2022 (1) TMI 1051 - HC - Income Tax

Addition u/s 40A (3) - expenses incurred by the assessee for the purchase of raw hides and skins by non-account payee cheques - Whether Tribunal was correct in holding that the assessee was entitled to deduction in respect of raw hide purchases made in cash exceeding ₹ 20,000/- u/s 40A(3)? - HELD THAT - Provisions of Section 40A(3) of the Act read with Rule 6DD of the Rules are intended to regulate business transaction and to prevent the use of unaccounted money - it is always open to the assessee to furnish documents to prove that the payment in the manner prescribed under Section 40A (3) of the Act was not practicable or would have caused genuine difficulty to the payee. In the case on hand, the tribunal has noted the fact and also taken a note of the contemporaneous documents produced by the assessee, namely, the sales tax bills, transport permits and other Government records to prove the genuineness of the transaction. Apart from that, the day-to-day stock register were also maintained which is noted in the tax audit report. Furthermore, the payments were made to the suppliers of the hides and skins and considering the nature of the trade, the CIT(A) and the tribunal agreed with stand taken by the assessee. Assessee placed reliance on the decision of this Court in Commissioner of Income Tax, Kolkata-XI versus- CPL Tannery. 2008 (8) TMI 356 - CALCUTTA HIGH COURT In the said decision, an identical case arose for consideration and relief was granted to the assessee. Thus, we find that the tribunal was right in affirming the order passed by the CIT(A) and dismiss the appeal filed by the Revenue. - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 40A(3) of the Income Tax Act, 1961 regarding deduction for raw hide purchases exceeding a certain amount.
2. Verification of purchases made from persons covered by Rule 6DD(e) of the Income Tax Rules.

Analysis:
1. The appellant Revenue contested the allowance of deduction under Section 40A(3) for raw hide purchases exceeding ?20,000. The assessing officer disallowed the expenses due to transactions by non-account payee cheques. The appellant argued that purchases were made from persons covered by Rule 6DD(e) without sufficient evidence. The CIT(A) accepted the genuineness of transactions based on documents provided by the assessee, noting that the sellers couldn't be termed producers solely based on being traders. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of contrary evidence and proper maintenance of stock registers by the assessee.

2. The Tribunal referenced the Supreme Court case of Attar Singh Gurumukh Singh, highlighting that Section 40A(3) and Rule 6DD aim to regulate business transactions and prevent unaccounted money use. The Tribunal noted the assessee's provision of sales tax bills, transport permits, and stock registers as evidence of genuine transactions. The Tribunal also considered the nature of the trade in agreeing with the assessee's stance. The respondent relied on a previous case where similar relief was granted, supporting the Tribunal's decision to dismiss the Revenue's appeal.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the Revenue's appeal and answering the substantial questions of law against the Revenue. The stay application was also dismissed.