2010 (4) TMI 881 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of disallowance under section 40A(3) of the Income-tax Act, 1961.
2. Addition of Rs. 2,40,130 on account of non-existence of a trading liability.

Issue-Wise Detailed Analysis:

1. Deletion of Disallowance under Section 40A(3) of the Income-tax Act, 1961:
Facts and Arguments:
- The assessee, a partnership firm engaged in trading broiler chickens, made total purchases of Rs. 1,20,51,240, out of which Rs. 1,08,18,051 were from M/s. Bismi Agencies.
- The Assessing Officer (AO) found that payments were made in cash, violating section 40A(3) and show-caused the assessee.
- The assessee contended that cash payments were necessary due to the absence of banking facilities and the illiteracy of vehicle drivers.
- The AO rejected these claims, noting that both the assessee and supplier maintained bank accounts and had turnovers in crores, and basic banking facilities were available even in rural areas.
- The CIT(A) favored the assessee, citing nighttime purchases, illiterate drivers, and the supplier's village location outside bank clearing house operations.

Tribunal's Analysis:
- The Tribunal noted the amendments to section 40A(3) and rule 6DD, emphasizing that the mitigating circumstances under rule 6DD(j) were withdrawn due to the availability of banking services in rural areas.
- It held that the assessee's case did not fall within any specific clause of rule 6DD, as both the assessee and the supplier had access to banking facilities.
- The Tribunal found the assessee's explanations unsubstantiated and aligned with the AO's findings, reversing the CIT(A)'s order.

Conclusion:
- The Tribunal restored the AO's decision, confirming the disallowance under section 40A(3) due to the lack of substantiated extenuating circumstances and the availability of banking facilities.

2. Addition of Rs. 2,40,130 on Account of Non-Existence of a Trading Liability:
Facts and Arguments:
- The AO added Rs. 2,40,130 as a liability outstanding in the name of M/s. Bismi Agencies, which was denied by the supplier.
- The assessee initially did not offer an explanation but later claimed an accounting mistake by the supplier, which the AO found unsatisfactory.
- The CIT(A) deleted the addition, stating the assessee was not confronted with the supplier's statement.

Tribunal's Analysis:
- The Tribunal noted that the technical rules of evidence law are not applicable to proceedings under the Income-tax Act.
- It found no merit in the assessee's claim of not being provided the supplier's statement, as there was no request for a copy or cross-examination.
- The Tribunal emphasized that the burden of proof lies with the revenue to establish facts and circumstances indicating understatement or concealment of consideration.
- It found the assessee's explanation of an accounting mistake unsubstantiated and unsupported by any cogent evidence.

Conclusion:
- The Tribunal restored the AO's addition of Rs. 2,40,130, finding the CIT(A)'s deletion unjustifiable and unsupported by the facts and circumstances.

Final Decision:
- The Tribunal allowed the revenue's appeal, restoring the AO's decisions on both the disallowance under section 40A(3) and the addition of Rs. 2,40,130.