New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (9) TMI 436 - ITAT INDORE

2016 (9) TMI 436 - ITAT INDORE - TMI - Disallowance u/s 40A(3) - cash purchase - Held that:- The assessee has made payment of purchase under exceptional circumstances out of business expediency and also filed all the relevant documents and evidence in support of the same before both the lower authorities and the lower authorities have not brought any material on record by verifying the same that they are false, bogus or unreliable. Therefore, in the given circumstances, we are of the view that t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fficer. We find that before the Assessing Officer the assessee filed tax audit report and submitted that it is evident from the tax audit report that the assessee has not claimed expenditure and entire cost of land and development work is carried forward to next assessment year which fact has not been disputed either by the Assessing Officer or the learned CIT(A). Therefore, as no expenditure having been claimed by the assessee in the profit and loss account while computing its total income, no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ties and delete the disallowance - Decided in favour of assessee - Disallowance under the head bogus purchases - Held that:- Assessing Officer has himself allowed deduction for purchases of ₹ 2,45,000/- made from Kailash Porwal. Thus, part of the purchases was accepted from the said party by the Assessing Officer as genuine. He has doubted the purchases of ₹ 13,34,400/- only for the reason that payments were made in cash for them. The Assessing Officer has brought no material aft .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nuine business expenditure of the assessee. In our considered view, suspicion howsoever grave cannot take place of proof and entitle the Assessing Officer to make disallowance of genuine business expenditure claimed by the assessee. Therefore, we set aside the orders of the authorities below and vacate the disallowance. - ITA No. 522/Ind/2014 - Dated:- 14-7-2016 - Shri D.T. Garasia, JM & Shri N.S. Saini, AM For The Appellant : Shri Ashish Goyal and Shri N.D. Patwa For The Respondent : Shri R .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of hearing, no argument was advanced by the learned counsel for the assessee and hence this ground of appeal is dismissed for want of prosecution. 5. Ground no. 3 of the appeal is directed against the order of the learned CIT(A) confirming the disallowance of expenditure of ₹ 3,51,72,500/- u/s 40A(3) of the Act. 6. Brief facts of the case are that the assessee is a real estate developer and engaged in several real estate projects. During the year under consideration the assessee made purch .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee has violated the provisions of section 40A(3) of the Act and, therefore, made the addition for the entire amount of ₹ 3,51,72,500/- to the income of the assessee. 7. The assessee being not satisfied with the order of the Assessing Officer carried the matter in appeal before the learned CIT(A). The assessee contended that all the payments were made to the parties who were new to the assessee firm and the assessee firm had entered with single transaction with the seller. The seller .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

red deed. The copies of the relevant purchase deed executed by the assessee firm were submitted with letter dated 24.1.2014. It was also submitted that execution of purchase deed before the Government official was a proof of genuineness of transaction and payments received by cheque. It was also submitted that the purchase of land was completed by the assessee firm after settlement of dispute after the judgments of Court and the seller refused to accept the cheque due to mistrust and doubt on th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

due to disbelief of transaction with the assessee firm, in the interest of business and under due business expediency, cash payment was made. Further in the case of land purchased from Narendra Singh and others payment was made to Shri Dashrath Patel who was having power of attorney on behalf of the sellers as sellers were residing in village Kudana which was not served by any bank and did not have any interconnection with the assessee firm, necessity for cash payment and under this genuine cir .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that in his opinion disallowance of expenditure beyond the specified limit by means of crossed cheque or crossed draft was fully justified. With the amendment made from 1.4.2009 the Assessing Officer had no discretionary power than to disallow 100% of expenditure if the payment was made in violation of section 40A(3) of the Act. He held that in the case of the assessee land purchased was stock in trade and in purchasing it expenditure/payments were made in cash and, therefore, it falls within t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

He further observed that the assessee has furnished PAN of seller parties of the land and it is clear that most of the seller parties were having PAN and bank account numbers and, therefore, the assessee was in a position to make the payment through account payee cheques as required u/s 40A(3) of the Act. 9. Before us, the learned counsel for the assessee reiterated the submissions made before the lower authorities and on the other hand, the learned DR fully justified the orders of the authorit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2,500/- in cash. The Assessing Officer held that since the land purchased by the assessee was its stock in trade and in the purchase of which the assessee had made cash payments in violation of provisions of section 40A(3) of the Act, therefore, 100% of the payments made in cash for purchase of land was disallowable u/s 40A(3) of the Act and accordingly made the addition ofRs.3,51,72,500/- to the income of the assessee. 11. On appeal, the learned CIT(A) confirmed the action of the Assessing Offi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

claimed the same as its expenditure in the profit and loss account but as the assessee has debited the expenditure in the profit and loss account, therefore, the disallowance made by the Assessing Officer was fully justified. We find that the contention of the assessee is that the payment in cash for purchase of land was made in exceptional circumstances such as purchase of land was completed by the assessee firm after settlement of disputes and judgment of Court where sellers refused to accept .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

