Mahesh Kumar Verma Vs PCIT (ITAT Delhi)
ITAT Delhi held that invocation of provisions of section 40A(3) of the Income Tax Act not justifiable as income is estimated on the basis of gross profit rate. Thus, disallowance u/s. 40A(3) set aside and appeal stands allowed.
Facts- The present appeals are preferred by the assessee. The only issue in this appeal of assessee as regards to revision order passed by PCIT u/s 263 of the Act on the aspect of lack of enquiry and consequently non-disallowance of unaccounted purchases made in cash of Rs.5,83,99,000/- by not invoking the provision of section40A(3) of the Act.
Conclusion- Held that the provisions of section 40A(3) of the Act cannot be invoked in the given facts and circumstances of the present case for the reason that the AO himself has estimated the profit rate on the cash purchases made by assessee. Once cash purchases are estimated by applying gross profit rate and income is taxed, no further disallowance u/s 40A(3) of the Act is possible. The reason for the same is that when income of the assessee is computed applying flat gross profit rate and when no deduction is allowed in regard to the purchases of the assessee, there is no need to invoke the provisions of section 40A(3) of the Act. We also noted above that it is clear from the facts of the case that on the date when PCIT passed revision order under Section 263 of the Act, the view taken by the AO while framing assessment was in consonance with the view taken by various High Courts as noted above. There is no contrary decision of any other High Court pointed out by Ld. CIT DR. Hence, according to us this is settled position. In such circumstances, revision u/s 263 of the Act is bad in law and, hence, quashed.
