through

Dr. N.L.Sharda, Advocate v. M/s Surinder Sugar Store, Amritsar. ..Respondent through Mr. Suvir Sehgal, Advocate CORAM: Hon'ble Mr.Justice Adarsh Kumar Goel Hon'ble Mr.Justice Rajesh Bindal

1.

Whether Reporters of local papers may be allowed to see the judgment ?

2.

To be referred to the Reporters or not ?

3.

Whether the judgment should be reported in the Digest? Rajesh Bindal, J. At the instance of the Revenue, the Income-tax Appellate Tribunal, Amritsar Bench (for short, `the Tribunal') has referred, under Section 256(1) of the Income-tax Act, 1961 (for short, `the Act'), the following question for the opinion of this Court arising out of ITA No. 1371 (ASR)/1979, pertaining to the assessment year 1975-76: “Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in deleting the addition of Rs. 1,04,774/- made by the Income-tax Officer under Section 40A(3) of the Income-tax A

The order continues below.

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