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2016 (1) TMI 248 - ITAT JAIPUR

2016 (1) TMI 248 - ITAT JAIPUR - TMI - Disallowance u/s 40A(3) - purchasing material for old father on cash payments - Held that:- The assessee is an aged person of around 80 years and was doing business of Iron and Steel, his son was also in the same trade; both are assessed to income tax. Except drawing an assumed adverse inference due to the nonattendance of the assessee and his son in remand proceedings, existence and validity of the agreement dated 01-04-2008 has not been disputed or denied .....

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n agent to perform the work of purchasing material for old father on cash payments. No circumstantial infirmity can be attributed if an aged person who desires to remain in gainful avocation appoints his son as an agent to render necessary help. In our considered view the agreement cannot be ignored on ifs and buts; the same clearly stipulates the relationship between the principal and agent which cannot be ruled out on implication more so when transactions are on day to day basis. The purchases .....

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e delete the addition confirmed by the ld. CIT(A). - Decided in favour of assessee - ITA No. 472/JP/2013 - Dated:- 10-11-2015 - SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri S.L. Poddar, Advocate, For The Revenue : Shri Raj Mehra, JCIT ORDER PER R.P. TOLANI, JM:- This is assessee s appeal against the order of the ld. CIT(A), Alwar dated 26-02-2013 for the assessment year 2009-10; solitary ground raised is as under:- 1. That under the facts and circumstances of th .....

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de to agent were covered by exceptions of rule 6DD(j)(k). Assessee s proprietorship concern M/s Bhagwan Sahai Om Prakash had appointed his son Shri Ram Avtar Gupta (prop. M/s Ramu Iron Steel Sales, Sikandara) as his agent for purchase of iron and steel from market by a written agreement dtd. 1-4-2008. The cash payments exceeding ₹ 20,000/- aggregating to ₹ 23,87,940/- were made. Assessee filed a detailed explanation along with copy of agreement stating that as per clause 5 of the age .....

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ed for business expediency also, as assessee was old and this arrangement helped him in being an earning member instead of sitting idle. However ld. AO, without appreciating the material available on record, arbitrarily held that as father and son were not present agreement could not be relied and added the cash purchases of ₹ 23,87,940/-u/s 40 A 3. 2.2 Aggrieved, the assessee preferred first appeal where on ld. CIT(A) s direction, AO submitted a remand report dated 26-12-2002 stating that .....

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before the ld. CIT(A) that assessee and his son were unable to remain present before the AO the as the assessee is old person aged about 80 years and during the period of proceeding he was very sick and bedridden, son Ramavatar Gupta was also struggling with gastro surgery problems consequently they were not able to attend before the AO. It was also contended that both the persons are assessed with the same AO and their transactions were verifiable from respective books and returns of income. Th .....

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he clause 5 of the agreement. The ld. CIT(A) however, confirmed the addition by holding that the sales are genuine but by the findings of the AO it does not help the assessee's case. 2.3 Aggrieved against the order of the ld. CIT(A), the assessee is in second appeal. 2.4 The ld. Counsel for the assessee contends that :- (i) Both the lower authorities have accepted the existence and validity of the agreement which was produced before during the assessment itself. Merely because of non attenda .....

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son being the witness and there being no business expediency are presumed to somehow make the addition. Business expediency is very much reflected by the agreement inasmuch as it should have been appreciated that the assessee being 80 years old being fit was earning member and promoting his business with the help of his son. These appreciable circumstances themselves clearly demonstrate business expediency and it has been arbitrarily held by lower authorities that there is no business expedienc .....

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amu Iron & Steel Sales is located in Sikandara which is nearly 15 kms away from Bandikui this necessitated cash purchases. In view of this the provision of section 40A(3) read with rule 6DD(k) stand complied with. Both the AO and the Learned CIT(A) have erred in appreciating the facts. The reliance is placed by the ld. AR of the assessee in the case of Smt. Harshila Chordia vs. ITO (2007) 2008 CTR 208 (Raj.) wherein Hon'ble High Court held that … 14. In these circumstances, we are .....

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CIT, (1985), 155 ITR 519 (Raj.) (ii) CIT vs. Nikko Auto Ltd. (2002) 256 ITR 476 (P&H) (iii) Janambhumi Vs. CIT (1977) 225 ITR 517 (Gau.) The ld. AR further contends that Hon'ble Finance Minister while introducing Section 40A(3) has declared its purpose by following speech as under:- "Tax liability is something artificially reduced by diverting profits to relatives and associate concerns in the form of excessive payments for goods and services. Claims are also made for deduction of .....

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ater will be allowed as a deduction only if these are made by crossed cheques or by crossed bank drafts." Thus the very purpose of introducing this new section was to have a check over the dishonest assessee who wants to make false deductions on account of expenditure incurred in cash. The speech clearly lays stress that in order to ascertain the identity of the recipients and the genuineness of the expenditure, the aforesaid provision was brought on statue. In other words if the identity o .....

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d for. It is pleaded that the payment being governed by duly executed agreement clearly demonstrates the relationship of principal and agent between the assessee and his son which reads as under:- 6DD. No disallowance under sub-section (3) of Section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of Section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee chequ .....

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thorities below and contended that when the AO in remand proceedings asked the assessee to remain present but they did not avail of the opportunity. Therefore, adverse inference had been drawn and the addition made is justified. 2.6 The ld. Counsel for the assessee in rejoinder contends that the assessee before the AO only explained his inability for attendance due to medical illness which has not been disputed by any of the lower authorities. Besides all the transactions as to relationship bein .....

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