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Issues involved: Applicability of Section 40A(3) of the Income Tax Act in block assessment u/s 158BC(c) based on seized documents.
Summary: The High Court of Calcutta, comprising Justice Pinaki Chandra Ghose and Justice Sankar Prasad Mitra, reviewed an order by the Tribunal regarding the applicability of Section 40A(3) of the Income Tax Act in a block assessment u/s 158BC(c) based on seized documents. The Tribunal extensively analyzed the matter, focusing on the deletion of disallowance made under Section 40A(3) by the CIT (Appeals). The Tribunal considered various decisions, including one from the Kolkata Bench, which emphasized that the nature of unrecorded expenditure may not allow payments via account payee cheques or bank drafts. It was concluded that disallowance u/s 40A(3) does not fall within the scope of undisclosed income under Sec.158B(b). The Tribunal also cited precedents from other benches to support its findings. Furthermore, the Tribunal highlighted a well-settled principle that when income is computed using the gross profit rate without deductions for purchases, the provisions of Section 40A(3) are not applicable. In such cases, where the gross profit rate covers all aspects, the Department cannot scrutinize the amount spent on purchases. The Tribunal referenced several decisions to support the assessee's position. In its final decision, the High Court concurred with the Tribunal's reasoning and upheld the order of the Commissioner of Income Tax (Appeals). It was noted that all raised issues were thoroughly addressed, and the Tribunal's decision was in line with legal precedents, including the jurisdictional aspect based on Supreme Court rulings. Consequently, the appeal was dismissed, with no substantial question of law identified for consideration. All parties were instructed to adhere to a xerox copy of the order.
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