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2016 (1) TMI 941 - MADRAS HIGH COURT

2016 (1) TMI 941 - MADRAS HIGH COURT - TMI - Assumption of jurisdiction under section 263 - disallow the cash purchases in terms of Section 40A(3) - Held that:- Without examining the details of the expenditure involved, the assessing officer accepted the sales turnover reported by the assessee and allowed the benefit of deduction under section 40A(3). The question as to whether the assessee had made payments in excess of ₹ 20,000/- on a single day to a single person was not examined by the .....

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he assessee is not entitled to a deduction under section 40A(3), the income chargeable to tax will go up and the tax payable by him will naturally go up. If it is not, the benefit goes to the assessee. Therefore, it is clear that this is a case which satisfies the twin requirements under section 263(1). - Decided against assessee

Applicability of the provisions of section 40A(3) - Held that:- The details furnished in the show cause notice dated 18.2.2005 by the Commissioner show that .....

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accounts of the assessee himself to whom a payment of more than ₹ 20,000/- had been made on everyone of those days, the contingencies stipulated in sub-section (3) of section 40A have arisen. - Decided against the assessee.

Business compulsions and expediency in making the cash purchases - Held that:- We are not for a moment to be understood to suggest that the books of accounts should have been more carefully drawn. All that we are suggesting is that atleast the names of the a .....

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pplicability of Rule 6DD of the Income Tax Rules, 1969 - Held that:- Unfortunately, the assessee neither pleaded nor proved the existence of any one of those circumstances indicated in Rule 6DD. Therefore, Rule 6DD cannot also go to the rescue of the appellant/assessee. - Decided against the assessee. - T.C.(A) Nos.1091 and 1092 of 2006 - Dated:- 27-10-2015 - MR. V.RAMASUBRAMANIAN AND MR. T.MATHIVANAN, JJ. For The Appellant : Mr.S.Sridhar For The Respondents : Mr.M.Swaminathan assisted by Ms.V.P .....

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he Appellate Tribunal is correct in confirming the validity of the assumption of jurisdiction of the Commissioner of Income Tax in terms of Section 263 of the Act for revising the order of assessment relating to the assessment year 2000-2001? 3) Whether the Tribunal is correct in confirming the applicability of the provisions of Section 40A(3) of the Act while justifying the disallowance at 20% of the total cash purchases made in the assessment year 2000- 2001 and 2001-2002? 4) Whether the Tribu .....

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y cash under compelling circumstances were manufactured without aid of power in a cottage industry?" 2. Heard Mr.S.Sridhar, learned counsel for the appellant and Mr.M.Swaminathan, learned standing counsel for the Department. 3. The appellant/assessee is carrying on business of dealing in stationery. It appears that during festive seasons, the appellant/assessee also carried on business in purchase and sale of crackers. 4. For the assessment year 2001-2002 the assessee purchased crackers for .....

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icer disallowed 20% of the cash purchases made in excess of ₹ 20,000/-. This resulted in addition of ₹ 20,53,191/-. 6. On an appeal by the assessee, the assessee contended that business expediency compelled him to make such payments. But, the Commissioner of Income Tax (Appeals) rejected the appeal. 7. Therefore, the assessee filed a further appeal in I.T.A.No.272 of 2005. 8. In the meantime, a notice under section 263 was issued on 18.2.2005 in respect of assessment year 2000-2001, .....

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- , had been made by way of cash. Therefore, by the notice issued under section 263, the Commissioner of income Tax sought to disallow the claim under section 40A(3). 9. The assessee submitted a reply on 28.2.2005 claiming business expediency with reference to the seasonal nature of the business. The assessee also relied upon the decision in COMMISSIONER OF INCOME TAX v. CHOWDHARY AND COMPANY ((1996) 216 ITR) (Allahabad) and P.M.ABDUL RAZAK v. INCOME TAX OFFICER ((1997) 63 ITD). But, the Commiss .....

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pect of the assessment year 2001-2002. Both the appeals were dismissed by the Income Tax Appellate Tribunal by a common order dated 26.10.2005. It is against the said common order, the assessee has come up with the above appeals. 11. Out of the five questions of law framed by this court on 26.6.2006 while admitting the above appeals, the first two questions revolve around the assumption of jurisdiction by the Commissioner under section 263. The third question relates to the applicability of sect .....

