Chandra Moolchand Jain Vs ITO (ITAT Bangalore)
Conclusion: Assessee had given cash to her employee who was the supervisor or the agent who in turn made payment to the sellers of the gold and therefore the same would not fall within the scope of section 40A(3) in view of the decision of Hon’ble Calcutta High Court in the case of S.K. Joynal Abedin v. CIT. Therefore, assessee was required to substantiate that the payment made to 61 parties on bank holiday, the payment was made by the agent and further the business exigency also demanded payment of cash.
Held: Assessee was an individual, deriving income from business, house property and other sources. Assessee was also carrying on wholesale dealing in gold and silver bullion. She filed her return of income declaring income of Rs.8,82,840. This return was selected for scrutiny under CASS and notices u/s. 143(2) & 142(1) were issued. Assessee was issued a show cause notice during the assessment proceedings proposing for addition of Rs.1,09,13,444 being purchases through cash payment u/s. 40A(3) and also to substantiate the proof of acceptance of loan and repayment of loan respectively. Assessee appeared through her son and furnished the details of purchase ledger where cash payments along with bills and proof of repayment of loan and acceptance of loan was submitted. Assessee was asked to furnish total purchase and sales ledger and proof for exemption u/s. 40A(3) where assessee had made cash payments for purchase of goods. It was found from Form 3CD report that assessee herself had disallowed cash purchases of gold & silver for sum of Rs.1,09,13,144 through cash payments exceeding Rs.20,000 in the return of income. AO show caused the assessee why cash payment exceeding Rs.20,000 should not be disallowed u/s. 40A(3) and Rule 6DD of the I.T. Rules. Assessee failed to substantiate with proof for claim of applicability of section 40A(3). The total turnover of assessee was Rs.18.44 crores, cash purchases of gold & silver bullion worth Rs.1,09,13,444 was made. Cash purchases were in violation of section 40A(3) and accordingly the entire amount was disallowed as the assessee did not come forward with documentary proof in support of exceptions covered under Rule 6DD of the I.T. Rules. Accordingly, total income of assessee was computed at Rs.1,17,96,284 against returned income of Rs.8,82,840. The only addition of Rs.1,09,13,444 being cash purchases in excess of Rs.20,000 in violation of provisions of section 40A(3) was made and as no exception as provided in Rule 6DD of the Rules were shown. It was held that the claim of assessee was that assessee had given cash to her employee who was the supervisor or the agent who in turn made payment to the sellers of the gold and therefore the same would not fall within the scope of section 40A(3) in view of the decision of Hon’ble Calcutta High Court in the case of S.K. Joynal Abedin v. CIT. It was also the claim of assessee that part of jewellery and bullion was purchased by assessee was shown as stock in trade and the provisions of section 40A(3) were not applicable. For this proposition assessee relied on the decision of Delhi High Court in the case of PCIT v. Prosperous Buildcon Pvt. Ltd. The whole issue was restored back to the file of AO with a direction to assessee to substantiate that the payment made to 61 parties on bank holiday, the payment was made by the agent and further the business exigency also demanded payment of cash. AO might examine the above contentions of the assessee for which onus would be on the assessee to prove so and then AO would decide the issue afresh.
