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The High Court dismissed the revenue department's appeal, supporting the assessee's challenge against increased gross profit and disallowed cash expenses, as the Tribunal found the Assessing Officer's actions unjustified.

28 May, 2024
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A recent income tax case where the assessee (taxpayer) challenged additions made to their taxable income by the tax authorities.

 

Facts:

  • The assessee's income tax assessment for the year 2014-15 was disputed.
  • The Assessing Officer (AO) made two main additions to the assessee's income:
    • Increased gross profit by applying an average rate from previous years.
    • Disallowed certain expenses exceeding Rs. 20,000 paid in cash, citing Section 40A(3) of the Income Tax Act.

 

Assessee's Arguments:

  • The gross profit rate applied by the AO was not justified as the books of accounts were not entirely rejected.
  • Cash payments exceeding Rs. 20,000 were supported by vouchers, complying with Section 40A(3).

 

Tribunal's Decision:

  • Upheld the assessee's arguments on both counts.
  • Found that vouchers for most cash payments exceeding Rs. 20,000 were produced, except for minor expenses.
  • Considered the ad-hoc disallowance of consignment sale expenses an academic issue since no final addition was made.
  • Confirmed the findings of the Commissioner (Appeals) (CIT(A)), who accepted the books of accounts and original gross profit rate.

 

High Court's Observation:

  • Dismissed the revenue department's appeal as no substantial question of law arose.
  • Agreed with the Tribunal's findings on vouchers and the academic nature of the consignment sale expense disallowance.
  • Upheld the principle that the AO cannot reject books of accounts without strong justification.
  • Emphasized the AO's limited role in verifying the correctness and completeness of books, not altering profit rates based on assumptions.

 

Topic-The Principal Commissioner of Income-tax, Aaykar Bhawan and Another Versus Mahabir Jute Mills Ltd.

Citation-2024 TAXONATION 149 (ALLAHABAD)

 

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