TaxTMI 
TaxTMI 
2025 (8) TMI 1369
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....of the assessee submitted at the outset that she is not pressing ground no. 3 and 4 of appeal. Thus, the solitary issue that arises for adjudication in this appeal is in ground no. 2 of appeal. She submitted that the assessee has assailed addition of Rs. 3,91,03,198/- u/s. 40A(3) of the Income Tax Act,1961(hereinafter referred to as 'the Act'). Narrating facts of the case, she submitted that the assessee is engaged in retail sale of liquor. During the period relevant to assessment year under appeal, the total turnover of the assessee is Rs. 6,56,16,760/- with a net profit of Rs. 5,58,454/- i.e. 0.85%. During the course of assessment proceedings, the Assessing Officer (AO) made addition of Rs. 3,91,03,198/- on account of cash purchases of li....
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....ow examined. The short issue in appeal before us is the addition made u/s. 40A(3) of the Act. The assessee is a trader of liquor, the assessee has made cash purchases to the tune of Rs. 3,96,80,635/- from M/s. Ganga Wines, Narnaul. On the said purchases TCS Rs. 3,96,806/- was collected. The contention of the assessee is that the cash purchases were made on account of business exigencies as the seller was not allowing the assessee to lift the stock without payment. As per section 40A(3) of the Act where the assessee incurs any expenditure in respect of which payment or aggregate of payments made to a person in a day otherwise than by an account payee cheque or account payee bank draft or through electronic clearing system or through other el....
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.... availability of goods otherwise than from this particular seller; or (e) the seller, acting as a commission agent, is required to pay cash in turn to persons, from whom he has purchased the goods; or (f) specific discount is given by the seller for payment to be made by way of cash." The said circular was noticed and considered in Navsari Waste Cotton Products v. CIT [1987] 163 ITR 378 (Guj.), where it was held that it would appear from clauses (i) to ( v) of paragraph 4 of the said circular that if the identity of the seller is known, it would be possible for the department to cross check if the payment in question was actually made in cash to the seller from whom goods were purchased and the requirement of rule....
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.... transfer through electronic clearing system where payments are in excess of Rs. 10,000/-. Where the payee is identifiable and the department is in a position to cross verify the cash payment made by the assessee, disallowance u/s. 40A(3) of the is unwarranted. In the instant case, cash payment made by assessee to liquor vendor is subject to TCS. Thus, PAN and other vital details of the vendor are available to the Department. The ld. Counsel for the assessee has pointed that the AO had issued notice u/s. 133(6) of the Act to M/s. Ganga Wines, Narnaul on 09.12.2016 (at page 19 of the paper book). In reply to said notice, Ganga Wines furnished complete ledger accounts of assessee in its books for FY 2013-14 (at pages 20 to 27 of the paper boo....
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....en out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money ....