Tc/885/2007 Of Commissioner Of Income Tax v. S. Mohammad Dhurabudeen

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 11.07.2007 CORAM : THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.885 of 2007 (Appeal No.885 of 2007) Commissioner of Income-tax, Chennai. .. Appellant S.Mohammad Dhurabudeen .. Respondent Appeal under Section 260A of the Income-tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Bench 'C', Chennai in I.T.A.No.1498/Mds/04 dated 20.02.2007, for the assessment year 2001-2002.againstthe order of the commissioner Income -Tax Appeals IX, chennai.34 dated9.3.04 and made in ITA.No.118/2003-04 against the order of the Income Taxofficer Ward I (3), Tambaram dated 29.8.03 and made in PA.NO/GIR No.13-10806 for the Assessment year 2001-2002. For Appellant : Mr.J.Narayanaswamy, Standing Counsel for Income-tax Department JUDGMENT (Judgment of the Court was delivered by P.P.S.Janarthana Raja, J.) This appeal is filed under Section 260A of the Income Tax Act, 1961by the Revenue, against the order of the Income Tax Appellate Tribunal,Bench 'C', Chennai in I.T.A. No.1498/Mds/04 dated 20.02.2007, raising thefollowing common substantial question of law:- "Whether in the facts and circumstances of the case,the Tribunal was right in deleting the addition ofRs.2,35,012/- made under section 40A(3) towards thecash payments / purchase by the assessee?" 2.The facts leading to the above substantial question of law areas under:- The assessee is an individual engaged in the job work of stitching of https://hcservices.ecourts.gov.in/hcservices/ clothes for exporters. The relevant assessment year is 2001-2002 and thecorresponding accounting year ended on 31.03.2001. The assessee filed hisReturn of income on 09.01.2002 admitting an income of Rs.1,43,830/-. TheReturn was processed on 16.10.2002 determining a refund of Rs.57,940/-.Later, the matter was taken up for scrutiny and notice under Section 143(2) of the Income-tax Act ("Act" in short) was served on the assessee on21.10.2002. The Assessing Officer completed the assessment under Section143(3) determining the total income at Rs.7,15,550/-. While completingthe assessment, the Assessing Officer made additions and disallowanceunder Section 40A(3) of the Act. The assessee himself voluntarily offeredfor assessment an amount of Rs.2,50,000/- on the ground that he is notmaintaining any books of account and also he is unable to produce anymaterial or evidence to prove the case. Aggrieved by the disallowanceand other additions made by the Assessing Officer, the assessee filed anappeal to the Commissioner of Income-tax (Appeals). The Commissioner ofIncome-tax (Appeals) deleted the disallowance made under Section 40A(3) ofthe Act. In respect of other additions, he confirmed the order andallowed the appeal partly. Aggrieved by the deletion of the disallowancemade under Section 40A(3) of the Act, the Revenue filed an appeal to theIncome-tax Appellate Tribunal ("Tribunal" in short). The Tribunaldismissed the Revenue's appeal and confirmed the order of the Commissionerof Income-tax (Appeals). Hence the present tax case by the Revenue. 3.Learned Standing Counsel appearing for the Revenue submittedthat the Tribunal is wrong in deleting the addition of Rs.2,35,012/- madeunder Section 40A(3) towards cash payments / purchase by the assessee.Further it is submitted that the Tribunal is wrong in holding that, whenthe income of the assessee is estimated and no deduction claimed onpurchases, provision of Section 40A(3) need not be applied. 3.Learned Standing Counsel appearing for the Revenue submittedthat the Tribunal is wrong in deleting the addition of Rs.2,35,012/- madeunder Section 40A(3) towards cash payments / purchase by the assessee.Further it is submitted that the Tribunal is wrong in holding that, whenthe income of the assessee is estimated and no deduction claimed onpurchases, provision of Section 40A(3) need not be applied. 