2019 (8) TMI 1130 - HC - Income Tax

High Court upholds Assessee's appeal, citing exceptional circumstances in cash purchases. Revenue's contentions not raised previously.

The High Court dismissed the appeal in favor of the Assessee, upholding the decision of the CIT (A) and ITAT. The Court found no legal infirmity in the ... Addition u/s 40A(3) - substantial cash payments towards purchases - ITAT held that the parties have confirmed the sales made to the assessee and this was the first year of assessee’s business, therefore, there was all the more reason for the suppliers to insist for cash payments - HELD THAT:- If the AO had a doubt about the genuineness of the above purchases, the AO could have summoned one or all of those three parties and asked them questions in relation to the confirmation letters, to satisfy himself that the contents thereof were, in fact, based on actual purchases for which cash was paid by the Assessee. He could have asked them to produce their books of accounts, bill books, etc. On its part, the Assessee appears to have made the effort of producing the confirmation letters from the three parties before the CIT (A) and it was on that basis the CIT (A) rendered the factual finding that the Assessee was constrained to make the cash purchases due to ‘exceptional or unavoidable circumstances’, as envisaged in 6 DD (j) of the Rules. The Court is unable to find any legal infirmity in the impugned order of the CIT (A), which has been confirmed by the ITAT in the order under appeal.- Decided in favour of assessee. Issues:Interpretation of Section 40A(3) of the Income Tax Act and Rule 6-DD (j) of the Income Tax Rules, 1962.Analysis:1. The appeal before the High Court pertained to an order of the Income Tax Appellate Tribunal regarding an assessment year. The main question raised was whether the ITAT's order was incorrect in interpreting Section 40A(3) of the Income Tax Act and Rule 6-DD (j) of the Income Tax Rules, 1962.2. The case involved an Assessee who made substantial cash purchases from different parties, which the Assessing Officer found to be in violation of Section 40-A (3) of the Act. The AO added the amount of cash purchases to the Assessee's income.3. The Assessee appealed to the CIT (A), who, after examining confirmation letters from the parties confirming the cash sales, allowed the appeal. The CIT (A) considered the nature of the goods, short shelf life, and the necessity to lift goods on payment to avoid losses as exceptional circumstances under Rule 6 DD (j) of the Rules.4. The Revenue further appealed to the ITAT, which upheld the CIT (A)'s decision based on the confirmation letters and the circumstances of the Assessee's business being in its first year.5. The Revenue contended that the audit report revealed discrepancies in the Assessee's accounts regarding cash purchases. However, the Court found no such plea raised before the lower authorities. The Court noted that the AO could have verified the purchases by summoning the parties and examining their books of accounts.6. The Assessee had produced confirmation letters before the CIT (A), leading to the finding that the cash purchases were due to exceptional circumstances. The Court found no legal infirmity in the CIT (A)'s order, which was upheld by the ITAT.7. Ultimately, the High Court dismissed the appeal in favor of the Assessee, concluding that the CIT (A)'s decision, confirmed by the ITAT, was legally sound.