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TMI Blog1988 (9) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... ge served upon the assessee, and thus the entire assessment proceedings taken by the IAC(A) were bad in law and liable to be quashed as such." 2. Since the aforesaid ground relates to a challenge to the legality of the proceedings, we would like to dispose it of first. In this case the assessee's accounting year ended onthe 31st March, 1984. It filed a return declaring a loss of Rs. 50,150 on15th Jan., 1986. Under s. 139(3) return of loss should have been filed upto15th July, 1984. The learned counsel contended that the return having been filed late was invalid return and no assessment could be based thereof. This argument, in our view, has no force in view of the law laid down by Hon'ble the Supreme Court in CIT vs. Kulu Valley Transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and served on it on 16th Jan., 1986 would not mean that the assessment is based on proceedings under s. 147. A return had already been received in the income-tax office before the notice was served. No reasons were ever recorded and there was no cause whatsoever for the issue of notice under s. 147/148 and, therefore, the so called notice dt.15th Jan., 1986is a piece of waste paper, in no way affecting the legality of the proceedings. We, therefore, do not find any force in the submissions made by the learned counsel for the assessee. 4. The main issue in this appeal is about disallowance of Rs. 9,56,751 under s. 40A(3) of the IT Act, 1961 on account of purchases of raw materials made by the assessee from the following parties: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys and some payments were said to have been made after bank hours. It was also contended that the parties concerned insisted on cash payments. All these contentions were rejected by the learned CIT(A). He took the view that the assessee had bank accounts and could have, therefore, made payments by crossed cheques and drafts. 6. At the hearing before us the learned counsel for the assessee contended that s. 40A(3) was discretionary as held by Hon'ble the Rajasthan High Court in Kanti Lal Purushottam Co. vs. CIT (1985) 155 ITR 519 (Raj), and, therefore, when the genuineness of the payments is not in dispute, no disallowance should be made under s. 40A(3) and in any case the payments should be considered to have been paid in exceptional ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and made payments to the parties concerned is not a matter of any doubt. The assessee has filed a letter dt.24th Aug., 1987from M/s Sethia Oil Industries in respect of the payment of Rs. 6,524.70. The certificate states that the assessee purchased goods worth Rs. 1,09,524.70 and paid a sum of Rs. 1,03,000 by a bank draft and the balance was paid in cash. The certificate further states that if the balance has not immediately been paid the goods would have been withheld. It further states that the assessee was new to the seller and hence cash payments of the difference was insisted upon. Therefore, about this item exceptional circumstances are quite evident. Regarding Balaji Vegetable Products also a certificate dt. 24th Aug., 1987 at page 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Hindustan Vegetable Oil Corporation Ltd., A Government of India Undertaking, which has taken over the company formerly known as Ganesh Flour Mills. The certificate placed at page 40 of the paper book states that payment in cash/bank drafts was a condition of contract with the assessee. As already observed, Hon'ble Rajasthan High Court had held that s. 40A(3) is discretionary and, in our view, an assessing officer cannot be said to be exercising his discretion judiciously if even payments made to a Government of India undertaking, which are otherwise undisputed are disallowed under the cover of s. 40A(3). Therefore, without further going into the details, we hold that payments made to Ganesh Flour Mills Co. Ltd., A Government of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Modi Nagar or the buyer may transfer the amount from their bank account to the account of the principal seller at Allahabad Bank, Modi Nagar. Similarly is the certificate issued by another commission agent M/s Jwala Sahai Giarsi Lal. The assessee has also filed some documents to show that at times the goods were delivered after the banking hours against cash payments and it was, therefore, not possible to procure a bank draft etc. It does not appear to be a case in which the assessee is totally ignoring the provisions of s. 40A(3) and is transacting all his business in cash. The assessee purchased goods worth Rs. 14,52,583 from this company and payments worth Rs. 6,98,183 were made by bank transfers while the rest were paid in cash. If we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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