9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2011 (3) TMI 95 - HC - Income TaxBlock Assessment - Estimation of income based on GP rate - Sec. 158BB - Disallowance of cash payment in excess of Rs. 20,000 u/s 40A(3) -Held that - If the expenditures which are legally not permissible has been taken into account, the same can certainly be disallowed - Rule 6DD of the Rules allows cash expenditure to be taken into account if circumstances in which the expenditure is incurred can reasonably explained. In the present case, the assessee has not been able to cover its case under rule 6DD. In the circumstances, the Assessing Officer was justified in disallowing expenditures incurred in contravention of section 40A(3). - Accordingly, we hold that addition made by the Assessing Officer was justified - Decided in favor of revenue.
Issues Involved:
1. Applicability of Section 40A(3) in block assessment under Chapter XIV-B of the Income-tax Act, 1961. 2. Legality of disallowance of expenses in block assessment when income is estimated based on GP rate. Issue-wise Detailed Analysis: 1. Applicability of Section 40A(3) in Block Assessment under Chapter XIV-B of the Income-tax Act, 1961: The primary issue was whether Section 40A(3) of the Income-tax Act, 1961, which restricts cash payments exceeding Rs. 20,000, can be invoked in block assessment cases under Chapter XIV-B. The Assessing Officer had disallowed certain expenses based on this section, which was contested by the assessee. The Tribunal had previously held that Section 40A(3) could not be invoked in block assessments, as block assessments were based on estimated income using the GP rate, and no trading and profit and loss account was prepared. The Tribunal referenced the ITAT Cochin Bench decision in Eastern Retreat v. ACIT, which stated that disallowance under Section 40A(3) should be made in regular assessments under Section 143(3), not in block assessments. However, the High Court disagreed with the Tribunal's view. It referred to Section 158BH, which states that all provisions of the Act apply to assessments under Chapter XIV-B unless otherwise provided. The Court cited the Supreme Court's judgment in CIT v. Suresh N. Gupta, which emphasized that the computation of undisclosed income under Chapter XIV-B should be read with the normal computation machinery under Chapter IV. The Court also referred to the Madras High Court's judgment in M.G. Pictures (Madras) Ltd. v. Asstt. CIT, which supported the applicability of Section 40A(3) to block assessments. The High Court concluded that Section 40A(3) applies to block assessment proceedings under Chapter XIV-B, rejecting the contrary view expressed by the Gujarat High Court in Cargo Clearing Agency (Gujarat) v. Jt. CIT. 2. Legality of Disallowance of Expenses in Block Assessment when Income is Estimated Based on GP Rate: The second issue was whether disallowance under Section 40A(3) is permissible when the income is estimated based on the GP rate. The Tribunal had held that since the assessment was based on an estimated income using the GP rate, Section 40A(3) could not be invoked. The High Court noted that the principle of not invoking Section 40A(3) in estimated income cases is not of universal application. If the estimated income implicitly considers the expenditure incurred, the principle may apply. However, if the expenditures are legally impermissible, they can be disallowed. The Court emphasized that Rule 6DD allows cash expenditure to be considered if the circumstances are reasonably explained, which was not done by the assessee in this case. Thus, the High Court held that the Assessing Officer was justified in disallowing the expenditures incurred in contravention of Section 40A(3). The setting aside of the disallowance by the CIT(A) and the Tribunal was deemed unsustainable. Conclusion: The High Court concluded that Section 40A(3) applies to block assessment proceedings under Chapter XIV-B. Additionally, disallowance under Section 40A(3) is permissible even when income is estimated based on the GP rate, provided the expenditures are legally impermissible and not covered under Rule 6DD. The appeals were allowed in favor of the revenue, and the disallowance made by the Assessing Officer was upheld.
|
