TMI Blog2011 (8) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the action of the AO in invoking provisions of section 40A(3) of the IT Act in respect of payment made in cash for purchases of fixed asset being agricultural land which was later on treated as stock-intrade and thereby upholding an addition of ₹ 1,89,21,509/- under the said section and in making a further addition of ₹ 53,85,000/- under the said section by applying the provisions of other similar payment aggregating to ₹ 2,69,28,859/-. 3. The brief facts of the case are that the assessee is engaged in the business of purchase, sales and development of land and the colony. The survey u/s 133A was carried out on 24.8.06 and during the course of survey; it was found that the appellant has bought land from various farmers for developing a colony called Platinum Greens near Mehla Town close to NH 8 between cities of Jaipur and Ajmer. The A.O. noticed that the asssessee has made payment to land owners not only by cheque or DD but also in cash. A.O. has tabulated the details of payment made to land owners in cash and cheque alongwith the name and address of the seller and other details It is noticed by the A.O. that land worth ₹ 23,13,40,424/- was pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 28, nothing can be assessed under the heads profits and gains of the business and provisions of section 30 to 40D cannot be invoked. As can be seen from the copy of audited account, the assessee has not shown any receipt of business and has not claimed the expenditure of purchase cost of agricultural land but entire expenditure of the said stock-in-trade was carried forward in next accounting year as opening stock. It was submitted that for invoking provisions of section 40A (3), the amount, of expenditure incurred in cash must be claimed as expenditure either while working gross profit or while working net profit. There cannot be disallowance of expenditure without any claim of allowance of expenditure having been made. The support was derived from the case of M/s Saral Motors General Finance Ltd vs. ACIT (2009)121 ITD 50 (Delhi) and decision of ITAT, Jaipur Bench, Jaipur in the case of Salasar Overseas Pvt. Ltd. vs. ACIT. 6. In ground no. 2, it was submitted that A.O. has erred in observing that case of the assessee does not fall in exception provided u/r 6DD. It was submitted that the payments were made some of the farmers in villages where they ordinarily reside which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that incidentally if none of the stock-in-trade has been sold during the year, than all stock-in-trade will be reflected in closing stock. Moreover, this finding that the expenditure in purchase of stock-in-trade, whether sold during the year or not will fall within the purview of 40A(3) is directly supported by the decision of Hon ble Supreme Court in the case of Attar Singh Gurmukh Singh vs. ITO (1991) 191 ITR 667, wherein the Hon ble Supreme Court has held : It may be stated that the word expenditure has no! been defined in the Act. Ii is a word of wide import. Section 40A (3) refers to the expenditure incurred by the assessee in respect of which payment is made. It means that all outgoings are brought under the word expenditure for the purpose of the section. The expenditure for purchasing stock in trade is one of such outgoings. The value of the stock in trade has to be taken into account while determining the gross profits under section 28 on principles of commercial accounting. The payment made for purchases would also be covered by the word expenditure and such payments can be disallowed, if they are made in cash in the sums exceeding the amount specified under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ike taxing authority under this subsection to allow such expenditure. In view of the abovesaid decision of Hon ble Gujarat High Court, it is quite evident that mischief of provisions of section 40A (3) will apply even to those payments which are genuine and parties are identifiable and thereby those payments are otherwise allowable u/s 37. 3.6 Now coming to other issue whether the case of the appellant is covered within the exception provided under rule 6DD, the appellant has tried to argue that payment has been made to some of the farmers in village where banking facilities are not available. I have considered this argument. Firstly the appellant has not specified as to which of the sellers are residing in particular village, which is not covered by banking facilities. On the other hand it is seen from the available details that some of the sellers of the land are residing in Jaipur City to whom the appellant has made cash payment e.g. heavy substantial amount of the payment totaling to ₹ 1.81 crore has been made in cash to one Sh. Ved Vrat Sharma, Sushila Sharma who are residing in Banipark Jaipur. Similarly, substantial sum being ₹ 2.63 crores has been paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of purchase with the seller party and balance amount of ₹ 2,69,28,892/-was paid in cash to the various sellers. The A.R argued that submission already given may be considered against the proposed enhancement also. 4.2 The submission of the A.R has already been considered by the undersigned as discussed in earlier paragraphs and it has been held that payment made by the appellant in cash in excess of ₹ 20,000/- attracts the provisions of section 40A (3) and the case of the appellant is not covered in the exception provided in rule 6DD in view of the facts and circumstances of the case and the legal position on the issue under consideration. Considering that the fact and circumstances related to these further noticed cash payments by the undersigned are same as for the other cash payments held to be covered u/s 40A(3), these further noticed cash payments are also held to be covered u/s 40A(3) requiring disallowance of 20% out of these further noticed cash payments of ₹ 2,69,28,892/-. Accordingly, disallowance is enhanced by ₹ 53,85,778/-. 