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2015 (8) TMI 569 - PUNJAB & HARYANA HIGH COURT

2015 (8) TMI 569 - PUNJAB & HARYANA HIGH COURT - TMI - Entitlement to deductions in respect of cash payments in excess of ₹ 20,000/- made to the vendors for land in view of Section 40A - Tribunal denied deductions - Held that:- Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have .....

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nterest free advances were made by the appellant. In fact, the latter has been accepted by the Assessing Officer. The contention that the appellant has not established that it was the interest free funds that were actually advanced as interest free advances is without substance. Money has no identity. So long it is established that the interest free advances are made by an assessee who has adequate free reserves, it is sufficient to establish that the amounts advanced interest free cannot be add .....

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ing Chief Justice (Oral) 1. This is an appeal against the order of the Income Tax Appellate Tribunal reversing the order of the CIT (Appeals). The matter pertains to the assessment year 2009-10. 2. The appeal is admitted on the following substantial questions of law:- (1) Whether the Tribunal rightly held that the appellant was not entitled to the deductions in respect of cash payments in excess of ₹ 20,000/- made to the vendors for land in view of Section 40A of the Income Tax Act, 1961 ( .....

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ation, which in respect of each of the transactions was admittedly in excess of ₹ 20,000/-, was paid in cash. Payment by demand draft was made only in respect of one of the transactions. These payments in cash were disallowed by the Assessing Officer and the order in this regard was upheld by the Tribunal. The CIT(Appeals) had allowed the deductions. Section 40A(3) of the Act reads thus:- "40A(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of p .....

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t 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 expediency and other relevant factors." 4. It is important to note some of the findings of fact by the CIT (Appeals). The identity of the payees i.e. the vendors in respect of the land .....

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ess and the correctness of the transactions. It is also important to note that the Tribunal noted the contention on behalf of the appellant that there was a boom in the real estate market; that it was necessary, therefore, to conclude the transactions at the earliest and not to postpone them; that the appellant did not know the vendors and obviously therefore, insisted for payment in cash and that as a result thereof, payments had to be made immediately to settle the deals. The Tribunal did not .....

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of the legislature to make a list of nature and extent of banking facilities available and other factors to be drafted by the assessee at their whims and fancies and as suits to the assessee. Therefore, Rules have been prescribed which are Rule 6DD of I.T. Rules, 1962 and nothing beyond that. xxx xxx xxx The Ld. CIT(A) has not taken the said proviso in the right spirit and has just accepted the submissions and arguments made by the assessee and has deleted the addition, which is against the fact .....

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d unavoidable circumstances within the meaning of Clause (j). That led to issuance of Circular by the Board on May 31, 1977 ([1977] 108 ITR (St.) 8), which is published in Taxmann, Vol. 1, 1988 Edition. Significantly paragraph 4 of the aforesaid Circular shows very clearly that all the circumstances in which the conditions laid down in Rule 6DD(j) could be applicable cannot be spelt out. However, some of them which will seem to meet the requirements of the said rule are as follows: a. the purcha .....

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to persons from whom he has purchase the goods; or f. specific discount is given by the seller for payment to be made by way of cash. 15. It was further clarified in paragraph 6 that the above circumstances are not exhaustive but illustrative. 16. Therefore, in our opinion, the Tribunal was clearly in error in not travelling beyond the circumstances referred to in paragraph 4 of the Circular and to consider the explanation submitted by the assessee on its own merit. 17. Significantly paragraph 5 .....

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transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of Rule 6DD(j). 18. It appears that fulfilment of the conditions of paragraph 5 of the circular has clearly esc .....

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e 6DD (j), the Board stepped in by issuing the aforesaid circular. 19. This clarification, in our opinion, is in conformity with the principle enunciated by the Supreme Court in CTO v. Swastik Roadways as noticed above. 20. In this case, there is no dispute about the genuineness of the transactions and the payment and identity of the receiver are established. Therefore, the case clearly fell within the parameters of paragraphs 4 and 5 of the aforesaid circular read together." 8. The respond .....

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ction on the assessee in his trading activities. Section 40-A (3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of Section 40-A(3) are not absolute. Consideration o .....

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ides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of Section 40-A(3) and Rule 6-DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. [See: Mudiam Oil Company v. ITO[(1973) 92 ITR 519 (AP)] ]. If the payment is made by a crossed che .....

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ss." 9. At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. 10. In the circumstances, the order of the Tribunal in this rega .....

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tails of the amounts advanced by the appellant as well as the interest free funds received by the appellant. The Tribunal however, upheld the addition made by the Assessing Officer observing that "nothing has been brought on record how the interest free funds which have been claimed to have been available for advancing these loans to various persons were actually available for advancing to these persons". The Tribunal further observed that it had not been pointed out as to how interest .....

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as no identity. So long it is established that the interest free advances are made by an assessee who has adequate free reserves, it is sufficient to establish that the amounts advanced interest free cannot be added to the assessee's income. It was not contended that the interest free advances exceeded the interest free funds available with the appellant. Nor was it established that a particular advance received was in turn advanced by the assessee interest free. 13. In the circumstances, th .....

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ar Singh Gurmukh Singh and others v. Income Tax Officer, Ludhiana and others, 1991(4) Supreme Court Cases 385, Smt. Harshila Chordia v. Income Tax Officer 2008 (298) ITR 349 (Rajasthan), Commissioner of Income Tax v. Ashoka Steel Industries and Flour Mills 2007(293) ITR 192 (P&H), Commissioner of Income Tax v. Brij Mohan Singh and Co. 1994 (209) ITR 753 (P&H) and Girdhari Lal Goenka v. Commissioner of Income Tax 1989 (80) CTR 140 (Calcutta). The material difference really is in clause 6- .....

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