2002 (8) TMI 803 - AT - Income Tax

Summary

Issues involved: Disallowance under section 40A(3) of the Act and disallowance of loss claimed in respect of coconut oil and edible oil account.

Disallowance under section 40A(3) of the Act:
The main dispute in the appeal pertains to disallowance under section 40A(3) of the Act amounting to Rs. 7,15,650. The assessee contended that the payments made did not contravene the provisions of section 40A(3) as each payment did not exceed Rs. 10,000. The argument was supported by the accounting notes and a paper book containing relevant details. The assessee argued that the disallowance should apply only to individual payments exceeding Rs. 10,000, as indicated by the words "in a sum" in section 40A(3). Reference was made to a decision of the Orissa High Court supporting this interpretation. Additionally, payments made on Saturdays and Sundays were argued to be excluded from disallowance under Rule 6DD(k) of the Income-tax Rules. The Departmental Representative, however, supported the disallowances. The Tribunal, after considering the contentions and legal precedents, held that the disallowance was unwarranted as the provisions of section 40A(3) apply to payments exceeding Rs. 10,000 at any one time, not the sum total of payments made to a person in a day. Citing previous court decisions, the Tribunal concluded that if individual transactions did not exceed the specified limit, the disallowance under section 40A(3) would not apply. Consequently, the disallowance was deleted.

Disallowance of loss claimed in respect of coconut oil and edible oil account:
The second issue in the appeal concerned the disallowance of a loss amounting to Rs. 3,456 and Rs. 9,250 claimed in relation to coconut oil and edible oil account. The Assessing Officer disallowed the loss on the basis that the closing stock was valued at cost price instead of sale price, which was deemed higher. The Tribunal noted that the assessee had the discretion to value the closing stock at cost price or sale price, whichever was lower, to determine the value of the stock. Therefore, the Department's disallowance of the losses solely due to the change in accounting method for closing stock was deemed unjustified. Consequently, the appeal of the assessee was allowed in this regard.