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r passed by the assessing officer was erroneous insofar as it is prejudicial to the interest of the Revenue, the Commissioner may pass an order modifying the order, of course, after issuing a show cause notice and holding an enquiry. Therefore, two requirements are to be satisfied under section 263(1). They are (1) that the order passed by the assessing officer is considered by the Commissioner to be erroneous and (2) that such error has, actually, been prejudicial to the interest of the Revenue .....

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on 25.3.2003 in the course of scrutiny assessment proceedings. In other words, but for the scrutiny assessment, we do not know whether this could have, actually, come to light. 14. Without examining the details of the expenditure involved, the assessing officer accepted the sales turnover reported by the assessee and allowed the benefit of deduction under section 40A(3). The question as to whether the assessee had made payments in excess of ₹ 20,000/- on a single day to a single person wa .....

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te detail. 16. If the assessee is not entitled to a deduction under section 40A(3), the income chargeable to tax will go up and the tax payable by him will naturally go up. If it is not, the benefit goes to the assessee. Therefore, it is clear that this is a case which satisfies the twin requirements under section 263(1). Consequently, questions 1 and 2 are answered against the assessee. 17. Question No.3:- As we have stated earlier, the third question relates to the applicability of the provisi .....

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377; 1,00,000/- on three different dates viz., 1.10.1999, 14.10.1999 and 20.10.1999. The assessee had made payments of ₹ 2,00,000 on 31.10.1999, 2.11.1999 and 3.11.1999. All those payments are indicated in the books of accounts of the assessee to have been made to a supplier by name "Standard Fireworks". Similarly payments have been made to another supplier by name "Sivakasi Fireworks". Since the name of one supplier mentioned in the books of accounts of the assessee hi .....

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sub-section (3) which reads as under:- "Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. Proviso to (3A) reads as follows:- "Provided that no disallowance shall be made and no payment shall be deemed to be profits and gains of busines .....

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ion to subsection (3) has to be examined with reference to the three things indicated in the proviso. They are (1) the nature and extent of banking facilities (2) considerations of business expediency and (3) other relevant factors. 20. In other words, under sub-section (3), where an assessee incurs an expenditure which involves payment of more than ₹ 20,000/- to a single person on a single day, he is not entitled to any deduction in respect of such expenditure. The rule under sub section .....

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nature and extent of banking facility that compelled him to make payment in cash (2) consideration of business expediency that compelled him to make payments in cash and (3) any other relevant factors that would justify such a payment. 21. In the case on hand, the books of accounts maintained by the assessee reflected that payments were made to three different suppliers. One was Standard Fireworks, the second was Indira Prints Pack and the third supplier was Sivakasi Fireworks. But, insofar as, .....

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07.1999 1,200.25 01.10.1999 100,000 14.10.1999 100,000 20.10.1999 100,000 28.10.1999 150,000 31.10.1999 200,000 01.11.1999 159,000 02.11.1999 200,000 03.11.1999 200,000 04.11.1999 196,109.8 24.11.1999 150,000 28.01.2000 50,000 Indira Prints Pack 06.10.1999 8,750 Sivakasi Fire Works 05.11.1999 200,000 06.11.1999 200,000 06.11.1999 42,709.8 22. In response to the show cause notice, the assessee submitted that they were not purchasing crackers from the companies themselves, but, were purchasing the .....

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p is opened in the next day by 11 am or so. The assessee has made payments in cash each less than ₹ 20,000/- only to the agent. The seller's representative visits the shop and collects the sale proceeds every now and then, and issue valid receipts. This happens, normally and mainly everyday evening upto night 1 pm." 23. But, unfortunately, the books of accounts do not disclose (1) either that payments were made to agents of those suppliers or (2) that such payments were made in bi .....

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ould have been more carefully drawn. All that we are suggesting is that atleast the names of the agencies or agents or retailers to whom payments were made on a day to day basis, on behalf of the original manufacturers should have been mentioned. In the absence of any specific detail, the vague statements made in response to the show cause notice, cannot offset the entries made in the books of accounts. Therefore, we cannot find fault with the conclusion reached either by the Commissioner or by .....

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