TMI Blog2014 (12) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... perties were purchased by Assessee, therefore, there was no choice for the assessee except to make the payments in cash due to exceptional or unavoidable circumstances as provided under Rule 6DD - since there is no evidence brought on record by the AO to suggest the availability of banking facility in the place where the properties were purchased by the assessee, therefore, in view of Rule 6DD(g) the disallowance cannot be made u/s. 40A(3) - the CIT(A) is justified in deleting the addition – Decided against revenue. Cash payments made on holidays - payments were made in installments - requirement to make payments on holiday to claim exception under Rule 6DD(j) or not – Held that:- The CIT(A) rightly directed the AO to verify whether cash payments disallowed by the AO were made on public holiday and if it is so to allow the expenditure as per rule 6DD(j) of the IT Rules – Decided against revenue. Addition on payments made to agents sustained – Held that:- Revenue contended that the agents worked for other persons as agents and they cannot be agents to the assessee - There is no prohibition or restriction on a middleman to work as agent of different parties, if he was acting on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chased lands worth ₹ 14,53,85,794. On further verification, AO found that assessee had made cash payments in excess of ₹ 20,000, in violation of section 40A(3) of the Act, to the extent of ₹ 82,85,097. In response to the query made, assessee while submitting details of cash payments made during the year also stated that there is no violation of section 40A(3) as they are covered under various clauses of Rule 6DD. The cash payments were classified by assessee, as under: 1. Cash payment in places where no banking facility available (Clause (g) of Rule 6DD) 18,62,375 2. Cash payment on days banks were closed on account of holiday (Clause (i) of Rule 6DD) 22,20,000 3. Cash payment to agents who is required to make payments in cash to lands lords (Clause (k) of Rule 6DD) 36,53,097 4. Cash payments made below ₹ 20,000 on each occasion 5,49,625 Total 82,85,097 5. As far as cash payments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in instalments on several occasions, then, there is no necessity of paying the amount on a holiday when the bank is closed. Accordingly, he disallowed the amount of ₹ 22,20,000 u/s 40A(3). 7. As far as the amount of ₹ 18,62,375 claimed to have been paid to the land owners in places where no banking facility was available thereby attracting clause (g) of Rule 6DD, AO observed that persons to whom payments were made are residing in villages located in Districts of Guntur and Krishna, which are most developed districts in the state and are covered by banking facilities. Therefore, he disallowed the cash payments made of ₹ 18,62,375. 8. Apart from the aforesaid amounts disallowed, AO also noticed that an amount of ₹ 49,04,500 was paid by cash in respect of purchases made in earlier years, which were shown as sundry creditors. Applying the provisions of section 40A(3), AO also disallowed the said amount of ₹ 49,04,500. 9. Accordingly, the total cash payments of ₹ 1,26,39,972 was added to the income of assessee for the impugned AY. Being aggrieved of the additions made by AO, assessee preferred appeal before ld. CIT(A). 10. Ld. CIT(A) follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same. It is common knowledge that in villages generally the transactions are by cash not because the transactions are not genuine or they want to avoid banks but because it is still a convenient mode of transaction and people are more comfortable in dealing with cash. This will not give immunity to the transactions in villages but it helps in understanding the reason which will help in appreciating the facts of the case. The assessee has furnished all the details stating that the said villages did not have banking facilities. The assessee filed confirmations from the village surpanches who certified that there were no banking facilities in the villages concerned and the assessee has also produced confirmations from the village surpanches confirming the identity of the sellers of the land. The observation of the Assessing Officer that Krishna and Guntur districts are most developed districts in the state and almost all the villages in these districts are covered by banking facilities is only based on his assumptions. But the village surpanches who are the responsible persons of the villages have confirmed that there were no banking facilities in the said villages. It is not proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) reads as under: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub section (3) and this sub section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in such cases and under such circumstances as may be prescribed having regard to the nature and extent of banking facilities available considerations of business expenditure and other relevant factors. 