2007 (7) TMI 635 - HC - Income Tax

Disallowance u/s 40A(3) - cash payments/purchases - Job work of stitching of clothes for exporters - HELD THAT - In this case, the assessee did not claim any deduction with regard to the purchase made by him. So, having considered the nature of business and the assessee's acceptance before the AO and the lack of positive evidence from the AO to make an addition that can be sustained, it is reasonable to accept what has been offered by the assessee voluntarily for the purpose of assessment. As an addition has been made in this case and also no further deduction claimed in respect of the purchases by the assessee, no further disallowance could be made. When the GP rate is applied, that will take care of everything and there is no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee. Taking note of the fact that the assessee is a tailor and is doing tailoring on job work basis and also he has not maintained the accounts and vouchers properly, the assessee had correctly and voluntarily offered the said amount for assessment. Applying the principle laid down in the case of CIT vs. Banwarilal Banshidhar 1997 (5) TMI 37 - ALLAHABAD HIGH COURT , the Tribunal is right in its view that no disallowance could be made. So, both the first appellate authority as well as the Tribunal have considered the relevant facts and came to the correct conclusion that no disallowance could be made by the AO. The Revenue is also unable to bring to the notice of this Court any contra judgment or any compelling reason to take a different view. The concurrent finding given by both the authorities below is based on valid materials and evidence. In the case of CIT vs. P. Mohanakala Ors. 2007 (5) TMI 192 - SUPREME COURT , held that whenever there is a concurrent finding by the authorities below, no interference should be called for by the High Court. Therefore, we do not find any error or legal infirmity in the order of the Tribunal so as to warrant interference. Thus, no substantial question of law arises for consideration of this Court and accordingly the tax case is dismissed.

Summary

Issues:
- Disallowance under section 40A(3) of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the Revenue against the order of the Tribunal, challenging the deletion of an addition made under section 40A(3) of the Income Tax Act. The assessee, engaged in job work of stitching clothes for exporters, voluntarily offered an amount for assessment due to the lack of proper accounts and evidence. The Assessing Officer (AO) made additions and disallowances under section 40A(3) during assessment. The Commissioner of Income Tax (Appeals) deleted the disallowance under section 40A(3) but confirmed other additions. The Tribunal upheld the CIT(A)'s decision, leading to the Revenue's appeal. The Revenue contended that the Tribunal erred in deleting the addition under section 40A(3) and in not applying the provision when income was estimated without deduction claimed on purchases.

The AO directed the assessee to explain why section 40A(3) should not be applied for disallowance of 20% on certain cash payments. The assessee failed to provide a satisfactory explanation. The AO made an addition to the income based on the assessee's voluntary offer to avoid penal proceedings. The Tribunal considered the nature of the business, lack of evidence, and the assessee's voluntary offer. It referenced a judgment to support its decision that no disallowance could be made when no deduction was claimed on purchases. The Tribunal's decision was based on valid evidence, and the Revenue failed to present contrary judgments or compelling reasons for a different view. Citing a Supreme Court ruling, the High Court concluded that no interference was warranted with the concurrent findings of the lower authorities.

In light of the above analysis, the High Court dismissed the tax case as no substantial question of law arose for consideration. The decision was based on the valid findings of the lower authorities and the lack of legal infirmity in the Tribunal's order, leading to the rejection of the Revenue's appeal.