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of <h1>ITAT rules in favor of assessee on bogus purchases & cash payment disallowance</h1> <h3>M/s. United Waterproofing Corporation Versus Income Tax Officer- 31 (3) (2), Mumbai</h3> M/s. United Waterproofing Corporation Versus Income Tax Officer- 31 (3) (2), Mumbai - TMI Issues:1. Enhancement of addition of bogus purchases by CIT(A) to 100%.2. Disallowance of cash payments exceeding limit under section 40A(3) by AO and CIT(A).Analysis:1. Issue 1 - Enhancement of addition of bogus purchases by CIT(A) to 100%:The assessee appealed against the CIT(A)'s decision to enhance the addition of Rs. 15,373 made by the AO to Rs. 1,22,985, which constituted 100% of bogus purchases. The AO had reopened the case based on information regarding hawala purchase entries. The CIT(A) directed the AO to apply a 100% rate on the ground of failure to prove the genuineness of purchases. However, the ITAT noted that only the profit element of bogus purchases can be taxed, not the entire amount. Citing precedents, the ITAT concluded that the CIT(A) erred in enhancing the addition to 100% and set aside the decision, restoring the assessment order.2. Issue 2 - Disallowance of cash payments exceeding limit under section 40A(3) by AO and CIT(A):The AO disallowed cash payments exceeding Rs. 20,000 to various parties, invoking section 40A(3). The assessee explained that payments were made in cash due to operational requirements, providing vouchers but lacking PAN, names, and addresses of agents. The CIT(A) upheld the disallowance, emphasizing the necessity to establish unavoidable circumstances for cash payments exceeding the limit. However, the ITAT found merit in the assessee's argument regarding the impracticality of making non-cash payments in the business context. After reviewing the details provided by the assessee, the ITAT concluded that the disallowance was unwarranted, as the payments were justified by business emergencies and practical difficulties. Accordingly, the ITAT directed the AO to delete the disallowance, partially allowing the assessee's appeal.In conclusion, the ITAT ruled in favor of the assessee on both issues, setting aside the CIT(A)'s decisions and providing detailed justifications for its findings.
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