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2016 (6) TMI 1121

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..... Advocate, Mr. Saurabh Bagaria, Mr. Niloy Sen Gupta, Advocates for the Respondents. ORDER: The Court : The appeal is directed against a judgment and order dated 15th June, 2007 passed by the learned Income Tax Appellate Tribunal, B Bench, Kolkata in I.T.(SS). A. No.28/Kol/2007 pertaining to the block assessment period 01-04-1996 to 25-09-2002 by which the learned Tribunal partly allowed the appeal preferred by the assessee modifying the order under section 263 passed by CIT. The revenue has come up in appeal. The following question of law was formulated on 18th April, 2008 when the appeal was admitted. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in holding that the disallowance under section 40A(3) of the Act does not fall within the ambit of undisclosed income within the meaning of Section 158B(b) of the Income tax Act ? The facts and circumstances of the case, briefly stated, are as follows:- The assessment under section 158BC(c) of the I.T. Act, 1961, was completed on May 30, 2004 for the block period between April 1, 1996 and March 31, 2002; and April 1, 2002 and September 25, 2002. The Ass .....

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..... ed by the A.R. which could be said to overturn the ratio of the cited decision of Attar Singh Gurmukh Singh, it was not possible to hold a different view in the matter. 10. Moreover, the reasoning given by the Ld. A.R. in para 6(iv) above (that where 2 alternative views could validly be held, the A.O. s view could not be held to be erroneous simply because it caused loss to revenue) is not relevant to the facts of this case. As discussed in para 7 above, the provisions of sec.40A(3) are necessarily attracted in the light of the nonobstante nature of the provision and the ratio of the Supreme Court s decision in the aforementioned case. Thus, this is not a case where two views are possible. Moreover, from the assessment order and the records of the assessment proceedings it emerges that this is not a case where the A.O. took a conscious decision regarding the applicability of sec.40A(3) or otherwise. It is simply a case where the A.O. has failed to apply his mind as to whether the said provision is attracted. As the application of the provisions of sec.40A(3) to the unverified expenditure of undisclosed sales of ₹ 25,14,93,071/- would have led to 20% disallowances thereo .....

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..... terial placed before us. We find that in this case block assessment was framed u/s. 158BC(c) on the basis of seized documents. After scrutinising the seized documents, the A.O. has determined undisclosed income of the block period. The CIT has held the assessment order to be erroneous and prejudicial to the interest of Revenue on the ground that the A.O. failed to make disallowance u/s. 40A(3) in respect of expenditure incurred by the assessee other than account payee cheques or bank drafts. We find that the ITAT, Kolkata Bench has considered the disallowance u/s. 40A(3) in block assessment in the case of Smt. Gita Rani Mondal vide IT(SS)A No.7(Kol) of 1997. The ITAT came to the conclusion that by very nature of unrecorded expenditure, the payment cannot be made by account payee cheque/bank draft. They also held that the disallowance u/s. 40A(3) does not fall within the ambit of undisclosed income within the meaning of Sec.158B(b). The above order of the ITAT is followed in the cases of G.P. Mondal Sons vide IT(SS)A No.3(Kol)/1997 and Tapan Kumar Dutta vide IT(SS)A No.174(Kol)/2003. Similar view is also taken by the ITAT, Pune Bench, in the case of Janta Tiles vs. ACIT 66 TTJ (Pu .....

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..... identical, respectfully following the above decision we hold that the CIT was not justified in setting aside the assessment order on the ground that the A.O. has not considered the disallowance u/s.40A(3) while determining the undisclosed income of the block period. The revenue has once again come up in appeal. Mr. Khaitan, learned Senior Advocate appearing for the assessee respondent, submitted that the view taken by the Assessing Officer could not be criticised as erroneous because the view of the Assessing Officer had the support of the judgment in the case of CIT vs- Banwari Lal Bansidhar, reported in (1998) 229 ITR 229 (Allahabad), wherein the following views were taken:- The question for consideration is when no deduction was sought and allowed under section 40A(3), was there any need to go into section 40A(3) and rule 6DD(j). We see force in the view taken by the Appellate Tribunal that when the income of the assessee was 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) and rule 6DD(j). No disallowance could have been made in vie .....

