2008 (12) TMI 236 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of addition under section 40A(3) of the Income-tax Act for assessment years 2000-01 and 2003-04.
2. Addition of Rs. 50,000 for alleged payment of transport charges for assessment year 2003-04.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 40A(3) of the Income-tax Act:
- Assessment Year 2000-01:
- Facts: The assessee's assessment under section 143(3) was completed with a total income of Rs. 14,10,256 against the returned income of Rs. 1,72,730. The Assessing Officer made an addition of Rs. 1,48,316 by disallowing 20% of the expenditure of Rs. 7,41,583 for cash purchases exceeding Rs. 20,000, invoking section 40A(3). The Ld. CIT(A) initially deleted this addition, but the ITAT set aside the issue for fresh assessment.
- Arguments: The assessee argued that payments were made below Rs. 20,000, but the accountant erroneously recorded consolidated amounts, showing payments exceeding Rs. 20,000. The Ld. CIT(A) found that payments were split into advance and balance amounts, confirming the addition.
- ITAT Decision: The ITAT upheld the Ld. CIT(A)'s decision, noting that the assessee's payments exceeded Rs. 20,000 and were not covered by any exceptions under rule 6DD.

- Assessment Year 2003-04:
- Facts: Similar to the previous year, the assessee faced an addition of Rs. 73,788 under section 40A(3) for cash purchases exceeding Rs. 20,000.
- ITAT Decision: Following the decision for the assessment year 2000-01, the ITAT confirmed the addition.

- Dissenting Opinion: The Judicial Member dissented, citing the case of Attar Singh Gurmukh Singh, arguing that genuine transactions should not be disallowed. The Judicial Member allowed the assessee's appeal, emphasizing the business expediency and genuine difficulty in adhering to section 40A(3).

- Third Member Decision: The Third Member agreed with the Judicial Member, referencing High Court decisions (CIT v. Aloo Supply Co., CIT v. Bal Kishan Jagdish Chand, CIT v. Triveni Prasad Pannalal) that disallowance under section 40A(3) applies to each payment, not the aggregate of payments made on the same day. The addition under section 40A(3) was deleted.

2. Addition of Rs. 50,000 for Alleged Payment of Transport Charges:
- Facts: The Assessing Officer added Rs. 50,000 for transport charges, reasoning that the assessee must have incurred transportation expenses for goods purchased from various locations, which were not claimed.
- Arguments: The assessee contended that the suppliers delivered goods to their godown, and no transport charges were incurred. The Ld. CIT(A) rejected this claim due to lack of confirmation from suppliers.
- ITAT Decision: The ITAT upheld the addition, citing the absence of evidence to support the assessee's claim.

- Dissenting Opinion: The Judicial Member disagreed, stating that the addition was based on estimation without concrete evidence. The Judicial Member deleted the addition, arguing that the Assessing Officer should not assume expenses without proof.

- Third Member Decision: The Third Member concurred with the Judicial Member, emphasizing that section 69C requires evidence of expenditure, which was lacking in this case. The addition for transport charges was deleted.

Final Outcome:
In accordance with the majority view, the appeals of the assessee were allowed, resulting in the deletion of additions under section 40A(3) for assessment years 2000-01 and 2003-04, and the deletion of the Rs. 50,000 addition for alleged transport charges for assessment year 2003-04.