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2016 (4) TMI 1440 - AT - Income TaxAddition u/s 40A(3) - return of income was filed by the assessee on presumptive basis u/s 44AF - HELD THAT - Respectfully following the decision in the case of Gopalsingh R Rajpurohit vs. ACIT, 2004 (7) TMI 271 - ITAT AHMEDABAD hold that once the assessee has filed his return u/s 44AF, no further disallowance can be made u/s 40A(3) of the Act. It is noteworthy that in this case no trading irregularity was found and addition has been sustained only on technical issue of Section 40A(3) of the Act. The presumptive system of tax u/s 44AF starts with non-obstante clause and overrides other provisions. In view thereof, there is no justification in making the addition which is deleted. Since the addition is deleted on merits, there is no need to go into alternative ground. Thus the appeal of the assessee is allowed.
Issues:
1. Disallowance under section 40A(3) of the Income Tax Act, 1961 for assessment year 2006-07. 2. Exceptional circumstances under Rule 6DD for disallowance under section 40A(3). Issue 1: Disallowance under section 40A(3) of the Income Tax Act, 1961: The appellant, a small businessman, filed an appeal against the order of the ld. CIT(A) for the assessment year 2006-07. The appellant contested the disallowance of Rs. 1,92,599 made under section 40A(3) of the Act. The initial return of income was filed by the appellant on a presumptive basis under section 44AF of the Act. The assessment was reopened due to cash purchases exceeding Rs. 20,000, resulting in the addition under section 40A(3). In the first appeal, the addition was reduced, but the ld. CIT(A) confirmed the disallowance of 20% of the total purchases. The appellant argued that as per section 44AF, no further disallowance could be made under section 40A(3). The appellant cited precedents and contended that the presumptive tax system under section 44AF overrides other provisions. The Tribunal held that once the return is filed under section 44AF, no additional disallowance can be made under section 40A(3). Since no trading irregularity was found, and the addition was based on a technical issue, the Tribunal deleted the addition. Issue 2: Exceptional circumstances under Rule 6DD for disallowance under section 40A(3): The appellant also argued that exceptional circumstances existed under Rule 6DD(g) as all parties involved in the purchases were from villages without banking facilities. The appellant contended that payments were made in cash due to these circumstances, exempting them from disallowance under section 40A(3). The Tribunal considered the appellant's arguments, along with case laws cited, and concluded that since the addition under section 40A(3) was deleted on merits, there was no need to address the alternative ground related to Rule 6DD. The Tribunal allowed the appeal of the assessee based on the above findings. In conclusion, the Appellate Tribunal ITAT Jaipur ruled in favor of the assessee, allowing the appeal and deleting the disallowance made under section 40A(3) for the assessment year 2006-07. The Tribunal emphasized that the presumptive tax system under section 44AF prevails over other provisions, and no further disallowance could be made once the return is filed under section 44AF. The Tribunal also considered the exceptional circumstances under Rule 6DD but found it unnecessary to address them due to the deletion of the disallowance on other grounds.
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