SRI AMIT KUNDU,BANKURA vs. ITO, WARD-3(4), BANKURA, BANKURA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘SMC’ BENCH, KOLKATA [Before Shri J. Sudhakar Reddy, Accountant Member] I.T.A. No. 1395/Kol/2019 Assessment Year: 2013-14 Shri Amit Kundu..................................................................................................................Appellant [PAN: ALWPK 2171 R] Vs. ITO, Ward-3(4), Bankura.………….....................................…......……..........................Respondent Appearances by: Sh. Sunil Surana, FCA, appeared on behalf of the Assessee. Sh. Dhrubajyoti Ray, JCIT, Sr. DR, appeared on behalf of the Revenue. Date of concluding the hearing : November 07th, 2019 Date of pronouncing the order : November 29th, 2019 ORDER Per J. Sudhakar Reddy, AM :- This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals), Durgapur [‘CIT(A)’ for short] dated 25.02.2019 u/s 250 of the Income Tax Act, 1961 (‘the Act’ for short) for AY 2013-14. 2. There is a delay of 27 days in filing of the appeal. After perusing the petition for condonation, I am convinced that the assessee was prevented by sufficient cause from filing the appeal in time. Hence, the same is condoned and the appeal is admitted. 3. I have heard Mr. Sunil Surana, ld. Counsel for the assessee and Mr. Dhrubajyoti Ray, ld. DR on behalf of the Revenue. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, I hold as follows. 4. The only ground that arises for my adjudication is the disallowance made u/s 40A(3) of the Act which is sustained by the ld. CIT(A). The ld. CIT(A) has at para 8.1 held as follows: “The facts are that the ld. AO found that the appellant had made cash purchases worth Rs. 14,75,000/- from Mondal Traders. These transactions were found hit by the provisions of section 40A(3) and therefore, the said amount of Rs. 14,75,000/- was disallowed and added

2 I.T.A. No. 1395/Kol/2019 Assessment Year: 2013-14 Shri Amit Kundu. back to the taxable income of the appellant. The ld. AR has pointed out that the transactions with Mondal Traders including the amount of Rs. 14,75,000/- has already been considered by the ld. AO for estimating the income on account of undisclosed purchases when he applied the rate of 3% to the total amount of undisclosed purchases. Relying on the above referred decisions, the ld. AR has argued that since the ld. AO has already estimated the income on account of undisclosed purchases which includes the cash purchases of Rs. 14,75,000/-, no further additions u/s 40A(3) can be made. This brings out two questions for consideration: (i) Has the income of the appellant been estimated in a true sense as is done in a case where books of accounts have been rejected? (ii) If that be the case, will the provisions u/s 40A(3) be applicable in this case?” 5. The undisputed fact is that the AO has estimated the income of the assessee and brought the same to tax in this case. Under the circumstances, the question is whether the provisions of Section 40A(3) of the Act, can be invoked or not.

“5. The next common issue in these appeals of assessee is against the order of CIT(A) making disallowance of Rs.3,35,896/- in AY 2003-04, amount of Rs.2,37,587/- in AY 2007-08 and Rs.17,33,858/- in AY 2008-09 by invoking the provisions of section 40A(3) of the Act for making cash purchases. 6. At the outset, ld. Counsel for the assessee stated that once the books of account are rejected and estimated additions are made on account of GP and working capital no further disallowance u/s. 40A(3) of the Act can be made. For this, Ld. Counsel for the assessee relied on the decision of Hon’ble Allahabad High Court in the case of CIT Vs. Banwari Lal Bansidhar (1998) 229 ITR 229 (All) wherein the Hon’ble Allahabad high court has affirmed the decision of the Tribunal, that no disallowance could be made in view of the provisions of section 40A(3) read with rule 6DD(j) of the Income-tax Rules, 1962, as no deduction was allowed to and claimed by the assessee. When the gross profit rate was applied, that would take care of everything else and there was no need for the AO to make scrutiny of the amount incurred on the purchases made by the assessee. The Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Smt. Santosh Jain (2008) 296 ITR 324 (P&H) has held that where the income of the assessee has been computed by applying a gross profit rate, there is no need to look into the provisions of section 40A(3) of the Act, 1961, as applying the gross profit rate takes care of expenditure otherwise than by way of crossed cheques also. Hence, we are of the view that the addition made by AO and confirmed by CIT(A) by invoking the provisions of section 40A(3) of the Act cannot be sustained in the present case. Accordingly, we delete the addition in all the three years and this common issue of assessee’s appeals is allowed.” 7. The Hon’ble Madras High Court in the case of CIT vs. Arman Steel and Allied Industries, reported in [2015] 377 ITR 568 (Mad) had held as follows:

“Where the assessable income was arrived at by applying a percentage rate, the exercise would take care of everything and there is no need for the Assessing Officer to make a scrutiny of the amount incurred on purchases by the assessee for the purposes of disallowance under section 40A(3) of the Income tax Act, 1961.”

3 I.T.A. No. 1395/Kol/2019 Assessment Year: 2013-14 Shri Amit Kundu. 8. Hence, no separate disallowance can be made u/s 40A(3) of the Act, when the income of the assessee is assessed on an estimate basis. Thus, respectfully following the Following the same, I delete the disallowance and allow this ground of the assessee. 9. In the result, the appeal of the assessee is allowed. Kolkata, the 29th November, 2019.

Sd/- Sd/- [Aby T. Varkey] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated: 29.11.2019 Bidhan

Copy of the order forwarded to: 1. Shri Amit Kundu, Prop. M/s. Chasighar, Rashtala, P.O. and Dist. Bankura, PIN-722 101. 2. ITO, Ward-3(4), Bankura. 3. CIT(A), Durgapur. (sent through e-mail) 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. (sent through e-mail)