VARINDERA OVERSEAS (P) LTD,LUDHIANA vs. DEPUTY COMMISSIONER OF INCOME TAX, RANGE-1, JALANDHAR

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ITA 713/ASR/2017Status: DisposedITAT Amritsar17 May 2022AY 2006-074 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO and CIT(A) failed to establish any violation of Section 40A(3) with documentary evidence. Ad-hoc additions without specific instances of cash transactions exceeding Rs. 20,000/- are against the law.

What were the facts?

The assessee's appeal concerned ad-hoc disallowances made by the AO and upheld by the CIT(A) for cash payments towards local purchases. The assessee argued that the disallowances were unjustified and lacked specific evidence of violations.

What were the issues?

Whether ad-hoc disallowances under Section 40A(3) are permissible without specific evidence of cash payments exceeding the prescribed limit and without affording an opportunity of being heard.

Which sections of the Income-tax Act were involved?

Section 40A(3)

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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR

Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE

Hearing: 18.04.2022Pronounced: 17.05.2022

ORDER Per Dr. M. L. Meena, AM:

This appeal has been filed by the Assessee against the impugned order dated 24.04.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-4, Ludhiana, in respect of the Assessment Year 2006-07.

2.

The assessee has raised the following grounds of appeal:

Varindera Overseas (P) Ltd. v. Dy. CIT “1. Whether the Ld. CIT(A) was justified by upholding the order of DCIT on account of Ad-hoc disallowances @20% of cash payment towards local Admitted purchases of hosiery goods by invoking section 40A(3) even without appreciating the justification and necessity.

2. Whether the Ld. CIT(A) was justified by further suo-motto enhancing by 20% on further disallowances, after being deleting the entire additions on account of Ad-hoc cash purchases, without affording an opportunity of being heard.

3. That the appellant craves leaves to amend, alter or to raise any other ground at the time of hearing.”

3.

At the outset, the ld. counsel for the assessee has submitted that the disallowances made by the AO by invoking provisions of section 40A(3) by way of estimating 20% of the expenditure towards cash purchases is not justified under the provisions of section 40A(3) of the Act. The AO has to point out specific transaction by way of cash payment exceeding Rs. 20,000/- which has been entered by the assessee in violation of provisions of section 40A (3). There cannot be Ad-hoc addition u/s 40A(3) of the Act.

The ld. CIT(A) has merely mentioned that the assessee company has made cash payments in violation of provisions of section 40A(3) of the Act without specifying the transactions against which the cash payment has been made and the name of the parties to whom the cash payment has Varindera Overseas (P) Ltd. v. Dy. CIT been made. He has argued that the such disallowances made by the AO and thereafter confirmed the ld. CIT(A) without cogent documentary evidences, based on presumption and conjectures are against the law.

Accordingly, he pleaded that the additions sustained and confirmed by the ld. CIT(A) u/s 40A(3) may be deleted.

4.

Per contra, the ld. DR stand by the order of the ld. CIT(A).

5.

We have heard the Ld DR and perused the material available on records, grounds of appeal and the orders of the authorities below.

Admittedly, the ld. CIT(A) has confirmed the estimated additions towards cash payment in violation of provisions of section 40A(3) of the Act. It is seen that the ld. CIT(A) has not established that how the assessee has violated the provisions of section 40A(3) of the Act. It is seen that neither the AO nor the ld. CIT(A) has brought on record, single instant of the cash transaction being executed by the assessee of an amount exceeding of Rs. 20,000/- in violation of provisions of section 40A(3) read with Rule 6DD by way of bringing the documentary evidences on record. In our view, such findings of the ld. CIT(A) confirming adhoc addition u/s 40A(3) of the Act, in arbitrarily and mechanical manner is against the spirit of law.

Varindera Overseas (P) Ltd. v. Dy. CIT 6. In view of the Hon’ble Supreme Court observation in the case of “Attarsingh Guru Mukh Singh Vs. ITO”, (1991) 191 ITR 667 and Amritsar Tribunal in ITA Appeal No. 53/ASR/2015 in the “Royal Wood Furniture, the authorities below have failed to established with documentary evidences any violation of provisions of section 40A(3) of the act by the assessee. In our view, such an addition is required to be deleted.

7.

Accordingly, we set aside the order of the ld. CIT(A) sustaining Ad- hoc disallowance of Rs.11,49,000/- u/s 40A(3) of the Act. Thus, ground of appeal stands allowed.

8.

In the result, the appeal filed by the assessee is allowed.

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