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Facts
The assessee, engaged in cotton manufacturing, made cash payments exceeding Rs. 20,000/- for raw cotton purchases through Mandi, which were disallowed by the AO under Section 40A(3) of the Income Tax Act, 1961. The CIT(A) partly allowed the appeal, sustaining a portion of the addition.
Held
The Tribunal noted that the assessee had furnished bills for the purchase of Kapas from agriculturists/cultivators from Mandi. Based on this, the Tribunal allowed the appeal, directing the deletion of the addition and granting relief to the assessee.
Key Issues
Whether the disallowance made under Section 40A(3) for cash payments exceeding Rs. 20,000/- for raw cotton purchases was justified, especially when bills were subsequently provided.
Sections Cited
253, 147, 144B, 40A(3), 246A, 131, 154, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI BHAGIRATH MAL BIYANI & SHRI PARESH M JOSHI
आदेश/ O R D E R
Per Paresh M Joshi, J.M.:
This is an appeal filed by the Assessee Under Section 253 of the Income Tax Act, 1961 (hereinafter referred to as the Act for sake of brevity) before this Tribunal as and by way of a second appeal. The assessee is aggrieved by order bearing Number ITBA/NFAC/S/ 250/2024-25/1073636115(1) dated 24.02.2025 passed by the Ld. CIT(A), U/s 250 of the Act which is hereinafter referred to as the “impugned order”. The relevant Assessment
Page 1 of 6 from 01.04.2015 to 31.03.2016.
FACTUAL MATRIX 2.1 That as and by way of an assessment order made u/s 147 r.w.s. 144B of the Act, the assessee’s total income exigible to tax was computed & assessed at Rs.3,68,78,662/-. The profit as per profit & loss account was at Rs.13,23,072/-. The addition of Rs.4,01,62,262/- was made on the account of the contraventions of the provisions of section 40A(3). An amount of Rs.46,06,672/- was lessened as and by way of “set off of brought forward losses”. Thus, the net taxable income of Rs.3,68,78,662/- was arrivedat. That the aforesaid assessment order bears No.: ITBA/AST/S/147/2021-22/1041161741(1) & that the same is dated 21.03.2022 which is herein after referred to as the “Impugned Assessment Order”.
2.2 The assessee is a firm engaged in the business of manufacturing of cotton and other related agro products & majority of the raw material is/are purchased from the Page 2 of 6 against the assessee basis enquiries conducted u/s 131 was that the assessee has made cash payments exceeding Rs.20,000/- to the non agriculturists in the contraventions of section 40A(3) of the Act aggregating to Rs.4,01,62,262/-.
2.3 That the assessee being aggrieved by the aforesaid “Impugned assessment Order” prefers the first appeal u/s 246A of the Act before the Ld. CIT(A) who by the “Impugned Order” has partly allowed the first appeal of the assessee on the grounds & reasons stated therein. The core grounds & reasons are stated as hereunder:-
“4.6 From the above it is clear that the appellant purchases were made through Mandi and he has provided sufficient explanation towards this. Now the question raised that the entire cash payment of Rs.4,01,62,262/- was made by the appellant towards purchases of raw cotton or not. For the genuineness of these cash payments, the appellant has submitted the copy of bills/invoices in respect of purchase of raw cotton from Mandi. After verification of the said bills, it has been noticed that the appellant furnished the bills only to the amount of Rs. 19,20,565/-Therefore, the AO is directed to delete Rs. 19,20,565/- from the total addition made. Out of the total addition made by the AO to the extent of Rs. 4,01,62,262/-, Rs. 3,82,41,697/- stands sustained. Therefore, on consideration of the totality of facts | hold that the grounds raised by the appellant stands partly allowed.
Page 3 of 6 has preferred the instant second appeal before this Tribunal & has raised following grounds of appeal in the form No.36 against the “Impugned Order” which are as under:-
“1.That on the facts and in the circumstances of the case and in law, 1 the Ld. CIT(A) erred in confirming the action of the Assessing Officer in reopening the case of the appellant 2.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 3,82,41,697/- out of addition of Rs. 4,01,62,262/-made by the Assessing Officer to the total income of the appellant on account of disallowance as per the provisions of section 40A(3) of the Act in respect of Kapas (i.e. raw cotton) purchased in cash from farmers, cultivators, growers or producers through Mandi without properly appreciating the facts of the case and submissions made before him/her. 3 grounds of appeal as taken by it The appellant reserves the right to add, alter and modify the grounds of appeal as taken by it.”
Record of Hearing 3.1 That the hearing in the matter took place before this Tribunal on 25.11.2025 when Ld. AR for and on behalf of the assessee appeared before us and bought to our notice an order
Page 4 of 6 ITBA/NFAC/S/250/2024-25/1073636115(1) dated 13.11.2025 (PB page 9-14) whereby in para 4 following is held:
“4. The appellant has also furnished bills related to kapas purchase from agriculturists/cultivators from mandi which is available on record. In view of the above findings, the appellant has furnished bills for total amount and hence, I direct the AO to delete the addition made on account of disallowance to the tune of Rs.4,01,62,262/- and give relief to the appellant. Consequently, the grounds of appeal no.2 is allowed.
5. In the result, the appeal stands fully allowed.”
3.2 In view of the above, the Ld. AR requested this Tribunal for the withdrawal of present appeal. Ld. DR appearing for the Revenue stated that revenue has no objection in this regard.
Observations & findings & conclusions 4.1 In view of the aforesaid premises drawn up by us the assessee is allowed to withdraw the appeal.
Page 5 of 6 5.1 In result the appeal of the assessee is dismissed as withdrawn/not pressed.
Order pronounced in open court on 04.03.2025.