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The first proviso below Section 40A(3) clearly takes into consideration the nature of expenses, banking facilities, consideration of business expediency and other relevant factors. Rule 6DD in intent and purpose takes into consideration all these aspects for prescribing various exceptional circumstances. Therefore, Rule 6DD cannot be mechanically applied.

Shanti Prime Publication Pvt. Ltd.

Sec. 40A of Income Tax Act, 1961 - Business Expenditure - The assessee filed return of income declaring total income of Rs. 37,75,199/-. The assessee derives income from retail sale of gold & silver and transport contract. The case was selected for scrutiny and statutory notices were issued to the assessee. On verification of ledger of purchases made from two jewellers, the AO found that the assessee has made purchase by cash exceeding Rs. 20,000/- on various dates in one bill in violation of section 40A(3) of the Act. Therefore, the AO invoked the provisions of Section 40A(3) of the Act against the cash payments made by the assessee and in absence the details, like bills and vouchers and most of the expenses were paid in cash, AO disallowed lumpsum 10% of the above expenses and added to the total income of the assessee at Rs. 2,47,507/-. The CIT(A) upheld the disallowance made by the AO u/s.40A(3) of the Act and in respect of adhoc addition, reduced to 10% of the above addition in case of business promotion expenses and travelling expenses, and in case of disallowance of Rs. 2,47,507/- the AO restricted to 5% of the total addition made by the AO i.e. Rs. 1,23,753/-. ITAT dismissed the appeal of the assessee holding that:- It is clear that the assessee has inserted some entries in books of accounts with the support of some internal vouchers and complete bills and vouchers were not produced by the assessee before the revenue authorities. Therefore, we are in agreement with the findings recorded by the CIT(A).—RAJENDRA KUMAR SAHOO vs. Asstt. CIT. [2020] 79 ITR (TRIB) 010 (ITAT-CUTTACK)