2008 (9) TMI 9 - HC - Income Tax

Addition made by AO by taking resort to Section 40A(3) on the ground that the Assessee had made cash purchases to the tune of Rs. 108, 08, 36, 839/- is untenable section 40A(3) is set into motion only if an Assessee incurs an expenditure in cash of a sum exceeding Rs.20, 000 - Assessing Officer could not place any material on record to show that the documents so seized represented purchases made by the Assessee in cash - provisions of Section 40A(3) will not come into play

Summary

Issues:
Appeal by Revenue against Tribunal's judgment on deletion of a sum under Section 40A(3) of the Income Tax Act.

Analysis:
1. The Revenue appealed against the Tribunal's deletion of a sum under Section 40A(3) of the Income Tax Act related to cash transactions. The Tribunal noted that a search and seizure operation was conducted, leading to the addition of undisclosed income by the Assessing Officer, including the sum in question. The CIT upheld this addition, prompting the Assessee to appeal to the Tribunal.

2. The Tribunal considered the grounds raised by the Assessee, focusing on whether the seized documents represented purchases giving the Assessee proprietary rights. It observed discrepancies in the Assessing Officer's findings regarding the Assessee's trading activity and the lack of evidence showing the Assessee's ownership of the bullion. The Tribunal concluded that the Assessee acted as a bailee, not acquiring property rights in the transactions, leading to the allowance of Ground No. 2 in the Assessee's favor.

3. Regarding Ground No. 8, the Tribunal deliberated on the applicability of Section 40A(3) to the alleged cash purchases. The Assessee argued against the disallowance, stating that no such claim was made in the block assessment and that the provisions of Section 40A(3) were inapplicable. The Tribunal agreed with the Assessee, emphasizing that the seized documents did not support the cash purchase claim, thus rejecting the Revenue's contentions.

4. The High Court analyzed the Tribunal's decision and concurred with its findings. It emphasized that Section 40A(3) is invoked when an Assessee incurs cash expenditure exceeding a specified amount, which was not proven in this case. As the Assessing Officer failed to demonstrate cash purchases by the Assessee, the addition under Section 40A(3) was deemed baseless. The Court dismissed the appeal, citing no substantial legal questions arising from the case.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the lack of evidence supporting the cash transaction claims and the inapplicability of Section 40A(3) due to insufficient proof of cash expenditures.