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2016 (9) TMI 453 - AT - Income TaxDisallowance / addition u/s 40A(3) - AO has disallowed the purchases where the payment was exceeding more than ₹ 20,000/- in accordance with the provision of section 40A(3) - Held that:- From the submission of the assessee we find that the assessee was the only authorized dealer in Asansol for the supply of country liquor to the authorized Excise Vendors. The assessee can take the delivery of the goods only after depositing the payment with the company. The assessee was to keep sufficient stock of country liquor as prescribed by the Excise Department and in case stock falls short of the prescribed limit then the Department used to impose penalty. Therefore the assessee avoided the process of depositing the cash in his bank account and thereafter getting the demand draft in the name of the company in order to keep the stock within the prescribed limit at all the times. It is also important to note that the company was also not accepting the account payee cheque of the assessee as it will take couple of days time in clearance. So in our considered view the exception provided in the provisions of section 40A(3) with regard of the business expediency then applicable for the assessment year 2008- 09 is met by the assessee. It is pertinent to note that the primary object of enacting section 40A(3) were two folds, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to be fallen on account of nonobservation of Section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions being free from vice of any device of evasion of tax is relevant consideration. With regard to the purpose of bringing the provisions of section there is no doubt about the identity of the party. The ld. AR has directly deposited the cash in the account of the companies and has produced the sales bills of the company. The AO has also verified the transactions from the companies by issuing notice under Section 133(6) of the Act. So in the instant case there is no evasion of tax by claiming the bogus expenditure in cash. - Decided in favour of assessee.
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