2014 (6) TMI 407 - HC - Income Tax

Deletion of disallowance u/s 40A(3) - dis-allowance of cash expenditure where income assessed on estimated basis Held that - Following Commissioner of Income Tax v. Smt.Santosh Jain 2006 (8) TMI 167 - PUNJAB AND HARYANA High Court - where the income of the assessee has been computed by applying gross profit rate there is no need to invoke the provisions of Section 40A(3) of the Act as the gross profit rate takes care of expenditure incurred otherwise than by way of cross cheques also Decided against Revenue. Chargeability of interest u/s 158BFA(1) of the Act Late filing of return Held that - There was no delay on the part of the assessee in filing the return - assessee could not file the return for the block period as the department had taken time to supply the copies of the seized documents on the basis of which the assessee had filed the return for the block period on 25.2.1999 - There was no delay on the part of the assessee in filing the return after the supply of copies of the seized documents by the revenue - deletion of levy of interest by the Tribunal is justified Decided against Revenue.

Summary

Issues:
1. Deletion of addition made on account of disallowances under section 40A(3) of the Income Tax Act.
2. Justification of not charging interest under Section 158BFA(1) for late filing of return.

Analysis:

Issue 1: Deletion of addition under section 40A(3):
The appeal was filed by the revenue challenging the order of the Income Tax Appellate Tribunal (ITAT) which deleted the addition of Rs. 26,24,280 made on account of disallowances under section 40A(3) of the Income Tax Act. The respondent, a proprietary concern dealing in firecrackers and toys, had undergone a search and seizure operation resulting in the assessment of undisclosed income. The Commissioner of Income Tax (Appeals) partly allowed the appeal but confirmed certain additions, including the disallowance under section 40A(3). The Tribunal allowed the appeal of the assessee on the ground of unexplained investment and charging of interest under Section 158BFA(1) but dismissed the appeal of the revenue on the disallowance issue. The matter was sent back to the CIT(A) for fresh decision considering the applicable provisions. The High Court admitted the appeal but found that a previous judgment favored the assessee on the issue, holding that gross profit rate computation obviates the need for invoking section 40A(3).

Issue 2: Interest under Section 158BFA(1) for late filing of return:
The second issue revolved around the chargeability of interest under section 158BFA(1) for late filing of the return. The Tribunal noted that the assessee's delay in filing the return was due to the department's delay in supplying seized documents necessary for filing a correct return. The Tribunal found no fault on the part of the assessee and justified the deletion of the interest levy. Citing a judgment from the Delhi High Court, it was emphasized that the time taken by the department to supply documents must be excluded when determining the delay in filing the return and charging interest under section 158BFA(1). The Court upheld the Tribunal's decision, ruling against the revenue on this issue as well.

In conclusion, the High Court dismissed the appeal by the revenue, upholding the Tribunal's decisions on both issues.