COMMISSIONER OF INCOME TAX vs. M/S.AMMAN STEEL AND ALLIED

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TCA/913/2019HC Madras08 July 2020Bench: Hon`ble Mr Justice T. S. SIVAGNANAM4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arose for consideration in the appeal. The Tribunal had confirmed the order of the CIT(A), who had relied on the High Court's own decision in CIT Vs. Mohammed Dhurabudeen. This precedent established that when an assessee's income is computed by applying a GP rate and no deduction is allowed for purchases, the provisions of Section 40A(3) and Rule 6DD(j) are not applicable. The reasoning was that the application of the GP rate inherently takes care of all such aspects, rendering further scrutiny of individual expenditure amounts unnecessary. Therefore, the High Court found no reason to interfere with the Tribunal's order, which had correctly applied the law to the facts after a thorough examination.

What were the facts?

The Revenue, represented by the Commissioner of Income Tax, Trichy, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated August 23, 2011, passed by the Income Tax Appellate Tribunal, Chennai ‘C’ Bench. The appeal pertains to the assessment year 2002-03. The core of the dispute involved the disallowance of expenditure under Section 40A(3) of the Act concerning the purchase of steel ingots. The Assessing Officer had disallowed these purchases. The Commissioner of Income Tax (Appeal) partly allowed the assessee's appeal, a decision that was subsequently confirmed by the Tribunal. The High Court admitted the appeal on a substantial question of law.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that when no deduction was sought on the expenditure, the provisions of Section 40A(3) cannot be applied when the assessable income was arrived at by applying a percentage rate on unaccounted turnover? Assessee's Contention: The assessee argued that Section 40A(3) of the Income Tax Act, 1961, and Rule 6DD(j) of the Relevant Rules were not applicable. They contended that since the income was computed by applying a Gross Profit (GP) rate on unaccounted turnover and no deduction was claimed or allowed in respect of the purchases, the disallowance under Section 40A(3) was unwarranted. The CIT(A) and Tribunal followed the decision in CIT Vs. Mohammed Dhurabudeen, which held that when GP rate is applied, it accounts for all aspects, and scrutiny of individual purchase amounts is unnecessary. Revenue's Contention: The Revenue's appeal implies disagreement with the Tribunal's finding, suggesting that Section 40A(3) should have been applied despite the method of income computation.

Which sections of the Income-tax Act were involved?

Section 40A(3),Section 260A

AI-generated summary — verify with the full judgment below

TCA.No.913 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 08.7.2020 CORAM THE HONOURABLE MR. JUSTICE T.S.SIVAGNANAM AND THE HONOURABLE MRS. JUSTICE V.BHAVANI SUBBAROYAN TAX CASE APPEAL No.913 of 2019 (heard through video conferencing)

The Commissioner of Income Tax, Trichy

...Appellant Vs M/s.Amman Steel & Allied Industries, Silambudayanpatti, Nagamangalam, Trichy

...Respondent

APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 23.8.2011 made in ITA.No.2057/Mds/2010 on the file of the Income Tax Appellate Tribunal, Chennai ‘C’ Bench for the assessment year 2002-03.

For Appellant : Mr.M.Swaminathan, SSC Mrs.V.Pushpa, SC & Ms.S.Premalatha, SC For Respondent : Mr.A.S.Sriraman 1/4 http://www.judis.nic.in TCA.No.913 of 2019 Judgment was delivered by T.S.SIVAGNANAM,J This appeal, by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, the Act), is directed against the order dated 23.8.2011 made in ITA.No.2057/Mds/2010 on the file of the Income Tax Appellate Tribunal, Madras ‘C’ Bench (for brevity, the Tribunal) for the assessment year 2002-03. 2. We have heard Mr.M.Swaminathan, learned Senior Standing Counsel and Mrs.V.Pushpa and Ms.S.Premalatha, learned Standing Counsel appearing for the appellant – Revenue and Mr.A.S.Sriraman, learned counsel appearing for the respondent – assessee. 3. The appeal has been admitted on 21.11.2019 on the following substantial question of law : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that when no deduction was sought on the expenditure, the provisions of Section 40A(3) cannot be applied when the assessable income was arrived by applying a percentage rate on unaccounted turnover ?”

4.

One of the issues, which was the subject matter of 2/4 http://www.judis.nic.in TCA.No.913 of 2019 adjudication before the Tribunal, is with regard to disallowance under Section 40A(3) of the Act on the purchase of steel ingots from various persons. The Tribunal confirmed the order dated 21.9.2010 passed by the Commissioner of Income Tax (Appeal), Tiruchirapalli [for brevity, the CIT(A)], who followed the decision of this Court in the case of CIT Vs. Mohammed Dhurabudeen [reported in 4 DTR 218] wherein it was held that when the income of the assessee was computed by applying GP rate and no deduction was allowed in regard to purchases of the assessee, there was no need to look into the provisions of Section 40A(3) of the Act and Rule 60DD(j) of the Relevant Rules, that no disallowance could have been made in view of the provisions of Section 40A(3) of the Act read with Rule 60DD(j) of the Relevant Rules as no deduction was allowed and claimed by the assessee in respect of purchases and that when the GP rate was applied, that would take care of everything and there was no need for the Assessing Officer to make scrutiny of the amount incurred on the purchases by the assessee. 5. The CIT(A) considered the facts, applied the law in the aforementioned decision and partly allowed the appeal filed by the assessee. This order has been confirmed by the Tribunal after 3/4 http://www.judis.nic.in TCA.No.913 of 2019 T.S.SIVAGNANAM, J AND V.BHAVANI SUBBAROYAN, J

RS examining the facts. Thus, we find that no substantial question of law arises for consideration in this appeal and that the entire matter has been analyzed threadbare and the law has been applied. Therefore, we hold that the impugned order passed by the Tribunal calls for no interference. 6. Accordingly, the above tax case appeal is dismissed as no substantial question of law arises for consideration. No costs.

08.7.2020 To The Income Tax Appellate Tribunal, Chennai ‘C’ Bench. T.C.A.No.913 of 2019 4/4 http://www.judis.nic.in

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