- (1.)This appeal has been preferred by the revenue under Section 260A of the Income-tax Act, 1961 (in short, "the Act") against the order dated 8.4.2005, Annexure A. 4 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, "the Tribunal") in I.T.(SS)A. No. 15(ASR)/2001 for the block period 1.4.1988 to 22.9.1998, proposing to raise following substantial questions of law:--
"(i) Whether, on the facts and in the circumstances of the case, the ITAT was justified in deleting the addition of Rs. 26,24,280/- made on account of disallowances under section 40A(3) of the I.T. Act?

(ii) Whether, on the facts and in the circumstances of the case, the ITAT was justified in directing the A.O. not to charge interest under Section 158 BFA(1) for late filing of return, when the learned CIT(A) already dismissed the appeal of the assessee on this ground being infructuous one?"

A few facts relevant for the decision of the controversy involved, as narrated in the appeal, may be noticed. The respondent-assessee is a proprietary concern. It deals in fire crackers, toys etc. A search and seizure operation was carried out at the residential and business premises of the respondent on 22.9.1998. Simultaneously, survey under Section 133A of the Act was conducted at the shop and godown of the respondent. Notice under Section 158BC of the Act was issued on 10.12.1998 for filing the return for the block period in Form No. 2B. In response to the notice, return was filed by the respondent on 25.2.1999 declaring income of Rs. 31,42,090/-. Assessment under Section 158BC of the Act was completed at an undisclosed income of Rs. 6,46,52,570/- on 28.9.2000, Annexure A. 1. Besides the other additions, addition of Rs. 26,24,280/- was also made on account of disallowances under Section 40A(3) of the Act. Addition of Rs. 6,11,31,013/- was made by the Assessing Officer on account of suppressed profit. Interest under Section 158BFA(1) of the Act was also charged for late filing of return in response to notice under Section 158BC of the Act. Aggrieved by the order, the respondent filed appeal before the Commissioner of Income-tax (Appeals) [CIT(A)]. Vide order dated 30.3.2001, Annexure A. 2, the CIT(A) partly allowed the appeal. However, the CIT(A) confirmed the addition on account of unexplained investment and charging of interest under Section 158BFA(1) of the Act for late filing of return. The CIT(A) vide order dated 14.6.2001 passed under section 154 of the Act partly allowed rectification application filed by the respondent for correcting certain errors which had crept in the order dated 30.3.2001. The plea of the respondent for reducing the income was rejected. Not satisfied with the findings of the CIT(A), the respondent as well as the revenue went in appeal before the Tribunal. The Tribunal vide order dated 8.4.2005, Annexure A. 4 allowed the appeal of the assessee on the ground of unexplained investment and charging of interest under Section 158BFA(1) of the Act and dismissed the appeal of the department on the ground of addition on account of disallowances under Section 40A(3) of the Act. The issue relating to addition made by the Assessing Officer on account of suppressed profits was restored back to the file of CIT(A) to adjudicate upon the issue afresh in the light of the fact that the provisions of section 145(3) of the Act were now applicable to the block assessment after amendment of Section 158BC(b) of the Act for fresh decision. Hence the present appeal by the revenue.

(2.)We have heard learned counsel for the parties and perused the record.
(3.)This Court while admitting the appeal on August 22, 2006 noticed that in so far as question No. (i) is concerned, the same was covered against the revenue. A Division Bench judgment of this Court in CIT v. Smt. Santosh Jain, 2008 296 ITR 324had adjudicated the said question in favour of the assessee and against the revenue holding that where the income of the assessee has been computed by applying gross profit rate, there is no need to invoke the provisions of Section 40A(3) of the Act as the gross profit rate takes care of expenditure incurred otherwise than by way of cross cheques also.