No Violation of S. 40A(3) of Income Tax Act as No Payment of Cash for making Purchases Exceeding the Prescribed Limit: ITAT [Read Order]

Violation u/s. 40A(3) of the Income Tax Act, 1961 will not be attracted when cash payment is made for the purchases exceeds the prescribed limit, the Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) has quashed the revisional order.

Radheyshyam Gupta, the assessee appealed against the order passed u/s 263 of the Income Tax Act, 1961 (“Act”) by Pr. Commissioner of Income-tax-9, Kolkata [“PCIT”] dated 21.03.2022 which is arising out of the assessment order framed u/s 143(3) of the Act dated 29.11.2019.

The assessee is an individual carrying on his business in the name of Radheysham Jewellers. Income at Rs.97,63,350/- declared in the e-return for the AY 2017-18 filed on 21-09-2017. The income was determined as assessed income at Rs.97,63,350/- vide assessment order dt. 29-11-2019 framed u/s. 143(3) of the I.T Act, 1961.

It was contended before the Tribunal that as per purchase through banking channel is concerned provisions of section 40A(3) of the Act are not attracted. As regards the remaining purchase of Rs.2,10,38,492/- no cash payment has been made to make such purchase and the same is the value of jewellery exchanged for making new jewellery for the customers. It was also submitted that when a customer approaches the assessee for the purchase of new jewellery some old jewellery is brought by the customer and the same is given to the seller to adjust the price of such exchanged jewellery against the new jewellery purchase.

The PCIT rejected the submissions made by the assessee and concluded that the AO has passed the assessment order without making/conducting enquiries/verifications, which should have been made by him before framing the assessment order u/s. 143(3) of the Income Tax Act.

It was observed that the assessee is in the course of its business of selling old gold jewellery and occasionally receives oldgold jewellery in exchange from the customers. The value of such old gold jewellery is calculated by the assessee as per rates of the gold/silver/diamond or other precious stones as on the date of the transaction and the same is reduced from the sale value of new jewellery purchased by such customers. 

A Coram of Sri Rajpal Yadav, vice president & Sri Manish Borad, accountant member observed that the assessee has not made any purchases in cash in alleged transactions and only net consideration and the assessee falls under the exception provided in Rule 6DD(d) of the Income Tax Rules, 1962.

“There is no violation of provisions of section 40A(3) of the Income Tax Act in the case of the assessee as alleged by PCIT in the impugned order, as there was no actual transaction of payment of cash for making purchases exceeding the limit as prescribed u/s. 40A(3) of the Act”, observed the bench. The Tribunal held that the order passed u/s. 143(3) dt. 29-11-2019 is neither erroneous nor prejudicial to the interest of the revenue and the same was restored. 

Sh. S.K. Tulsiyan, Adv. & Smt. Puja Somani, CA, appeared on behalf of the Assessee and Md. Ghayas Uddin appeared on behalf of the Revenue.

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