Section 40A(3) applicability when ITR was revised after survey to preclude Cash Expense

In this case, although, the assessee has shown purchases in the original return of income filed for relevant assessment year, but subsequently, return of income has been revised where the assessee has shown net income from purchase and sale of bought note purchases, and thus, when deduction is not claimed towards purchases, provisions of section 40A(3) cannot be applied.

Return revised after survey to preclude Cash Expense

The assessee never disputed cash payment in excess of prescribed limit and further, evidences collected during the course of survey clearly indicate bought note purchases in excess of limit. Therefore, subsequent, filing of revised return excluding bought note purchases is only an afterthought to overcome provisions of section 40A(3) of the Act. The Assessing Officer, after considering relevant facts has rightly disallowed cash payment u/s.40A(3) of the Income Tax Act, 1961, and thus, there is no merit in the arguments of the assessee on applicability of provisions of section 40A(3) of the Act, and hence, orders of the lower authorities should be upheld.

Applicability of provisions of section 40A(3) when deduction of Cash Expense was not claimed

In this case the assessee had never denied cash payment in excess of Rs.20,000/- for making bought note purchases.

It was argument of the assessee that when the Assessing Officer has acted upon revised return filed by the assessee, then the Assessing Officer should have considered applicability of provisions of section 40A(3) of the Act, with reference to revised return filed by the assessee along with amended tax audit report.

According to the assessee, although, in original return of income filed for relevant assessment year, it had shown purchases, but when revised return was filed only net income from bought note purchases and sales has been shown. Therefore, when deduction was not claimed towards expenditure incurred in cash, application of provisions of section 40A(3) of the Income Tax Act, 1961, is incorrect.

ITAT Order:

8. We have given our thoughtful consideration to the reasons given by the Assessing Officer to disallow cash purchases in excess of prescribed limit in light of various arguments advanced by the assessee and we ourselves do not subscribe to the reasons given by the learned AR for the assessee in light of revised return filed for relevant assessment year for simple reason that revised return has been filed subsequent to date of survey, which clearly show cause intent of the assessee to exclude bought note purchases from purchase account, to escape from provisions of section 40A(3) of the Income Tax Act, 1961. Therefore, arguments of the assessee on applicability of provisions of section 40A(3) of the Income Tax Act, 1961, are rejected.