High Court Of Punjab & Haryana
CIT vs. Smt. Santosh Jain
Section 40A(3)
Adarsh Kumar Goel & Rajesh Bindal, JJ.
IT Appeal No. 512 of 2005
10th August, 2006
Counsel Appeared
S.K. Garg Narwana, for the Appellant
JUDGMENT
By the court :
This appeal has been preferred proposing following substantial questions of law :
“1. Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that provisions of s. 40A(3), which are mandatory, cannot be invoked in a case where estimation of GP is made ?
2. Whether, on the facts and circumstances of the case, the Tribunal was right in deciding the issue of provisions of s. 40A(3), when the issue was not decided by CIT(A) ?”
2. The assessee derives income from manufacturing and sale of iron and steel goods of rolling mills besides dealing in trading of raw material and furnished goods and income earned from the conversion charges. On 27th April, 1993, search was carried out in the premises of the assessee. The assessee made a surrender of Rs. 14 lakhs. From the account books and other documents seized at the time of search, it was found that the assessee was doing business outside the books of account. The AO, as against declared sale of Rs. 28.01 crores, assessed turnover of the assessee at Rs. 30 crores, estimating turnover of Rs. 1.99 crores outside the books of account. The AO applied GP (rate) of 4.27 per cent against 3.23 per cent shown by the assessee on the ground that in the earlier years, GP (rate) of 4.27 per cent had been applied and there was no justification for showing the lesser GP.
3. The CIT(A) held that there was no justification for disallowance of cash payments in excess of limit laid down under s. 40A(3) of the IT Act, 1961 (in short, ‘the Act’) of the unrecorded transactions. The CIT(A) approved 4.27 per cent GP on unrecorded sales.
4. The Tribunal affirmed the said findings. It was held that provisions of s. 40A(3) of the Act could not be invoked in the case of estimation of GP. Reliance was placed on judgment of the Allahabad High Court in CIT vs. Banwari Lal Banshidhar (1998) 148 CTR (All) 533 : (1998) 229 ITR 229 (All).
5. We have heard learned counsel for the appellant.
6. We are of the view that when income of the assessee was computed by applying GP rate, there was no need to look into the provisions of s. 40A(3) of the Act, as applying the GP rate takes care of expenditure otherwise by way of crossed cheque also. We are in agreement with the view taken by the Allahabad High Court in Banwari Lal’s case (supra) to the following effect :
“…The question for consideration is when no deduction was sought and allowed under s. 40A(3), was there any need to go into s. 40A(3) and r. 6DD(j). We see force in the view taken by the Tribunal that when the income of the assessee was computed applying the GP rate and when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of s. 40A(3) and r. 6DD(j). No disallowance could have been made in view of the provisions of s. 40A(3) r/w r. 6DD(j) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When the GP rate is applied, that would take care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee.”
7. No substantial question of law arises.
8. The appeal is dismissed.
[Citation : 296 ITR 324]
