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TMI Blog2011 (8) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... not hit by provisions of section 40A(3) and Rule 6 DD? 2. The facts, in brief, are that the assessee was a trader in grains. There was a complaint by the AIG. E.O.I.B. Raipur that Shri Sitaram, one of the partner of the assessee firm claimed to have purchased rice for the value of ₹ 32,29,160/- from one M/s. Sureshchandra Ashok Kumar of Raipur, against 131 bills. On enquiry by the E.O.I.B, the Raipur party denied these sales to the assessee. It was further stated in the complaint that the payments were made by 123 bearer chequest which were in fact encashed by Shri Sitaram and his men. Thus, no real payments were made by the assessee to M/s. Sureshchandra Ashok Kumar of Raipur (Seller). The Assessing Officer had called for the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 220 (F.No. 206/17/760ITA-II) dated 31st May, 1977. Therefore, the payments amounting to ₹ 50,23,905/- were disallowed under section 40A(3) of the Act, 1961. 3. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [for short `the CIT (A)']. The CIT (A),has examined the facts at length and found that the assessee has filed a computation of income, copies of trading accounts, P/L account, balance sheet, partners accounts and details of shop expenses, salary, interest, dalali and rent. The CIT (A) further held that the books of accounts were regularly maintained and the purchase of rice from Sureshchandra Ashok Kumar, of Raipur, appeared in the books and have been duly accounted for. The AO has not dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile interpreting section 40A(3)of the Act, 1961, held as under: 8.Section 40-A(3) refers to the expenditure incurred by the assessee in respect of which payment is made. It means all outgoings are brought under the word `expenditure' for the purpose of the section. The expenditure for purchasing the stock-in-trade is one of such outgoings. The value of the stock-in-trade has to be taken into account while determining the gross profits under Section 28 on principles of commercial accounting. The payments made for purchases would also be covered by the word `expenditure' and such payments can be disallowed if they are made in cash in the sums exceeding the amount specified under Section 40-A(3). We have earlier observed that Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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