Bought note purchase vis-à-vis applicability of section 40A(3)

V.K. Textile Processors Vs ITO (ITAT Chennai)

Held that as per the identical issue of disallowance of bought note purchases in cash u/s. 40A(3) of the Act for the assessment year 2017-18 and after considering relevant facts, we set aside the issue to the file of the Assessing Officer for further verification.

Facts- The only issue that came up for our consideration is disallowance of cash payments made u/s.40A(3) of the Act. The brief facts with regard to impugned dispute are that survey u/s.133A was conducted in the case of the assessee on 06.02.2018. During the course of survey, based on material evidences collected from tally software, the assessee admitted an amount of Rs.4,24,76,975/- towards bought note purchase in violation of provisions of section 40A(3) of the Income Tax Act, 1961, and further a sum of Rs.28,18,693/- towards disallowance u/s.40(a)(ia) of the Act, towards payment made to job work charges without deduction of tax at source.

The case has been taken up for scrutiny and during the course of assessment proceedings, it was submitted before the AO that the provisions of section 40A(3) has no application, because the assessee has filed revised return and treated bought note purchase & sales as commission agent and offered net commission income for taxation and thus, when the expenditure is not claimed as deduction, question of application of provisions of section 40A(3) does not arise. AO, however, was not convinced with the explanation furnished by the assessee and according to AO, when the assessee filed original return u/s.139(1) of the Act, bought note purchase was shown as purchases in the statement of account filed along with return of income. Further, during the course of survey, tally data base shows bought note purchases in cash.

Therefore, the Assessing Officer opined that bought note purchases in cash excess of prescribed limit of Rs.20,000/-and above cannot be allowed as deduction and thus, made disallowance of purchases in cash in excess of prescribed limit u/s.40A(3) of the Act.

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