8. Now the assessee is in appeal here before the Tribunal. 9. The submissions made before ld. CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance on the decision of Hon ble Apex Court in case of Attar Singh Gurmukh Singh vs. ITO, 191 ITR 667 (SC) has held that once an item has been shown in closing stock then it has to be presumed that assessee has claimed expenditure. However, in the said decision of Hon ble Apex Court it is seen that the Hon ble Supreme Court has observed that the value of stock in trade has to be taken into account while determining the gross profits under section 28 on principles of commercial accounting. The ratio is not applicable on the facts of the present case as assessee has not claimed any expenditure and there is no gross profit earned by assessee. Neither any trading account was drawn as assessee has not claimed any expenditure. Land was purchased and expenditure on purchase of land was incurred, they were shown in asset side and whatever the amount was received on account of booking of plot that was shown in liability side. Copy of balance sheet was filed before AO as well as before ld. CIT (A) and it was clearly mentioned that assessee has not claimed any expenditure on account of purchase of land. The ld. CIT (A) has also observed in his order that assessee has not prepared any trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in cash. 15. We further noted that the Board had occasion to deal with several representations from various Chambers of Commerce, trade associations and businessmen regarding the scope of provisions of section 40A(3) of the IT Act, 1961, and Rule 6DD of IT Rules, 1962. Since many of the points raised therein were of an important nature, the clarifications thereon was issued by the Board by Circular No. 33 dated 29.12.1969 wherein it was clarified that the provisions of section 40A(3) would apply in computing the income under the head Profits and Gains of business or profession, where any expenditure has been incurred. The Board circular supports the case of the assessee as assessee has not claimed any expenditure on account of purchase of agricultural land from farmers under the head Profits and Gains of business or profession. 16. In view of the above facts and circumstances, we hold that since assessee has not claimed any expenditure, therefore, no disallowance can be made during the year under consideration. 17. Even on alternate contention of assessee that payments were made to various farmers in villages where no bank facilities were available, we find that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in case of PACL India Ltd., 38 DTR 1 (JP) also wherein it has been held as under :- Clause (h) of r. 6DD takes out of the purview of s. 40A(3) such cash payment which is made in a village or town which is not served by any bank to any person who ordinarily resides or is carrying on any business in such village or town. There is no dispute that the sellers of the land are villagers engaged in farming activities and are residing at places and are carrying on farming activities at places which are not served by any bank and such sellers have no bank accounts anywhere. It has been emphatically argued on behalf of the appellant-company that all payments were made at the villages prior to registration of the sale. This submission cannot be outrightly rejected. Normally, illiterate poor farmers would insist on cash payments, especially when such payments involve huge amounts, at the place of their residence for the simple reason that they would like to avoid the risk of receiving cash at the town where the sale is to be registered and which may be far away from the village and such cash has to be carried back by them to the village. It is common knowledge that the seller has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of such payment which is required to be made in cash or absence of banking facilities. Rule 6DD(h) must be interpreted keeping in view this object and purpose. Therefore, the cash payments re covered under section proviso to s. 40A(3) and r. 6DD(h). The AO is directed to delete the addition of ₹ 1,60,69,350/- sustained by the CIT (A). While holding so, the Tribunal has taken into consideration cases of M/s. P. Pravin Co., 274 ITR 534 (Guj.), Hasanand Pinjomal, 112 ITR 134 (Guj.), Venkata Satyanarayana Timber Depot, 165 ITR 253 (AP) and Chaudhary Co., 217 ITR 431 (All.). 20. While deciding this issue, the ld. CIT (A) has taken into consideration the decision of Hon ble Gujarat High Court in case of Hasanand Pinjomal (supra) and this very decision has been considered by the Tribunal in case of PACL India Ltd. (supra). In this case also it has been held that where payment has been made in villages, the provisions of section 40A(3) cannot be applied. While holding so, the Tribunal has taken into consideration the genuineness of the payment made by assessee that even on account of genuineness of the payment disallowance should not be made under section 40A(3). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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