2023 (3) TMI 758 - AT - Income Tax

Disallowance u/s. 40A(3) - unaccounted purchases - AR submitted that neither the Ld AO nor the CIT(A) have doubted the genuineness of the payment that it is for purchase of boulders but have invoked section 40A(3) only for the reason that the payments in cash under a single voucher were exceeding Rs.20,000/-. - As argue when the income declared during the course of search is based on estimation, then there cannot be a separate disallowance u/s. 40A(3) - HELD THAT:- Unaccounted purchases were the basis for estimation of the additional income and such unaccounted purchases were arrived at based on the purchase vouchers seized during the course of search We also notice that the same seized material has been used by the AO for analysing the payments made in excess of Rs.20,000 and accordingly to arrive at the disallowance u/s. 40A(3).

The ratio laid down in the case of Banwarilal Bansidhar (1997 (5) TMI 37 - ALLAHABAD HIGH COURT] is that when the income of the assessee is 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 provisions of section 40A(3).

From the table extracted in the earlier part of this order it is an undisputed fact that the additional income of the assessee is arrived at based on estimated profit rate without allowing any specific deduction towards purchases. Therefore, in our view, the ratio laid down by the Hon’ble Allahabad High Court is applicable to assessee’s case and respectfully following the same, we hold that no separate disallowance u/s. 40A(3) can be made in assessee’s case. The disallowance made by the AO for all the assessment years is deleted.Appeals are allowed in favour of the assessee.