1994 (10) TMI 106 - AT - Income Tax

Summary

Issues:
1. Addition to trading account based on survey under section 133A
2. Deletion of addition under section 40A(3) of the Income Tax Act

Analysis:

Issue 1: Addition to trading account based on survey under section 133A

The dispute revolved around an addition of Rs. 3,57,480 to the trading account by the Assessing Officer, with the CIT(A) partially allowing relief by deleting Rs. 1 lakh. The Assessing Officer based the addition on a survey conducted under section 133A, valuing stock at Rs. 8,94,359. The assessee's explanation, stating tag price as double the cost of each saree, was rejected. The CIT(A) considered the explanation and reduced the addition to Rs. 2,57,480. The Department argued that the tag price was double the cost price and maintained that the addition was justified. However, the Tribunal noted that the assessee's accounts were maintained without discrepancies, supported by records of purchases and sales. The Tribunal highlighted the moderate scale of business and lack of costly sarees in stock, leading to a lower sale price. Ultimately, the Tribunal concluded that the addition was unwarranted and deleted it, ruling in favor of the assessee.

Issue 2: Deletion of addition under section 40A(3) of the Income Tax Act

The second issue concerned an addition made under section 40A(3) of the Income Tax Act, which was later deleted by the CIT(A). The payments in question were made in cash to known parties without bank accounts at the payment locations. The Assessing Officer disallowed the payments under section 40A(3), citing non-compliance with the exceptions in Rule 6DD of the IT Rules. The CIT(A) accepted the assessee's explanation and deleted the addition. The Department argued that even genuine transactions fall under section 40A(3) and that payments were made to parties familiar with the assessee. However, the Tribunal upheld the CIT(A)'s decision, citing exceptional circumstances under Rule 6DD(j) of the IT Rules and Board's Circular No. 220. The Tribunal also referenced a previous order in the assessee's case for a similar assessment year, where the addition was deleted. Consequently, the Tribunal rejected the Department's appeal and upheld the CIT(A)'s decision, ruling in favor of the assessee.

In conclusion, the Tribunal allowed the assessee's appeal, deleting the additions made to the trading account and under section 40A(3), while dismissing the Department's appeal.