9911796707
TMI Blog2019 (4) TMI 2177X X X X Extracts X X X X X X X X Extracts X X X X ..... Act') by the Income Tax Officer, Ward- 2(2),Surat (in short "the AO"). 2. Ground no. 1 and 2 are against the confirmation of disallowance of Rs.18,27,989/- under section 40A(3)(a) and disallowance of Rs.15,45,212/- under section 40A(3)(b) of the Act. 3. Brief facts are that the assessee has made payment of Rs.13,38,224/- to five parties on account of labour charges and Hetal Ramanlal Shah v. ITO Wd-2(2) Surat /I.T.A. No.2188/AHD/2014/A.Y.08-09 Page 2 of 9 Rs.4,89,765/- to two parties on account of purchases exceeding Rs.20,000/- in violation to the provisions of section 40A(3)(a). Hence, the AO made disallowance of Rs.18,27,989/- under section 40A(3)(a) of the Act. Similarly, the assessee has also made payments to various parties exceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. When the job work income of sales are genuine, genuineness of payments of labour charges and purchases stand established, otherwise the assessee would not have received any amount on account of job work/sales. The Hon`ble Madras High Court in the case of CIT v. S. Mohammad Dhurabudeen [2008] 4 DTR 218 (Mad) categorically held that when disallowance under section 40A(3) is made, the over all income should not exceed probable percentage of profit. The ratio of this decision is directly applicable to the case of the assessee. As the disallowance made by the AO resulted in to abnormal gross profit and net profit rate, which comes to almost hundred percent, which is clearly manifested that such a result is impossible. The learned Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Justice shall be met if the addition is made at Rs.20 lakhs in the trading result of the assessee. In view of this, the learned counsel for the assessee requested that the income of the assessee could be estimated @8% of turnover as the turnover of the assessee is below Rs. 40 lakhs. 6. The learned counsel for the assessee referred proviso to section 40A (3) which propounds two rule of thoughts- i.e. such circumstances as may be prescribed. Even if transaction does not fall under rule 6DD, disallowance could not be made under section 40A (3) if circumstances Hetal Ramanlal Shah v. ITO Wd-2(2) Surat /I.T.A. No.2188/AHD/2014/A.Y.08-09 Page 5 of 9 so warrants having regard to payments having been made to labourers hailing from Bihar, Oriss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing balance brought forward falls under the said category. 7. The ld. Sr. D.R. vehemently supported the orders authorities below. 8. We have heard the rival submissions and perused the relevant material on record. We find that the assessee is engaged in the cloth business. The assessee has shown weaving labour income of Rs.29.57 lakhs as against expenses of Rs. 27.46 lakhs has been claimed. Similarly, sales have been shown at Rs. 5.74 Lakh against purchases of Rs. 4.97 Lakh. The AO has not disputed the genuineness of expenses as well as purchases, but he has considered that payments of expenses are made in violation of provision of 40A (3) of the Act. However, books of accounts were not rejected by the AO as required under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture by raising bogus claim of cash purchases, exceeding Rs.20,000, profit element embedded therein should be brought tax, and that amount was not witnessed live under section 40A(3). It was further submitted that it has been laid down that once the purchases are doubted then provision of section 145 (3) is to be applied, and profit has to be estimated. The learned Counsel for the assessee further relied on the decision in the case of Amrut Textile v. ITO [2014] 51 Taxmann.com 535 (Ahmedabad-Trib) wherein it was observed that where after disallowance under section 40(a)(ia) of entire expenses, the gross profit ratio would worked out to more than 35% as against the gross profit of 2.91% shown by the assessee which is unrealistic. Thus, cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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