DHRUB NARAYAN BHADANI,KOLKATA vs. ACIT, CIR-39, KOLKATA, KOLKATA

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ITA 28/KOL/2016Status: DisposedITAT Kolkata10 November 2017AY 2009-20105 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that Section 40A(3) is not applicable as no single cash payment exceeded Rs. 20,000, and the AO had not pointed out any unverifiable elements. The disallowances made by the AO and CIT(A) were not sustainable.

What were the facts?

The assessee, engaged in trading Mica Scrap, made cash purchases of raw materials. The AO disallowed 50% of these purchases, and the CIT(A) enhanced the disallowance to the entire amount, invoking Section 40A(3). The assessee argued that no single payment exceeded Rs. 20,000.

What were the issues?

Applicability of Section 40A(3) to cash payments not exceeding Rs. 20,000 individually, and the validity of disallowances based on cash payments.

Which sections of the Income-tax Act were involved?

Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA BENCH ‘A’, KOLKATA

Before: Shri P.M. Jagtap, AM & Shri S.S. Viswanethra Ravi, JM]

order

: November 10, 2017 ORDER

Per P.M. Jagtap, AM

1.

This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 11, Kolkata dated 16.10.2015.

2.

Ground no 1 raised by the assessee in this appeal reads as under: “The Ld. CIT (A) is not justified in confirming the addition of Rs. 4,05,130/- being 50% of total purchases on estimate made by the Ld. A.O. and has also been unjustified in further enhancing the same by Rs. 4,05,130/- by erroneously holding the same to be Violative of Provisions of Section 40A(3) without appreciating the fact that section 40A(3) was not applicable. The addition is based on surmises and conjectures and totally against facts of the case itself as there has been no single instance of payment exceeding 20,000/- to any party on any daty.”

2 Assessment Year: 2009-10 Dhrub Narayan Bhadani 3. The assessee in the present case is an individual who is engaged in the business of trading in Mica Scrap at Jhumritelaiya, Jharkhand. The return of income for the year under consideration was filed by him on 23.03.2010 declaring a total income of Rs. 35,02,690/-. During the course of assessment proceedings, it was noticed by the A.O. that the assessee has made purchase of raw materials amounting to Rs. 9,10,260/- for which payments were made in cash not exceeding Rs. 20,000/- on any single occasion. According to the A.O. this was done by the assessee to get over the provisions of Section 40A(3) of the Act. He also rejected the explanation of the assessee that the nature of business of trading in Mica Scrap is such that all the purchase of raw materials are required to be made in cash as the concerned suppliers refused to accept any payment by cheque. He accordingly disallowed 50% of the purchases of raw materials made by the assessee in cash and made a disallowance of Rs. 4,05,130/-.

4.

The disallowance made by the A.O. out of purchase of raw materials in cash was challenged by the assessee in the appeal filed by the Ld. CIT (A) and keeping in view the findings given by the A.O. that the payments made against purchase of raw materials in cash were split by the assessee in order to avoid application of Section 40A(3), the Ld. CIT (A) held that Section 40A(3) was applicable in the case of the assessee as aggregate of payments made in cash was more than Rs. 20,000/-. He accordingly disallowed the entire purchases made by the assessee in cash amounting to Rs. 9,10,260/- by applying provision of Section 40A(3) and enhanced the addition of Rs. 4,05,130/- made by the A.O. to Rs. 9,10,260/-.

3 Assessment Year: 2009-10 Dhrub Narayan Bhadani 5. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As pointed out by the learned counsel for the assessee from the relevant details placed at page no 17 to 26, none of the cash payments made against purchase of raw materials during the year under consideration exceeded to Rs. 20,000/- attracting the provisions of Section 40A(3). This factual position was even accepted by the A.O. in the assessment order and that is why no disallowance was made by him by invoking the provisions of Section 40A(3). Although the Ld. CIT (A) has held in his impugned order that the provisions of Section 40A(3) are applicable even in the case where aggregate of payments made in cash exceeds the moneytary limit, we find that same is not supported by the relevant provisions of the Act. Even the learned DR has not been able to raise any contention to support this view taken by the Ld. CIT (A). A perusal of the assessment passed by the A.O. also shows that not even a single instance was pointed out by him to show any unverifiable element involved in the expenditure claimed by the assessee on purchase of raw materials in cash. There is no reason whatsoever given by the Assessing Officer to doubt the genuineness of the said expenditure except that the same was incurred in cash. Keeping in view all these facts of the case, we are of the view that the addition made by the A.O. on this issue and further enhanced by the Ld. CIT (A) is not sustainable and deleting the same, we allow ground no 1 of the assessee’s appeal.

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