4.Heard the counsel. In the present case, the Assessing Officerverified the assessee's bank account and on verification, it was foundthat certain payments are made by cheques and hence the assessee wasdirected to explain as to why the provision of Section 40A(3) should notbe applied for making disallowance of 20% on the sum of Rs.15,30,060/-.The assessee offered no explanation for the same. With regard toapplicability of Section 40A(3) of the Act, the assessee filed lettersdated 13.08.2003 and 21.08.2003 and pleaded that:- a) He had not maintained his accounts properly; b) Bills and other evidences were misplaced at the time of shifting of hisfactory premises and that therefore c) Offering to accept an addition of Rs.2,50,000/- to buy peace with theDepartment and to avoid penal and prosecution proceedings. Hence the Assessing Officer made addition of Rs.2,50,000/- in the totalincome of the assessee. The assessee is a tailor and doing the job workand the percentage of profit cannot be fixed abnormally in the saidbusiness. Even though there are no books of account maintained properly,the best course would be to estimate the income that is appropriate to thekind of income that is generated in this line of business, otherwise itwould lead to absurd result of arriving at a very high percentage of net https://hcservices.ecourts.gov.in/hcservices/ profit or gross profit which is never seen in this type of business. Whensuch disallowances are made, it should not exceed the overall probablepercentage of profit. The disallowance under Section 40A(3) should not beapplied mechanically. One has to see the genuineness of the transactionand the nature of the payments, and the nature of business also is veryimportant. In this case, the assessee did not claim any deduction withregard to the purchase made by him. So, having considered the nature ofbusiness and the assessee's acceptance before the Assessing Officer andthe lack of positive evidence from the Assessing Officer to make anaddition that can be sustained, it is reasonable to accept what has beenoffered by the assessee voluntarily of Rs.2,50,000/- for the purpose ofassessment. As an addition of Rs.2,50,000/- has been made in this caseand also no further deduction claimed in respect of the purchases by theassessee, no further disallowance could be made. When the gross profitrate is applied, that will take care of everything and there is no needfor the Assessing Officer to make scrutiny of the amount incurred on thepurchases by the assessee. Taking note of the fact that the assessee is atailor and is doing tailoring on job work basis and also he has notmaintained the accounts and vouchers properly, the assessee had correctlyand voluntarily offered the said amount for assessment. The Tribunal alsorelied on the Allahabad High Court judgment in the case of Commissioner ofIncome-tax Vs. Banwari Lal Banshidhar [1998] 229 ITR 229 (All.) wherein itwas held as follows:- "The question for consideration is when no deductionwas sought and allowed under section 40A(3), was thereany need to go into section 40A(3) and rule 6DD(j). Wesee force in the view taken by the Appellate Tribunalthat when the income of the assessee was computedapplying the gross profit rate and when no deductionwas allowed in regard to the purchases of the assessee,there was no need to look into the provisions ofsection 40A(3) and rule 6DD(j). No disallowance couldhave been made in view of the provisions of section 40A(3) read with rule 6DD(j) as no deduction was allowedto and claimed by the assessee in respect of thepurchases. When the gross profit rate is applied, thatwould take care of everything and there was no need forthe Assessing Officer to make scrutiny of the amountincurred on the purchases by the assessee."Applying the above principle, the Tribunal is right in its view that nodisallowance could be made. So, both the first appellate authority aswell as the Tribunal have considered the relevant facts and came to thecorrect conclusion that no disallowance could be made by the AssessingOfficer. The Revenue is also unable to bring to the notice of this Courtany contra judgment or any compelling reason to take a different view.The concurrent finding given by both the authorities below is based onvalid materials and evidence. In the case of Commissioner of Income-taxVs. P.Mohanakala [2007] 291 ITR 278 (SC), the Supreme Court held thatwhenever there is a concurrent finding by the authorities below, nointerference should be called for by the High Court. Under thesecircumstances, we do not find any error or legal infirmity in the order ofthe Tribunal so as to warrant interference. https://hcservices.ecourts.gov.in/hcservices/ 5.In view of the foregoing reasons, no substantial question of lawarises for consideration of this Court and accordingly the tax case isdismissed. No costs. sd/-Asst.Registrar /true copy/ Sub Asst.RegistrarkmTo 1. The Assistant Registrar, Income-tax Appellate Tribunal III floor, Rajaji Bhavan, Besant Nagar, Chennai.90.2. The Commissioner of Income-Tax, Chennai.3. The Commissioner of Income-tax (Appeals) IX, Chennai-600 034.4. The Income-tax Officer, Ward I(3), Tambaram.+ 1 cc to Mrs.Pushya Sitaraman, Advocate SR.NO.42047VC(co)RD 6.8.07 T.C.(A) No.885 of 2007