Block assessment disallowance under section 40A(3) held inapplicable where purchases were not separately deducted.

Disallowance under section 40A(3) was held inapplicable in block assessment proceedings where the expenditure was treated as unrecorded or undisclosed income. The Tribunal also applied the principle that, when income is computed by a gross profit rate and no separate deduction for purchases is claimed or allowed, section 40A(3) read with rule 6DDJ cannot be invoked. The High Court accepted that the Tribunal had addressed the jurisdictional and substantive points and found its view consistent with earlier decisions, so no substantial question of law arose.

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Issues: Whether disallowance under section 40A(3) of the Income-tax Act, 1961 could be made in block assessment proceedings and whether any substantial question of law arose from the Tribunal's view.

Analysis: The Tribunal had examined the scope of block assessment and held that expenditure treated as unrecorded or undisclosed income in such proceedings did not attract disallowance under section 40A(3). It also relied on the principle that where income is computed by applying a gross profit rate and no separate deduction is claimed or allowed for purchases, the revenue cannot invoke section 40A(3) read with rule 6DDJ of the Income-tax Rules, 1962. The High Court found that the Tribunal had considered all issues, including jurisdiction, and that its conclusion was supported by earlier decisions.

Conclusion: The Tribunal's view was upheld, and no substantial question of law was found to arise.

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