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Facts
The assessee, engaged in the liquor business, did not respond to notices from the Assessing Officer (AO). The AO disallowed a sum of Rs. 3,80,27,810/- for cash purchases of liquor from Shri Gurdeep Singh Chadha (HUF) under Section 40A(3) of the IT Act. Additions were also made under Section 68 and for estimated expenses.
Held
The Tribunal noted that the genuineness of the cash purchases and the relationship with the seller were not on record. Consequently, the issue of disallowance under Section 40A(3) was restored to the AO for de novo adjudication. However, the additions under Section 68 for unexplained cash credit and the estimated disallowance of expenses were upheld.
Key Issues
Whether the disallowance of expenses under Section 40A(3) was justified, and whether additions for unexplained cash credit under Section 68 and estimated expenses were correctly made.
Sections Cited
40A(3), 68, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA BENCH “DB”: AGRA
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2017-18, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. NFAC‟, in short] dated 02.11.2023 against the order of assessment passed u/s 144 of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 24.12.2019 by the Assessing Officer, ITO, Ward-4(1)(3), Aligarh (hereinafter referred to as „ld. AO‟).
The assessee has raised the following grounds of appeal before us:-
Grounds of Appeal “1. Because the Ld. CIT(Appeal) has erred both on facts and in law in confirming the addition of Rs.38027810/-made by the Assessing Officer u/s 40A(3) of the 1.T. Act treating the payment made towards purchase of Indian Liquor and Bear to be in contravention of provisions of section 40A(3) of the L.T. Act.
2. Because the purchases made, the disallowance of which has been made u/s 40A(3) of the LT Act are fully verifiable and the identity of the seller is also verifiable and not in doubt and the payment made is under avoidable circumstances. Thus the disallowance made by the Assessing Officer and confirmed by Ld. CIT (Appeal) is against the facts of the case, arbitrary, bad in law and deserves to be deleted.
Because no disallowance of impugned purchase of Rs.38027810/- can be made considering the consequent sales, the transaction being genuine, sales being accepted and more so the books of accounts and the trading results have accepted. 4. Because under the facts and circumstances of the case and the legal position, the Ld CIT(Appeal) should have deleted the addition of Rs.38027810/- instead of confirming the same. 5. Because the Ld. CIT(Appeal) has erred both on facts and in law in confirming the addition of Rs.346,110/-made by Assessing Officer u/s 68 of the LT. Act treating the addition in capital account of the Assessee as unexplained cash credit. 6. Because the source of addition in capital account is fully explainable and hence the addition should have been deleted. 7. Because the Ld. CIT(Appeal) has erred both on facts and in law in partly confirming the addition of Rs.150000/- out of the expenses debited to profit and loss account. The disallowance being on estimate basis, the Ld CIT(A) should have deleted the entire addition of Rs.300000/-instead of partly confirming the same. 8. Because the assessee craves to amend, modify, add, delete, alter, any of the grounds of appeal before or at the time of hearing.”
None appeared on behalf of the assessee despite issuance of notice. Hence we proceed to dispose of this appeal after hearing the ld DR and based on materials available on record.
The Ground Nos. 1 to 4 raised by the assessee are challenging the disallowance of expenses made u/s 40A(3) of the Act.
We have heard the ld DR and perused the materials available on record. The assessee is an individual deriving income from liquor business.
The return of income for the Assessment Year 2017-18 was electronically filed by the assessee on 7-11-2017 declaring total income of Rs 10,52,500/-. Despite issuance of several notices by the Learned AO, there was no response by the assessee before the Learned AO. The Learned AO observed that assessee has debited a sum of Rs 3,80,27,810/- towards purchase of liquor which was sought to be treated as expenses incurred in contravention of provisions of section 40A(3) of the Act. A show-cause notice stood issued to the assessee as to why the same should not be disallowed under section 40A(3) of the Act. For want of any response from the assessee, the Learned AO proceeded to disallow a sum of Rs 3,80,27,810/- being cash purchases made from Shri Gurdeep Singh Chadha (HUF) to be in violation of provisions of section 40A(3) of the Act. This was upheld by the Learned CITA.
We find that there is absolutely no dispute that purchase of goods has been made by the assessee from Shri Gurudeep Singh Chadha HUF to the tune of Rs 3,80,27,810/- in cash. It is not in dispute that Shri Gurudeep Singh Chadha HUF had indeed supplied the relevant goods to the assessee. The relationship between the assessee and Shri Gurudeep Singh Chadha HUF has not been brought on record. It is not known whether the said party had acted as an agent on behalf of the assessee or whether the payments were deposited in the bank account of the payee directly and that the payee had acted as an agent of the Government so as to fall within the exceptions provided in Rule 6DD of the Income Tax Rules. These facts are very crucial for determination of the dispute before us. Hence, in the interest of justice and fair play, we deem it fit and appropriate, to restore this issue to the file of learned AO for de novo adjudication in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. The assessee in his own interest, if he so desires, may furnish the relevant details in support of his contentions and to the satisfaction of the learned AO as to why the provisions of Section 40A(3) of the Act would not be applicable in the facts of the case. With these directions, the Ground Nos. 1 to 4 raised by the assessee are allowed for statistical purposes.
The Ground Nos. 5 & 6 raised by the assessee are challenging the confirmation of addition made u/s 68 of the Act in respect of introduction of Rs 3,46110/- to the capital account of the assessee during the year.
We have heard the rival submissions and perused the materials available on record. The Learned AO observed that there was a total addition of Rs 3,46,110/- to the capital account of the assessee during the year. The assessee was showcaused to explain the source of the said addition to the capital account during the course of assessment proceedings. But no explanation was offered by the assessee in spite of sufficient opportunities given to him. For want of explanation, the Learned AO proceeded to treat the addition made to the capital account in the sum of Rs 3,46,110/- as unexplained cash credit under section 68 read with section 115BBE of the Act and completed the assessment. This action was upheld by the Learned CITA. Even before us, no evidence was produced by the assessee to justify the addition to justify the source of additions to the capital account in the sum of Rs 3,46,110/-. Hence, we do not deem it fit to interfere in the order passed by the Learned CITA in this regard. Accordingly, the Ground Nos. 5 and 6 raised by the assessee are hereby dismissed.
The Ground No. 7 raised by the assessee is challenging the confirmation of estimated disallowance of expenses of Rs. 1,50,000/- by the Learned CITA.
We have heard the rival submissions and perused the materials available on record. As stated in earlier grounds, there was no response from the side of the assessee before the Learned AO by furnishing the requisite details that were called for. Hence, the Learned AO proceeded to make an estimated disallowance of expenses of Rs. 3,00,000/- in the assessment, which was reduced to Rs. 1,50,000/- by the Learned CITA. We find that neither before the lower authorities nor before us, the assessee was able to justify the allowability of expenses debited in the Profit and Loss account by giving supporting evidences. In our considered opinion, the Learned CITA was magnanimous enough to grant 50% relief to the assessee on which, we do not find any infirmity. Accordingly, the Ground No. 7 raised by the assessee is hereby dismissed.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 06/02/2025.