2024 (3) TMI 819 - AT - Income Tax

Section 40A cash purchase disallowance deleted for remote area vendors without bank accounts

Gyasuddin Qureshi S/o. Sh. Riazuddin Qureshi Versus ITO, Ward 3 (2), Bulandshahar

ITAT Delhi allowed the assessee's appeal regarding addition under section 40A for cash purchases exceeding Rs. 20,000. The assessee claimed coverage under ... Addition u/s 40A - purchases in cash in excess of ₹ 20,000/ - case of the assessee that all the cash purchase are fully covered under Rule 6DD(e)(ii) of the Income Tax Rules, as many venders do not have bank account and the purchases were done away from remote areas - whether assessee has fulfilled the condition laid down in Rule 6DD? - HELD THAT:- Considering the fact that out of total purchase of 2,69,92,101/- the assessee had purchased in cash of Rs. 74,67,186/- and also by taking into consideration of the nature of the business of the assessee and by respectfully following the ratio laid down in the case of Gee Square Exports [2018 (11) TMI 658 - SC ORDER], we find merit in the Grounds of appeal of the assessee, accordingly, the disallowances/additions made by the A.O. which has been upheld by the CIT(A) is hereby deleted. Appeal filed by the assessee is allowed. Issues Involved:The issues involved in the judgment are:1. Cash purchases made by the assessee below Rs. 20,000 and the addition of Rs. 74,67,186 under Section 40A(3) read with Rule 6DD of the Income Tax Rules.2. Validity of the assessment order passed under Section 143(3)/263 of the Income Tax Act.3. Requirement of notice under Section 263 of the Income Tax Act to be signed by the Principal Commissioner of Income Tax and not by lower officers.4. Disallowance of expenses of Rs. 1,00,000 without discussion in the assessment order.Issue 1: Cash Purchases and Addition under Section 40A(3) read with Rule 6DD:The assessee made cash purchases below Rs. 20,000 totaling Rs. 74,67,186, out of a total purchase of Rs. 2,69,92,101. The Assessing Officer added this amount to the income of the assessee. The assessee argued that all cash purchases were covered under Rule 6DD(e)(ii) of the Income Tax Rules, as vendors did not have bank accounts and purchases were made in remote areas. The Tribunal found merit in the assessee's argument, citing the Supreme Court's ruling that CBDT Circulars cannot impose additional conditions adverse to an assessee beyond what is provided in the Act or Rules.Issue 2: Validity of Assessment Order:The assessee challenged the assessment order passed under Section 143(3)/263 of the Income Tax Act, contending that the addition of Rs. 74,67,186 was not specified under any section of the Act, rendering the assessment improper. The Tribunal found the assessment order to be void due to lack of clarity on the section under which the addition was made.Issue 3: Requirement of Valid Notice under Section 263:The assessee argued that notices under Section 263 should be signed by the Principal Commissioner of Income Tax and not by lower officers. The Tribunal agreed, stating that the power to issue such notices lies with the Principal Commissioner, and invalid notices render proceedings based on them void.Issue 4: Disallowance of Expenses without Discussion:The Assessing Officer disallowed expenses of Rs. 1,00,000 without detailed discussion in the assessment order. The Tribunal did not find substantial grounds to entertain this issue and hence did not delve into it further.In conclusion, the Tribunal allowed the appeal filed by the assessee, deleting the disallowances/additions made by the Assessing Officer and upheld by the CIT(A). The judgment highlighted the importance of adherence to legal procedures and principles in tax assessments.