14. The exceptions to the application of sec 40A(3) is laid down in Rule 6DDJ. Rule 6DD after its amendment from 1995, reads as under: Rule 6DD Prior to 25.7.1995, clause (j) of Rule 6DD of the IT Rules read as follows: 6DD....... i) in any other cause, where the assessee satisfies the Assessing Officer that the payment could not be made by a cross cheque draw on a bank or by a drawn on a bank or by a crossed bank draft...... (1) due to exceptional or unavoidable circumstances or (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the paye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the circumstances. In view of the above there is absolutely no merits in the challenge made as to the validity of section 40A(3) of the Act by mere deletion of sub clauses (1) and (2) of rule 6DD(j). The said provision is perfectly valid and we may hasten to add that the deletion of sub clauses (1) and (2) of rule 6DD(j) is only a step forward in the achievement of the avowed object envisaged u/s 40A(3) of the Act. 15. Therefore the only exception that the Assessee can claim is when payments are required to be made on days when the Banks were closed on account of holidays or strike. Transactions after the banking hours in the course of regular business will not fall within this exception. In those transactions, the payment is not required to be made when the banks are closed i.e. after banking hours. Further the purpose of the disallowance u/s 40A (3) is to dissuade transactions by cash. 16. Sec 40A(3) itself provides that the exceptions will have to be prescribed having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. Taking all these factors, considering the nature of activity of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee4company. 12. The AR submitted that As per Rule 6DD(k) which says where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person exemption is available for cash payments u/s. 40A(3). The requirement is the payment should have been made to an agent who is required to make payment in cash for goods or services on behalf of the person for whom he is acting as an agent. It may be noted that the exemption under Rule 6DD(k) is available only in respect of cash payments made to an agent, hence, it is important to know the meaning of 'agent' vis4a4vis 'broker'. The words 'Agent' Broker are not defined in the IT Act. There is no definition of the term 'agent' in section 40(A)(3) or in section 2 of the Act. As per well settled principles, when there is no statutory definition of a word, the meaning of the term should be ascertained by applying common parlance test viz., as the word is understood in the popular sense i.e., the meaning attached to such expression in the particular trade circle instead of attaching a technical meaning. 13. On the other hand, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven any receipts in respect of cash received by you on behalf of landlords? A. 23 I give receipts to Abhinandana in proof of cash taken by me. After receipt from the landlords, I take back the initial receipt given by me to Abhinandana. Q. 28 Though you have got TDS, you have not filed your IT Returns. A. 28 I do not know about these procedures hence the failure to submit the ROI. Sworn Statement of Sri M. Raja Venkateswara Rao Q. 3 Please explain the full details of brokerage income? A. 3 I use to brokerage lands for Abhinandana. In very few cases, I did so for others. Per year, the income on brokerage will be around ₹ 2 to 2.5 lakhs. I use to get at lease ₹ 5,000 per acre and up to ₹ 35,000. I assisted in purchasing land for one Mr. Sushil Kumar who resides in USA. Another person was C. Ravi Kumar, who resides at Chennai. Q. 6 Please furnish full details of your brokerage income. What was the basis of determination of brokerage income and what are the duties and responsibilities as commission agent? A. 6 I am acting as brokerage agent for purchase of land for the last 7 years. I have been related to Abhinandana Housing Pvt. Ltd. for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... took ₹ 37,000/- and in 2011 till today, 1 got around ₹ 20,000/-. Q. 6 Please furnish full details of your commission income. What was the basis of determination of commission income and what are the duties and responsibilities as commission agent? A. 6 I am doing real estate works since 2004. I offer services only for Abhinandana. In very few cases, I offered to private parties. Per acre I earn up to ₹ 20,000. Mekala Srinivasa Rao (Kunchanapalli), Thotakura Srinivas (Poranki) (to my memory goes). 14. The DR submitted that from the above statements it is apparent that the above said parties are not the agents of the company but they worked as middlemen and offered the services to other parties as well and this distinguishes the brokers from the agents and hence, the contention of the Assessing Officer that the alleged agents were just middle men/broker providing services for commission but not agents and hence, the exemption clause (k) under Rule 6DD of IT Rules does not apply, appears correct. Accordingly, the cash payments made through third parties cannot be brought under the exemption clause and the Assessing Officer is justified in disallowing the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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