TMI Blog2011 (3) TMI 1692X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in disallowing the amount of ₹ 23,20,772/-, being 20% of cash purchases made by the assessee by invoking the provision contained in section 40A(3) of the Incometax Act, 1961 ( the Act ). On the other hand, ground No.2 of the appeal of the revenue is that the learned CIT(A) erred in deleting the addition of ₹ 48,31,205/- out of total addition of ₹ 2,41,56,021/- made by the Assessing Officer on account of unverifiable, un-vouched cash purchases. The facts regarding the grounds are common. Therefore, the rival grounds are consolidated for the purpose of the determination of the issue. 2.1 The facts mentioned in the assessment order are that the assessee showed total purchases of ₹ 9,66,24,084/- of the hu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o cash purchases amounting to ₹ 1,16,03,862/-, it was inter alia submitted that most of the payments are of the amount below the amount described in section 40A(3). However, the assessee was not able to submit the identity or the address of the persons from whom cash purchases were made. The contentions of the assessee were that such suppliers are small time vendors and migrants from rural areas who demand cash payments. The sales by way of export go through rigorous process of customs clearance. The quantitative stock tally has been furnished to the Assessing Officer. Therefore, it was agitated that all these purchases are genuine and the provision contained in section 40A(3) is not applicable. However, the learned CIT(A) did not acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the vendor although there is space earmarked to do so. There is also provision for name and address of the vendor, which is filled with the narration cash . In reply, the learned DR submitted that the main issue in this case is regarding genuineness of the purchases. The assessee has shown very low net profit ratio of 2.14% in the export business of hair. The cash memos produced by the assessee are not at all reliable. Therefore, it was agitated that the addition made by the Assessing Officer may be sustained. 4. We have considered the facts of the case and submissions made before us. In the case of CIT Vs. Aloo Supply Company, (1980) 121 ITR 680, the facts are that the assessee, a registered firm, deals on wholesale basis in pot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the party, as to when and what amount they may actually demand. The Hon ble Court held that the statutory limit of ₹ 2,500/- u/s 40A(3) applies to the payment made to a party at a time and not to aggregate of payments made to a party in the course of the day as recorded in the cash book. 4.1 In the case of Income Tax Officer Vs. Surana Traders, (2005) 92 ITD 212 (Mum.), it was held that if quantitative details are furnished, no addition is called for even if purchasers are not available. In the case of CIT Vs. Bal Krishan Jagdish Chand, (2007) 164 Taxman 459 (P H), it was held that since the accounts submitted by the assessee and reproduced in the assessment order show that an amount of ₹ 2,500/- or even less than that amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch payment was of an amount lesser than ₹ 2,500/-. In this case, the finding is that preparation of internal memos of amounts lesser than ₹ 20,000/- is a device as the purchases in a day were of about ₹ 60,000/-. Looking to all these facts, we are of the view that the internal memos prepared by the assessee to support the purchases and quantitative details are not reliable. Therefore, while complete verification exists in respect of purchases, payment for which is made by account payee cheque/draft, such a conclusion cannot be arrived at in respect of cash purchases. Thus, the books of account are not complete and correct. In such a situation, there would be no alternative but to estimate the purchases made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been utilized for non-business purposes, therefore, the addition has been upheld. 5.2 Learned counsel drew our attention towards the profit and loss account which shows the closing stock of this year at ₹ 63,63,937/-. There is also a debit of ₹ 7,95,639/- for purchase of motorcycle. Annexure-IV regarding quantitative details of principal items shows purchase of one motorcycle and closing balance of one motorcycle. Therefore, it becomes clear that the motorcycle has been shown in the closing stock. The summary of the stock shows its value at ₹ 7,95,639/-. Thus, the debit and the credit of the equivalent amount in the profit and loss account lead to the conclusion that no expenditure has been claimed by the assessee. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
