2017 (9) TMI 1672 - HC - Income Tax

G.P. estimation @ 3% - assessee has clearly violated the provisions of section 40A(3) - cash payments of above ₹ 20,000/were made for the purchases of waste paper - Held that - The assessee pointed out that in the nature of business, he was engaged, it was not possible to make payment always in cheque. The Tribunal accepted such explanation. It appears from the record that the assessee was in the business of trading in waste paper, collecting it from traders and providing to factories for recycling. The Tribunal therefore, correctly held that the purchases made by the assessee from such small traders would often time be in cash. The assessee has thus offered proper explanation. No question of law arises. - Decided against revenue

Summary

Issues:
- Appeal against the judgment of Income Tax Appellate Tribunal
- Estimation of Gross Profit (GP) @ 3%
- Violation of provisions of section 40A(3) of the Act
- Cash payments above a certain threshold
- Justification of Tribunal's decision

Analysis:
1. The appeal was filed by the Revenue against the Income Tax Appellate Tribunal's judgment, questioning the estimation of Gross Profit (GP) at 3% and the alleged violation of section 40A(3) of the Act. The main issue raised was whether the Tribunal was justified in endorsing the CIT(A)'s view on estimating the GP at 3%, despite evidence of cash payments exceeding ?20,000 for waste paper purchases. The Department possessed seized material indicating cash payments above the threshold, and the assessee admitted to deliberately breaking down purchases to avoid section 40A(3).

2. Upon review, the court found that the Assessing Officer had added to the assessee's case due to payments exceeding ?20,000 made through non-cheque modes. The assessee, engaged in waste paper trading, explained the necessity of cash payments in their business operations, as transactions with small traders often required cash. The Tribunal accepted this explanation, recognizing the nature of the business and the practicality of cash transactions in such scenarios. Consequently, the Tribunal correctly concluded that the assessee's explanation was valid, and no legal question arose from the case.

3. In light of the above analysis, the court dismissed the Tax Appeals, affirming the Tribunal's decision and upholding the explanation provided by the assessee regarding the cash payments made in the course of their business activities. The judgment emphasized the importance of considering the specific circumstances and nature of business operations when assessing compliance with legal provisions, such as section 40A(3) of the Act, in determining the legitimacy of payment methods within a given industry context.