TMI Blog1985 (12) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... t on retail sales and 7.5 per cent on whole-sale and semi-whole-sale sales. Without finding any further defect with the assessee s accounts and their reliability the ITO applied a gross profit rate of 7.5 per cent whole-sale and 12.5 per cent to retail sales which were estimated at Rs. 11 lacs and Rs. 68,000 respectively. This resulted in the aforesaid addition of Rs. 22,270 to the trading results. 4. The ITO further found that the assessee had made payments exceeding Rs. 2,500 for its purchases to M/s. Shikhar Trading Company (Rs. 4,95,160) and M/s. Porwal Trading Company (Rs. 29,196) of Indore in cash and this was in violation of s. 40A(3). He, therefore, made an addition of Rs. 5,24,356. 5. On appeal, both these additions were upheld by the CIT(A) who placed reliance on the Tribunal s order in respect of the trading addition of Rs. 22,270 and for the other addition held that the assessee had violated s. 40A(3). The assessee is thus now before us. 6. We will first deal with the addition of Rs. 5,24,356 which the assessee had admittedly paid in cash to the aforesaid two parties of Indore while the assessee s place of business is at Bagh, about 150 kms from Indore. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of a Press Note issued by the Govt. under s. 40A(3) would apply to such a mode of transaction as well and the ld. Departmental Representative contended likewise. Sec. 40A(3) read as under: "40A(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction: "Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft the allowance originally made shall, be deemed to have been wrongly made and the ITO may recompute the total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative referred to a Press Note dt. 19th Nov., 1970 issued by the Ministry of Finance and reproduced in Taxman Direct Taxes Circulars Vol. I 1985 Edition at p. 402. Paragraph 3 of the Press note which has been relied upon by the ld. CIT(A) as well as by the ld. Departmental Representative reads as under: "3. A large portion of trade in agricultural commodities is channelled through the institution of arhatiyas while the payments made to the cultivators or growers of agricultural produce are specifically excluded from the purview of s. 40A(3) by the cl. (f) of r. 6DD, the payment made to the arhatiya for purchases made from him are not so exempted. It is contended that arhatiya is not in a position to pay the cultivators in cash until the cheques are encashed and this procedure involves severs hardship. However, this difficulty can be met by obtaining the advances from the purchasers which should of course conform to requirements of s. 40A(3). The extension of the exemption to the purchases would defeat the objective of the provisions." A perusal of the above paragraph of the Press Note would show that it was meant specifically for commission agents dealing in agricultural pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid two parties were payments on account of purchases and are hit by s. 40A(3) by virtue of r. 6DD(j) and the aforesaid circular, the payments would get out of the rigors of s. 40A(3). The ld. Departmental Representative could not point out any reason why the assessee s transactions are not saved by r. 6DD(j) r/w cl. (f) paragraph 4 of the aforesaid circular. 8. The ld. CIT(A) has referred to several rulings in which it has been held that payment made in violation of s. 40A(3) have to be disallowed. In view of our findings that in the present case there is no violation of s. 40A(3) those rulings become irrelevant and in our view no useful purpose would be served by discussing them. The learned D. R. also referred to a ruling of the Hon ble Madhya Pradesh High Court in Porwal Udhyog (India) vs. CIT (1982) 135 ITR 519 (MP) in which it has been held that where no exceptional and unavoidable circumstances are made out by the assessee, the Tribunal has not committed any error in law in confirming the disallowance of an amount of Rs. 16,400. This ruling does not help the Revenue on the facts as already found. 9. On the other hand, the ld. counsel for the assessee relied upon a j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11. Now we come to the trading addition of Rs. 22,270. The ITO has given the following reasons for this addition: "On the total sales of Rs. 11,45,526 gross profit is show at Rs. 68,730 which gives a GP rate of 6 per cent. The sales shown included retail sales as per list filed amounting to Rs. 60,335 and the balance Rs. 13,85,219 has been shown in the wholesale. In the ITA No. 389 of 1982 dt. 28th Sept., 1983 for the asst. yr. 1979-80 of the ITAT. Indore Bench, the profit rate in this case has been confirmed at 12.5 per cent on the retails sales and 7.5 per cent on who-lease or semi-wholesale. Accordingly, a gross profit rate of 12.5 per cent is applied on the retail sales estimated at Rs. 68,000 which comes to Rs. 8,500. The gross profit rate of 7.5 per cent is applied on the wholesale estimated at Rs. 11 lacs which comes to Rs. 82,500. Thus the gross profit as worked out comes to Rs. 91,000 a against shown at Rs. 68,730. An addition of Rs. 22,270 (91,000-68,730) is made to the trading results. On appeal, the ld. CIT(A) has also upheld the addition with an identical remark. The ITO had also observed that the inventory of the stock was not maintained and quantitative detai ..... 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