JUDGMENT
1. This appeal has been preferred proposing following substantial questions of law:
1. Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that provisions of Section 40A(3), which are mandatory, cannot be invoked in a case where estimation of GP is made ?
2. Whether, on the facts and circumstances of the case, the Tribunal was right in deciding the issue of provisions of Section 40A(3), when the issue was not decided by Commissioner (Appeals) ?
2. The assessee derives income from manufacturing and sale of iron and steel goods of rolling mills besides dealing in trading of raw material and furnished goods and income earned from the conversion charges. On 27-4-1993, search was carried out in the premises of the assessee. The assessee made a surrender of Rs. 14 lakhs. From the account books and other documents seized at the time of search, it was found that the assessee was doing business outside the books of account. The assessing officer, as against declared sale of Rs. 28.01 crores, assessed turnover of the assessee at Rs. 30 crores, estimating turnover of Rs. 1.99 crores outside the books of account. The assessing officer applied GP of 4.27 per cent against 3.23 per cent shown by the assessee on the ground that in the earlier years, GP of 4.27 per cent had been applied and there was no justification for showing the lesser GP.
3. The Commissioner (Appeals) held that there was no justification for disallowance of cash payments in excess of limit laid down under Section 40A(3) of the Income Tax Act, 1961 (hereinafter referred to as, ‘the Act’) of the unrecorded transactions. The Commissioner (Appeals) approved 4.27 per cent GP on unrecorded sales.
4. The Tribunal affirmed the said findings. It was held that provisions of Section 40A(3) of the Act could not be invoked in the case of estimation of GP. Reliance was placed on judgment of the Allahabad High Court in CIT v. Banwari Lal Banshidhar .
5. We have heard learned Counsel for the appellant.
6. We are of the view that when income of the assessee was computed by applying gross profit rate, there was no need to look into the provisions of Section 40A(3) of the Act, as applying the gross profit rate takes care of expenditure otherwise by way of cross cheque also. We are in agreement with the view taken by the Allahabad High Court in Banwari Lal Banshidhars case (supra) to the following effect:
…The question for consideration is when no deduction was sought and allowed under Section 40A(3), was there any need to go into Section 40A(3) and rule 6DD(l). We see force in the view taken by the Appellate Tribunal that when the income of the assessee was computed applying the gross profit rate and when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of Section 40A(3) and rule 6DD(J). No disallowance could have been made in view of the provisions of Section 40A(3), read with rule 6DD(J) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When the gross profit rate is applied, that would take care of everything and there was no need for the assessing officer to make scrutiny of the amount incurred on the purchases by the assessee.
7. No substantial question of law arises.
8. The appeal is dismissed.