J.H. Metals vs. Income-tax Officer (77ITD71) the assessee, a dealer in metals made certain purchases of scrap from Kabarias, who did not issue any sale bills but the assessee recorded purchases from them by making internal vouchers as well as accounted them in his stock. The Assessing Officer examined the details of these purchases and rejected the claim of purchase of these items from Kabarias on the basis of certain inconsistencies recorded by him in his order viz a viz contents of the affidavit submitted by the kabaria and his cross examination in the case. The ITO look an alternative ground about such addition on the ground that the same was hit by Rule 6DD read with section 40A(3) of the Act. The Judicial Member allowed the claim of the assessee on the basis of residuary clause under rule 6DD wherein if the payee insists for the payment in cash the disallowance u/s 40A(32) is not warranted. In this case the assessee so stated that the Kabaria insisted for the cash payment. The Accountant member on the other hand upheld the addition on account of bogus nature of purchases. He however stated that if the purchases are held to be genuine, then the payment in cash would be covered by the exceptions envisaged under Rule 6DD(j) in favour of the assessee.
The issue therefore traveled to the President in view of the difference of opinion between the two members. He held that no addition is called for in this regard on the basis of the following finding:
a) The assessing officer did not express any doubt about the source of money used for the purchase of these goods;
b) The Assessing Officer also did not dispute the fact that this alleged bogus purchased formed part of the stock of the assessee which was disposed of during the year;
The President then observed that if the investment in the purchase of these items is not doubted and the items purchased were included in the turnover, the only issue that remains for consideration is in regard to” the rate of profit. And since in this case the GP rate in the relevant assessment year was comparable with that of the immediately preceding previous year the decision went in favour of the assessee. Further there was a finding that the Assessing Officer himself accepted g.p. rate in the succeeding assessment years.
The acceptance of this decision would definitely come under dispute since under the amended rule 6DD for applying section 40A(3) it is not necessary at all for the Assessing Officer to prove that the purchases are bogus and hence it is advisable to desist from the practice of making payments in cash.