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Though section 40A(3) bars payment of Rs. 20,000/- in cash, it may interestingly be noted that section 40A(3) is not applicable if Assessee is opting for presumptive mode of taxation.
An interesting observation was made in the following case by Ahmedabad Tribunal, as under.
GOPALSINGH R. RAJPUROHIT vs. ASSISTANT COMMISSIONER OF INCOME TAX
ITAT, AHMEDABAD ‘SMC’ BENCH
R.P. Tolani, J.M.
ITA No. 2139/Ahd/2002
8th July, 2004
(2004) 23 CCH 0369 AhdTrib
(2005) 94 TTJ 0865
Legislation Referred to
Section 40A(3), 44AF,
Case pertains to
Asst. Year 1998-99
Decision in favour of:
Business expenditure—Disallowance under s. 40A(3) —Assessment under s. 44AF—Assessee engaged in retail business disclosed net profit less than that prescribed under s. 44AF, got his accounts audited and was assessed accordingly—Provisions of ss. 28 to 43C, including s. 40A(3) , are not applicable where the retail traders are taxed in a presumptive manner under the provisions of s. 44AF—Assessee having agreed to assessment under s. 44AF(1), AO is directed to apply net profit rate of 5 per cent on total turnover and delete the disallowance under s. 40A(3)
Assessee, a retail trader, having agreed to assessment under s. 44AF(1), AO is directed to apply net profit rate of 5 per cent on total turnover and delete the disallowance under s. 40A(3).
In favour of:
Case referred to
Balaji Construction vs. Asstt. CIT (2000) 66 TTJ (Pune) 718
Bangaru Manikyam vs. ITO (1987) 21 ITD 320 (Hyd)
Circular No. 250, dt. 11th Jan., 1979
Sunil H. Talati, for the Appellant : Anand Mohan, for the Respondent
R.P. TOLANI, J.M. :
This is assessee’s appeal. Descriptive grounds are rais. The learned counsel for the assessee pressed only following ground of appeal :
“The learned CIT(A) has erred in confirming the addition under s. 40A(3) of the IT Act of Rs. 3,48,705. It is submitt that on the facts and circumstances of the case, no disallowance is call for under s. 40A(3) and the addition make by way of dis allowance of Rs. 17,43,519 be delete.”
- The brief facts are that the assessee is in the retail business of threads and covere by s. 44AF. However, the assessee had disclose net profit less than prescribe under s. 44AF, got his accounts audit and the return of income was file accordingly at the lower net profit. The AO though accept the net profit of Rs. 95,200 as per P&L a/c, however, observed that the assessee had made cash payments of expenses, i.e., purchases from Coats Viyella India Ltd., provisions of s. 40A(3) were apply thereto resulting in 20 per cent addition out of such cash purchases at Rs. 3,48,705. Aggrieve the assessee preferr first appeal where the confirmation letters from Coats Viyella India Ltd. was submitt. The cash payments were make as on some occasions, the advance payment cheques issue by assessee were dis honoured which could have lead to criminal proceedings. Under these circumstances, the cash payments were make on the insistence of the party. Reliance was place on CBDT Circular No. 250, dt. 11th Jan., 1979. It was contend that a too technical approach should not be apply to the assessee’s case. The CIT(A), however, held that s. 40A(3) was amend w.e.f. 1st April, 1997 dispensing cl. (j) of r. 6DD and in case of such cash payments dis allowance of 20 per cent was applicable, the circulars were not applicable to assessee’s case, the addition was uphold.
- The learn counsel for the assessee reiterat the stand take before lower authorities. It was contended that the payments were made in a very peculiar circumstance as some of the cheques were dishonoured and the seller was unwilling to sell the goods without advance cash payment. Besides, in case of dishonour of cheques there was strong possibility of consequences of criminal proceedings. Alternatively, it was contended that had the assessee returned 5 per cent net profit on its total turnover under s. 44AF(1), provisions of s. 40A(3) are not applicable, in any case the assessee is covered under s. 44AF(5) and still the provisions of ss. 28 to 43C are not applicable. It was further contend that even if this plea is not acceptable, what legislature intend was to tax retail traders in a summary manner at the net profit of 5 per cent of the turnover. An additional plea was make that the assessee may be subject to s. 44AF(1), i.e., the income may be assess at the rate of 5 per cent net profit on total turnover under s. 44AF(1) and provisions of s. 40A(3) may not be apply. Reliance was place on judgment of Tribunal, Pune Bench, in the case of Balaji Construction vs. Asstt. CIT (2000) 66 TTJ (Pune) 718 and Tribunal, Hyerabad Bench, in the case of Bangaru Manikyam vs. ITO (1987) 21 ITD 320 (Hyd).
- The learn Departmental Representative support the orders of lower authorities. However, agree to the last proposition of the assessee that the income of the assessee may be tax at 5 per cent net profit on the total turnover, i.e., Rs. 30,76,348 and may be assessed accordingly. Therefore, provisions of ss. 28 to 43C may not be apply.
- I have heard the rival contentions and perused the materials available on record. I find merit in the arguments of both the parties, the legislature has intend to tax the retail traders in a presumptive manner at the rate of 5 per cent net profit on total turnover thereby the provisions of ss. 28 to 43C [including s. 40A(3)] will not be applicable. Since both the parties have agree to make the assessment under s. 44AF(1), the AO is directe to apply 5 per cent of net profit on total turnover and thereby delete the addition make under s. 40A(3). The AO is directe accordingly, assessee’s appeal is partly allow.