TaxTMI 
TaxTMI 
2020 (8) TMI 45
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....ves to be deleted. 3. Because disallowance of Rs. 52,12,392 under section 40A(3) of the Income tax Act to the one supplier of Grit Shri Kishan Singh of Juhu, Kanpur made through bearer cheques is wholly illegal and bad in law. He is a big supplier and assessed in Income tax Department at Kanpur. The learned CIT Appeal was not justified in not appreciating these facts and circumstances of the case and has erred in confirming the disallowance of Rs. 52,12,392.00 to the Income of the assessee under section 40A(3) of the Income tax Act. 4. Because assessee is a contractor and supplier of grit to the main contractor and he has to purchase the goods from the renowned suppliers who purchase the grit from manufacturing units of the grit situated in the distant areas by crushing the stones, where no bank facilities are available and the suppliers insist for cash payment on account of their business necessity for making further payment to grit manufacturing units. The payment is mainly made by the assessee employees and agents to these grit manufacturing units on behalf of the main supplier in cash. The payment to supplier is made by assessee on account of their insistence for payment by....
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....earing it was submitted that the approval had been granted but the CO is required to be filed by AO . He had shared the copy of letter dated 22.7.2020 of the Add. CIT in this regard and sought further time to file the CO. 4. Per contra, ld. AR had submitted that there is no cross objection on record till date and only a document of approval was shown by the ld. DR during the virtual hearing on 23.07.2020 whereby the Addl. CIT has principally approved the filing of cross objection on 22.07.2020. It was further submitted that the grounds raised in the cross objection as shown by the ld DR cannot be entertained and are required to be rejected. It was submitted that the ground of this nature can not be entertained by the bench, as it would amount to directing CIT to invoke his power of enhancement of addition, when AO himself had not made the addition. IF Assessing Officer was convinced that the additions should be made, then it should have been done during the assessment proceedings. Now having missed the opportunity during the assessment stage, AO cannot be permitted to ride on the shoulder of CIT and seek direction from the Tribunal, as it would be contrary and incompatible with th....
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.... to the case of AO. For this purpose we may fruitfully rely upon the decision of special bench of Tribunal in the matter of Mahindra and Mahindra vs. DCIT, 30 SOT 374. Hence no time can be granted to the revenue for filling the CO. 6. Addressing to the disallowance u/s. 40A(3), the ld. AR has drawn our attention to paragraph No. 11 & 12 of the assessment order to the following effect : "11. On perusal of the answer given by the assessee above, it is clear that he made payments in sum exceeding Rs. 20,000/- otherwise than by an account payee cheque drawn on a bank or account payee bank draft and thus admitted that payments made through bearer cheques/in cash to the suppliers against supply of grits during the year relevant to AY 2008-09. According to the facts and circumstances of the case, it is evident that the assessee had made payments through bearer cheques/in cash of Rs. 2,60,61,960/- to one grit supplier to Shri Kishan Singh in contravention to provisions of section 40A(3) of the Income Tax Act, 1961. 12. Therefore, there are total payments of Rs. 2,60,61,960/- were made otherwise than by account payee cheque drawn on a bank or account payee draft in contravention to pro....
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....to the issue by stating that "Further, it is submitted that assessee has to collect these grits through his employees / agents from different suppliers of far distant places and villages where these crushing machines are located by the suppliers on account of dust pollution industry and from that places their agents load the goods in assessee trucks and others trucks and sent to the places of the main contractor where they are required by the contractor from the assessee being sub-contractor, therefore the cash down payment of these material becomes necessary. In most of the supplies the assessee depute his agents / employees for collection and procurement of material from these crushers and this is a nature of this trade, otherwise assessee cannot do the business it is time bound business of purchase and supply of material to main contractor in time. The procurement of raw material from distant places and supply of the same to the place of purchaser on very nominal margin of profit. This timely procurement of material is necessary on account of time bound supply of grit to main contractor as per terms of contract." The real fact is that the appellant's payment of Rs. 2,60,....
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.... take care of everything and there was no need for the A.O. to make scrutiny of the amount incurred on the purchases made by the assessee. Contrary to the facts in that case, the appellant has claimed deduction of purchases valuing Rs. 8,39,35,174/- . Out of these, purchases of Rs. 2,60,61,960/- have been found by the A.O. as to be made in contravention of the provisions of section 40A(3) of the Act. Further, the disallowance of Rs. 52,12,392/- made under section 40A(3) in the instant case, far exceeds the addition of Rs. 11,58,316/- made by the A.O. to the appellant's returned income by way of estimating its GP Rate @ 5%. Hence, unlike in the case before the Hon'ble High Court of Allahabad, in the instant case, the addition made by the A.O. by rejecting the appellant's books of account did not take care of everything. In this context, relevant extract of the judgment of Hon'ble High Court is reproduced below:- "We see force in the view taken by the Appellate Tribunal that when the income of the assesses was computed applying the gross profit rate and when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the pro....
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....material available on record. In paragraph No. 5 of the Assessment order, the AO has mentioned as under : "5. The books of account and copies of ledger accounts of the assessee were examined. I is seen that most of the sales & purchases were made through bearer cheques (in cash), this s why the assessee was failed to substantiate the genuineness of actual transaction made towards purchases and sales of grits. In absence of adequate evidences and proper explanations, the purchases and sales are not verifiable and thus the gross profit rates shown by the assessee are also not reliable. In the given circumstances and looking to the facts of the case, the gross profit rate shown by the assessee are not acceptable and hence rejected. After examination of books of accounts, relevant details of purchases and sale shown in the profit & loss account, the gross profit rates are being applied at 5.0% on total turnover of 9,62,09,332/-. Accordingly, the gross profit of assessee's business at 5.0% is worked ou at Rs. 48,10,467/-. The assessee already declared gross profit at Rs. 36,52,151/-, therefore, the difference of Rs. 11,58,316/- (Rs. 48,10,467 - Rs. 36,52,151) is added back to the in....