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..... 232): .. The question for consideeration is when no deduction was sought and allowed under section 40A (3), was there any need to go into section 40A (3) and rule 6DD(j). We see force in the view taken by the Appellate Tribunal that when the income of the assessee was 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) and rule 6DD(j). No disallowance could have been made in view of the provisions of section 40A (3), read with rule 6DD(j) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When gross profit rate is applied, that would take care of everything and there was no need for the Assessing Officer to make scrutiny of the amount incurred on the purchases by the assessee. No substantial question of law arises. The appeal is dismissed. In the case of CIT vs. S. M. Dohrabuddin, reported in (2008) 4 DTR 0218, the following views were expressed by the Madras High Court:- When the GP rate is applied, that will take care of everything and there is no need for the AO to make scrutiny o .....

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..... order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT, [1973] 88 ITR 323 (SC). Mr. Khaitan submitted that the CIT could have revised the order passed by the Assessing Officer if the order sought to be revised was unsustainable in law. Far from being unsustainable, the order passed by the Assessing Officer was in conformity with the views expressed by the Allahabad High Court and the Madhya Pradesh High Court. He added that the mere fact that the CIT did not agree with the views of the Assessing Officer would not make the order passed by the Assessing Officer erroneous nor shall the same become prejudicial for that reason. Mr. Agarwal, learned advocate appearing for the revenue, submitted that the judgement in the case of C.I.T. vs. Banwari Lal Banshidhar [supra] has no manner of application. At the time when the aforesaid judgement was rendered, disallowance under Section 40A (3) was 100 % of the expenditure claimed. In the case before the Allahabad High Court the Assessing Officer had applied profit rate @ .....

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..... care should be taken to remember that Their Lordships in the case of Malabar Industrial Co. Ltd., [supra] upheld the order passed under Section 263 because the order sought to be revised was passed without application of mind which is also the case here, according to him. He added that the Supreme Court in the case of Attar Singh Gurkukh Singh vs. Income Tax Officer, reported in [1991] 191 ITR 667, held as follows:- Originally s.40A(3) required payments in respect of expenditure, which exceeded to ₹ 2,500 to be made by a crossed cheque or a crossed bank draft. On failure to do so, the payments made were disallowed in the computation of income. In order to remove hardship to smaller assessees, the Amending Act, 1987, has raised this ceiling to ₹ 10,000. Sec. 40A(3) begins with a non-obstante clause. It is an overriding provision which operates in spite of anything to the contrary contained in any other provision of the Act relating to the computation of income under the head Profits and gains of business or profession . The Legislature has thus made it clear that the provisions of s.40A will apply in suppression of other contrary provisions of the Act relating to t .....

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..... r judgement of the Tribunal in the case of Sushil Kumar Mohta [supra], but failed to realise that Section 40A(3) starts with a non-obstante clause and is intended to override all other provisions. The learned Tribunal also failed to notice that the judgement in the case of Attar Singh Gurkukh Singh [supra] was not considered by the Bench which heard the matter in the case of Sushil Kumar Mohta [supra]. He therefore, submitted that the judgement of the learned Tribunal is wrong and should be set aside. We have considered the rival submissions advanced by the learned advocates and are of the opinion that reliance placed by Mr. Khaitan upon the judgement in the case of CIT Vs- Banwari Lal Bansidhar (supra) is misplaced. The Division Bench in that case was considering a case where no deduction was sought and allowed . The Division Bench, as such opined that there was no necessity of invoking Section 40A(3). If no deduction has, in fact, been claimed there may be no case for applying Section 40A(3). But in the case before us assessee had in fact claimed expenses for netting out the receipts as would appear from the order of the assessing officer which we have quoted above. .....

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..... , disallowance under Section 40A(3) was 100% whereas the disallowance under Section 40A(3) when it was applied by the CIT would have been only 20%. For the aforesaid reasons, we are of the opinion that the judgement in the case of Banwari Lal Bansidhar has no manner of application. The other judgements cited by Mr. Khaitan have really followed the aforesaid judgement of the Allahabad High Court. The orders dated 31st August, 2007 in the case of CIT Vs- Sushil Kumar Mohta, (ITA 540 OF 2007) and the order dated 30th July, 2008 in the case of CIT vs. M/s. Jaibalaji Jyoti Steel Ltd. (ITA NO.318 OF 2008) passed by this Court refusing to admit an appeal do not lend any assistance to the assessee, for the simple reason that these orders do not amount to a judgement replacing that of the Tribunal. Reference in this regard may be made to the judgement in the case of U.J.S. Chopra Vs- State of Bombay reported in AIR 1955 SC 633. In paragraph 28 of the report the following views were expressed:- In all these cases there will be no judgment of the High Court replacing the judgment of the lower Court and the action of the High Court would only amount to a refusal by the High Cou .....

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