TMI Blog2013 (6) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... ax(Appeals) is justified in deleting the addition made by the Assessing Officer. The addition has been made by the Assessing Officer on general observations and on adhoc basis. He has not applied his mind in analyzing the real working pattern of the assessee and the profit rate disclosed by the assessee and he has not made any comparative study. Disallowance under section 40A(3) - Held that:- Usually the land owners will not expect cheque or banking instruments as part of consideration and they insist that money should be paid before signing the documents before the Sub-Registrar. An assessee cannot swim against that inevitable practice in a particular line of transaction. It is not possible for the assessee to purchase land from the villagers by giving cheques and drafts when the villagers are insisting for cash payments. Therefore, it is to be seen that it is only in such circumstances where the assessee could not make payment through banking instruments that it had made the payments in cash and that was for reasons beyond its control. Rule 6DD applies in such circumstances. Where it is impossible to purchase land otherwise than by making cash, it is not proper to say that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a High Court have held that there is no distinction between expenditure actually paid by the assessee and the expenditure still payable by the assessee at the end of the relevant previous year. The Hon ble courts have held that in both the cases the provisions of section 40(a)(ia) will apply. 5. Therefore, as a legal proposition, we cannot endorse the finding of the Commissioner of Income-tax(Appeals) on this issue. We reverse his finding and accept the contention of the Revenue. Even if the expenses had been paid by the assessee in the previous year itself, still, if violated, the assessee is bound by the provisions of law stated in section 40(a)(ia). 6. But, at the same time on the facts of the case, we cannot straightaway confirm the quantum addition made by the assessing authority. This is because nobody has examined the exact nature of the payment made by the assessee. The Assessing Officer has invoked section 40(a)(ia) in a mechanical way immediately after observing that the assessee had made certain payments without deducting tax at source. The Commissioner of Income-tax(Appeals), on the other hand, was led by the decisions of the Tribunal on the question of law and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting development expenses of ₹ 9,84,19,432/-. The assessee in the previous year relevant to the assessment year under appeal, had claimed land development expenditure to the extent of ₹ 40,41,24,051/-. Out of the above expenditure, expenditure to the extent of ₹ 39,08,78,264/- was incurred in cash. The assessee had produced the ledger and cash book and the supporting vouchers in support of the expenses claimed by it. But, the Assessing Officer treated a part of the cash expenditure as bogus and altogether made a disallowance of ₹ 9,84,19,432/-, pertaining to expenses like land development expenses, JCB work, bulldozer hire charges, tractor hire charges, etc. In fact, the Assessing Officer has made a disallowance of 20% in the case of land development expenses, tractor hire charges, land leveling charges and expenses towards jelly and sand materials. 10. In first appeal, the Commissioner of Incometax( Appeals) examined this issue in very detail. He has observed that the assessee has maintained proper books of account including ledger and cash books and those accounts were produced before the Assessing Officer. The Commissioner of Income-tax(Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee, etc. are all available. The detailed addresses alone are not available. In this type of land development expenditure in rural and peripheral areas, it is just a luxury to expect all the formal foolproof vouchers and receipts in support of the expenses incurred by an assessee. These are all non organized industries. As and when it is required, the labourers are called and the labourers are often supplied by middlemen. Equipments are called for and supplied by agents in a great hurry burry and the activities are carried on at different points at different levels and in many of such cases self vouchers alone will be available. 13. It is in this context that we have to examine the reasonableness of the quantum of expenditure claimed by the assessee. The Commissioner of Income-tax(Appeals) has analysed the profit pattern of the assessee for the three assessment years 2006-07, 2007-08 and 2008-09. On an analysis, the Commissioner of Income-tax(Appeals) found that the assessee has declared a profit of more than 23.47%, which is an excellent result in the case of a new entrant into the business. The average net profit rate before depreciation and income-tax worked out to 23.47%. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3). This was accepted by the Assessing Officer. In respect of the balance payment of ₹ 1,12,82,980/-, the Assessing Officer did not find any merit in the contention of the assessee as the transactions were not provided in the exclusions listed in Rule 6DD. Accordingly, the Assessing Officer made a disallowance of 20% of ₹ 1,12,82,980/-, amounting to ₹ 22,56,596/-. In first appeal, the Commissioner of Income-tax(Appeals) held that the case of the assessee does not fall under rule 6DD and, therefore, the Assessing Officer was justified in making the disallowance of ₹ 22,56,596/- under section 40A(3) of the Act. 18. We considered this issue. There is no doubt that the disputed cash payments were made by the assessee to the land owners for the purchase of land. The assessee is a builder and developer and obviously such land purchased by the assessee would be in the nature of stock-in-trade. Usually, in the case of businessmen, purchases made in cash of stock-intrade would be hit by section 40A(3) unless otherwise exempted under Rule 6DD. But, the circumstance in which a businessman makes cash payment for purchase of stock-in-trade is different from the circum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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