CIT vs. M/s Sai Metal Works (P&H High Court)

DATE: (Date of pronouncement)
DATE: March 21, 2011 (Date of publication)

Click here to download the judgement (sai_40A3_block_assmt.pdf)

S. 40A(3) Disallowance can be made in Block Assessment even if GP estimated

Pursuant to a search, the AO passed a block assessment order u/s 158BC in which he made a disallowance u/s 40A(3) in respect of cash payments exceeding Rs. 20,000. The CIT (A) & Tribunal struck down the disallowance on the ground that s. 40A(3) could not be invoked in a case where a block assessment was by estimate on the basis of GP rate. On appeal by the department, HELD reversing the Tribunal:

(i) Though the provisions of block assessment are special, the argument that they are a complete Code and the other provisions cannot apply is not acceptable. S. 40A(3) applies to block proceedings. Suresh Gupta 297 ITR 322 (SC) & M. G. Pictures 185 CTR (Mad)185 followed; Cargo Clearing Agency 218 CTR (Guj) 541 not followed;

(ii) The argument that if income is assessed by estimation on GP rate, no other disallowance can be made is not of universal application. If expenditure which is legally not permissible has been taken into account that can certainly be disallowed even where income is estimated.

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