ASSTT. CIT CENTRAL CIRCLE-1(1), NAGPUR vs. SMT. JOTI SURESH BAJORIA , NAGPUR
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Income Tax Appellate Tribunal, NAGPUR BENCH : : NAGPUR
Before: SHRI SATBEER SINGH GODARA & DR. DIPAK P. RIPOTE
PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Revenue i.e.ACIT, Circle-1(1), Nagpur is directed against the order of ld.Commissioner of Income Tax(Appeals)-3, Nagpur dated 26.03.2018 emanating from the assessment order under section 143(3) r.w.s 153A Income Tax Act, 1961 (in short “the Act”). The Revenue has raised following grounds of appeal :
“1. On the facts and in the circumstances of the case and in law, Smt. Jyoti Suresh Bajoria [R]
the CIT (A) has erred in deleting the disallowance u/s 40A(3) of Rs.3,67,41,579/-.
On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance u/s 40A(3) of Rs.3,67,41,579/- as the income was estimated by applying the gross profit rate without appreciating the fact that the non obstante clause in section 40A(3) has a far wider amplitude because it uses the words 'notwithstanding anything contained in any other provision of this act' and speaks of 'restriction' on the allowance of a particular expenditure representing cash payment.
On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance u/s 40A(3) of Rs.3,67,41,579/- as the income was estimated by applying the gross profit rate without appreciating the fact even if income from unaccounted business transactions admittedly in the same line of business was brought to tax, for the purposes of ascertaining the correct income, the deductions and allowances can be allowed only in accordance with the provisions under the Act.
Any other question to be raised at the time of appeal.
It is humbly prayed that the Order of CIT(A) be set aside and Order of the Assessing Officer be restored.”
Brief facts of the case :
The assessee is a proprietor of J.B.Jewels dealing with purchase and sale of jewellery. The Assessing Officer(AO) has estimated the profit of the assessee at 6% on the total turnover taking into consideration various seized documents. The AO also made disallowance under section 40A(3) as assessee has made certain purchases in cash in violation of section 40A(3). Aggrieved by the order of the AO, the assessee filed appeal before the ld.CIT(A). The ld.CIT(A) in para 6.2.9 held as under : “6.2.9 I find that in case of the appellant a search and seizure
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operation was conducted where it was seen that the appellant was conducting business of sale and purchase of jewellery outside the books of account. The AO has calculated the turnover of the appellant and thereafter gone in to compute appellant’s profit by applying @ 6% to the total turnover of the appellant. That being the case, the facts of the appellant’s case is covered by various judicial pronouncements relied upon by the appellant as stated above in the appellate order. Therefore, taking into account, the facts of the case and various judicial pronouncements as stated above, I am of the considered view that the addition made by the AO u/s 40A(3) cannot be sustained. The AO is directed to delete the addition of Rs.3,67,41,579/- made to the income of the appellant. This ground is accordingly allowed.”
Aggrieved by the order of the ld.CIT(A), the Revenue has filed appeal before this Tribunal.
Submission of ld.DR :
The ld.Departmental Representative(ld.DR) for the Revenue relied on the order of the AO. The ld.DR submitted that section 40A(3) is a non obstante clause and hence, AO has rightly made disallowance under section 40A(3).
Submission of ld.AR :
The ld.Authorised Representative(ld.AR) for the Assessee submitted that ld.CIT(A) has followed the decision of various Hon'ble High Courts that no disallowance under seduction 40A(3) can be made once profit is estimated. The ld.AR relied on following case laws :
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CIT Vs. Smt. Santosh Jain (2008) 296 ITR 324 (P&H HC)
CIT Vs. Gobind Ram (2015) 229 Taxman 491 (P&H HC)
PCIT Vs. Jadau Jewellers & Manufacturers (P) Ltd. (2018) 409 ITR 85 (Rajasthan HC : Jaipur Bench)
CIT Vs. S. Mohammad Dhurabudeen (2008) 4 DTR 218 (Madras There is no denial of the fact that AO has estimated the profit at 6% of the total turnover calculated as per seized documents. The AO has also made disallowance under section 40A(3) of the Act. The Hon'ble High Court of Madhya Pradesh in the case of CIT vs. Purushottamlal Tamrakar 184 CTR (MP) 349 has held in para 8 that Tribunal has rightly treated that section 40A(3) is not applicable when Net Profit Rate is applied by the AO. Similarly, the Hon'ble Allahabad High Court in the case of CIT vs. Banwarilal Banshidar 148 CTR (All) 533 has held as under :
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“8. All the three questions, referred to this court, revolve round the same controversy. The question for consideration is when no deduction was sought and allowed under s. 40A(3), was there any need to go into s. 40A(3) and r.6DD(j). We see force in the view taken by the Appellate Tribunal that when the income of the assessee was computed applying the gross profit rate and when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of s. 40A(3) and r.6DD(j). No disallowance could have been made in view of the provisions of s. 40A(3) read with r.6DD(j) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When the gross profit rate is applied, that would take care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee.”
Thus, various Hon'ble High Courts have held that once AO estimated profits then AO cannot make any disallowance under section 40A(3) of the Act. Decision of Non-Juri ictional Hon'ble High Courts becomes binding precedence in the absence of any contrary decision of Hon'ble Juri ictional High Court. No contrary decision has been brought to our notice of the Hon'ble Juri ictional High Court. ITAT is duty bound to follow the decisions of the Hon'ble High Courts. In these facts and circumstances of the case, respectfully following the Hon'ble Allahabad High Court and the Hon'ble Madhya Pradesh High Court, we agree with the ld.CIT(A) that no disallowance under section 40A(3) of the Act can be made once the AO estimates the profit. In these case, since the AO has estimated the profit at 6%, the AO was not right in making the disallowance under section 5 Smt. Jyoti Suresh Bajoria [R]
40A(3) of the Act. Accordingly, the Revenue’s Ground No.1, 2 & 3 are dismissed.
Ground No.4 & 5 are general in nature, hence, needs no adjudication. Ground No.4 & 5 of the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open Court on 31st August, 2023. (S.S.GODARA) JUDICIAL MEMBER
पुणे / Pune; "दनांक / Dated : 31st Aug, 2023/ SGR*
आदेश क" "ितिलिपअ"ेिषत / Copy of the Order forwarded to : अपीलाथ" / The Appellant.
""यथ" / The Respondent.
The CIT(A), concerned.
The Pr. CIT, concerned. िवभागीय"ितिनिध,आयकर अपीलीय अिधकरण, नागपुर ब"च, 5. नागपुर/ DR, ITAT, Bench, Nagpur. गाड"फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, //// Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.
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