1996 (3) TMI 168 - AT - Income Tax

Summary

Issues involved: Appeal against estimation of gross profit and addition to gross profit amount; Disallowance under section 40A(3) of the Income-tax Act, 1961.

Estimation of Gross Profit: The appellant, a dealer in black pepper, ginger, tea dust, etc., declared a gross profit at 0.58% of total turnover. The Income-tax Officer estimated gross profit at one per cent due to perceived low rate compared to similar businesses, adding Rs. 50,000. The Dy. CIT(Appeals) upheld this. However, the Tribunal found the estimation incorrect as the Assessing Officer did not reject the books of account or provide valid reasons for estimation, contrary to section 145(2) of the Income-tax Act. Citing precedents, the Tribunal ruled in favor of the appellant, emphasizing the regular practice of maintaining bought out notes in this line of business.

Disallowance under Section 40A(3): The Assessing Officer disallowed Rs. 15,600 under section 40A(3) for cash payments exceeding Rs. 2,500, despite no doubts on genuineness. The appellant argued that cash payments were necessary due to demands from small cultivators, supported by relevant case law emphasizing genuine transactions not falling under section 40A(3). The Tribunal, after considering case laws and facts, overturned the disallowance, noting the absence of valid reasons for disallowing genuine cash payments.

Conclusion: The Tribunal allowed the appeal, finding in favor of the appellant on both issues of estimation of gross profit and disallowance under section 40A(3) of the Income-tax Act, 1961.