2011 (10) TMI 476 - HC - Income Tax

Dis-allowance u/s 40A(3) - cash payments made by the assessee to various diaries/societies as well as other milk vendors - there was high sounding names given to the collection centers but, in fact, it was a camouflage - Held that - Tribunal noted that there was sufficient explanation furnished by the assessee both before the A.O. and CIT(A). These payments were made to the farmers and villagers and they were covered u/s 40A(3) read with Income Tax Rules 6DDF with substantive materials on record, and therefore dis-allowance was not proper. No infirmity found in the order - Decided in favor of assessee. Rejection of books of account u/s 145 - Addition - AO rejected books of account on ground of variation of gross profit rate also - Held that Tribunal held that there was no defect in the books of account maintained by the assessee and the gross profit of the assessee for the year under consideration was better than the earlier years. Since Tribunal has given cogent reasons and there being absolutely no infirmity in the findings arrived at for not sustaining the orders of both the authorities, this issue requires no further consideration - Appeal is dismissed.

Summary

Issues involved:
1. Disallowance under section 40A(3) of the Income Tax Act.
2. Rejection of books of account under section 145 of the Act.
3. Disallowance of depreciation on motor cars.

Issue 1: Disallowance under section 40A(3) of the Income Tax Act:
The appellant-Revenue challenged the order of the Income Tax Appellate Tribunal regarding the disallowance made under section 40A(3) of the Act. The Assessing Officer disallowed cash payments made by the assessee to diaries/societies and milk vendors. However, the Tribunal and CIT(A) found that the payments were legitimate and fell under exceptions provided in the Income Tax Rules. The Tribunal extensively analyzed the transactions, noting that the milk purchases were directly from farmers, and upheld the assessee's appeal, dismissing the Revenue's appeal. The Tribunal's detailed findings emphasized that the disallowance was unwarranted as the transactions were genuine and covered under the relevant rules.

Issue 2: Rejection of books of account under section 145 of the Act:
The second question pertained to the addition made by the Assessing Officer after rejecting the books of account under section 145 of the Act. The Assessing Officer added gross profit due to alleged discrepancies in the financial records. However, the Tribunal disagreed with the Assessing Officer and CIT(A), ruling that there was no defect in the assessee's books of account. The Tribunal highlighted that the gross profit for the year was satisfactory and compared branch-wise profits to refute the Assessing Officer's claims. Ultimately, the Tribunal quashed the addition, citing no infirmity in its decision and emphasizing that the books of account were not flawed to warrant estimation by the Assessing Officer.

Issue 3: Disallowance of depreciation on motor cars:
Regarding the disallowance of depreciation on motor cars, the Tribunal found the Assessing Officer's disallowance at 1/10th of depreciation justifiable compared to the initial 1/5th disallowed. Although the Tribunal did not extensively discuss this issue, it exercised discretion in determining a fair disallowance. Given the factual nature of the issue and the Tribunal's reasoned decision, no interference was deemed necessary due to the relatively small amount involved.

In conclusion, the High Court of Gujarat dismissed the Tax Appeal as it did not raise any substantial questions of law for consideration. The judgment extensively analyzed each issue, emphasizing the Tribunal's detailed reasoning and legal interpretation in upholding the assessee's position.