Addition u/s 40A(3) deleted- CBDT can not impose new condition for grant of benefit

Addition u/s 40A(3) deleted- CBDT can not impose new condition for grant of benefit which are not provided in Act or Rules – ITAT

In a recent judgment, ITAT has deleted addition u/s 40A(3) towards cash purchases observing that Income Tax authorities can’t imposed new condition for grant of benefit which are not provided either in the Act or in the Rules

ABCAUS Case Law Citation:
ABCAUS 3886 (2024) (02) ITAT

Important Case Laws relied upon by parties:
CIT vs Rajesh Kumar Pandey -25 taxman.com 242
Gee Square Exports (2018) 100 Taxman.com 462
Satish Kumar Kashri vs ITO 104 Income Tax Department 382
Vardhaman Co-op. Milk Products Union Ltd. vs C.l.T.
Assam Bengal Carriers vs CIT

In the instant case, the assessee had challenged the additions for cash purchases u/s 40A(3) of the Income Tax Act, 1961 (the Act) by order passed by the Assessing Officer (AO) u/s 143 / 263 of the Act.

The assessee was running wholesale trading business of raw meat and other wastes of animals.  The assessment was completed by making an addition of Rs. 1,00,000/- as unverifiable expenses.  

Later on, it was observed by the PCIT that during the Assesment Year in question assessee had made cash purchases of approx. 25 per cent of the total purchase in violation of Section 40A(3) read with Rule 6DD of the Income Tax Rules 1962 (the Rules) and gave further finding that the assessee had not followed the CBDT Instruction in Circular No. 4 dated 29/03/2006.

The PCIT therefore set aside the assessment vide revisionary order u/s 263 of the Act. In compliance with the directions made in the order passed u/s 263 of the Act, the AO initiated assessment proceedings u/s 143(3)/263 of the Act. Finally the Assessment Order came to be passed u/s 143(3)/263 of the Act by adding cash purchases to the income of the assessee.

Before the Tribunal, the assessee submitted that he had made cash purchase from various sellers on the various dates and every cash transaction were below Rs. 20,000/-. The assessee had produced books of account along with bills and vouchers and the same had been verified by the A.O on the test check basis and not found any discrepancy in the books of account of the assessee during the proceedings of assessment in first time scrutiny.

It was stated that the entire details of cash purchase were furnished before the A.O. during the second round of assessment after the order passed u/s 263 of the Act, but A.O. had not considered it to be relevant and made addition in mechanical manner.

Placing reliance on several judicial precedents it was further submitted that all the cash purchase are fully covered under Rule 6DD(e)(ii) of the Rules as many venders did not have bank account and the purchases were done away from remote areas.

The Tribunal noted that it was the case of the Department that the Assessee failed to substantiate his claim as per CBDT Circular 04/2006, but the Revenue Authorities did not take into consideration of the nature of the business of the assessee and not found any fault with bills and vouchers produced by the Assessee.

The Tribunal further observed that the question as to whether the authorities can imposed new condition for grant of benefit which are not provided either in the Act or in the Rules framed thereunder has been examined by the Hon’ble supreme Court in the context of Section 40A(3) read with Rule 6DD. The Apex Court reiterated that a circular cannot impose on the taxpayer a burden higher than what the Act itself, on a true interpretation, envisages.

In view of the nature of the business of the assessee and by following the ratio laid down by the Hon’ble Supreme Court the ITAT deleted the disallowances/additions made by the A.O. which had been upheld by the CIT(A).

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