overnment official as the sellers were not willing to accept the cheques, therefore, it was contention of the learned counsel for the assessee that the transaction fell within the exceptions as carved out in the proviso below sub-section (3A) to section 40A(3) wherein it has been 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 subsection where a payment or aggregate of payments made to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in support of the same before both the lower authorities and the lower authorities have not brought any material on record by verifying the same that they are false, bogus or unreliable. Therefore, in the given circumstances, we are of the view that the assessee is covered by the exceptions in the proviso below sub-section (3A) to section 40A(3) and no disallowance u/s 40A(3) can be made in the hands of the assessee. 12. Further with regard to the contention of the assessee that the land purcha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ward to next assessment year which fact has not been disputed either by the Assessing Officer or the learned CIT(A). Therefore, as no expenditure having been claimed by the assessee in the profit and loss account while computing its total income, no disallowance u/s 40A(3) can be made. Our above view is fortified by the decision of the Delhi Bench of the Tribunal in the case of M/s Saral Motors and General Finance Ltd. vs. ACIT (2009) 121 ITD 50 (Del) wherein it was held that there cannot be dis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he head bogus purchases. 14. Brief facts of the case are that the Assessing Officer observed that the assessee has made purchases of ₹ 15,79,400/- from Shri Kailash Porwal. It was found that out of the total purchases ₹ 2,45,000/- was paid by cheque and the balance amount was paid in 74 instalments of ₹ 18,200/-. Therefore, the Assessing Officer disallowed the purchases of ₹ 13,34,400/- for which the payments were made in cash by the assessee holding it to be bogus as the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

orted the orders of the authorities below. We find that the Assessing Officer has himself allowed deduction for purchases of ₹ 2,45,000/- made from Kailash Porwal. Thus, part of the purchases was accepted from the said party by the Assessing Officer as genuine. He has doubted the purchases of ₹ 13,34,400/- only for the reason that payments were made in cash for them. The Assessing Officer has brought no material after verification to show that the purchases were bogus and the assesse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uspicion howsoever grave cannot take place of proof and entitle the Assessing Officer to make disallowance of genuine business expenditure claimed by the assessee. Therefore, we set aside the orders of the authorities below and vacate the disallowance. This ground of appeal is allowed. 17. In ground no. 5 and 6 the grievance of the assessee is that the learned CIT(A) was not justified in confirming the addition of ₹ 2,30,00,000/- made u/s 68 of the Act and disallowing the interest paid the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, charging of such low interest rate on the huge amount of loans raises doubt. In order to verify the identity and genuineness of the parties, notice u/s 133(6) of the Act was issued on 26.12.2012 asking these parties to furnish details on or before 4.1.2013. No reply was received till 7.2.2013. Thereafter the Assessing Officer asked the assessee to produce all the directors of the three concerns and to produce the bank statement reflecting the source of the amount advanced as unsecured loan. Th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

were despatched at the addresses given by the assessee and, therefore, the contention of the assessee is rejected. Therefore, the Assessing Officer made addition of ₹ 2,30,00,000/- and disallowed the interest payment of ₹ 2,79,808/- made to these parties. 19. Before the learned CIT(A) it was contended that the assessee furnished copy of return of income of the loan creditors. The learned CIT(A) observed that in the return of income the parties were having loss/very small positive inc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the three companies for the year under appeal. (v) copy of assessment orders (vi) copy of bank statement of the assessee firm wherein credit of unsecured loans is accepted and appearing. (vii) copy of loan account of the loan creditors in the books of the assessee firm (viii) copy of ledger account of loan creditors in the books of the assessee firm for the year of repayment along with copy of bank statement from where the amount of repayment has been made and (ix) copy of TDS certificate for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the parties to advance such loan. It was argued that the assessee was required to prove the source of credit in its books of accounts and not about the source of source. Hence, it was prayed that the addition made should be deleted. 21. On the other hand, the learned DR supported the orders of the authorities below. 22. We have heard the rival contentions of both the sides. In the instant case during the year under consideration the assessee has received ₹ 2,30,00,000/- from three compa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n loss/small amounts of income and, therefore, the loan creditors did not have credit worthiness to advance the sum of money to the assessee. The learned counsel for the assessee submitted that the assessee had filed overwhelming evidence such as confirmation letters from the loan creditors, ledger copies of the accounts in the books of the loan creditors, copy of bank statement of the loan creditor, copies of income tax return and balance sheet, copy of assessment order, the loans have been rec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessment order in support of the loan received by the assessee. We find that since the rate of interest paid by the assessee on the said loan was 3.06% and to other creditors it was 7% to 26.1% the Assessing Officer doubted the genuineness of the loan transaction He has brought no material on record after making inquiries on the basis of material filed by the assessee to show that the loan creditors are not genuine or that they had no credit worthiness to advance the sum of money to the assess .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n creditors is doubtful. Merely from the return of income filed it cannot be deciphered whether the loan creditors had the credit worthiness to advance the sum of money to the assessee. The company may have received the amount by issue of share capital, debentures, preference shares which are all capital receipts not liable to tax and, therefore, will not find its place either in the profit and loss account or in the return of income. The assessee has filed copies of balance sheet and after veri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ies of bank statement as noted in the order of the CIT(A) of three companies from whom the assessee has received the loans. The assessee has filed bank statements evidencing the fact of repayment of loan in the subsequent years. After considering the entire facts and circumstances, we are of the view that the addition as made by the Assessing Officer and confirmed by the learned CIT(A) by invoking the provisions of section 68 of the Act is unsustainable. Here we would like to cite the decision o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee exhausts all the evidence or material in its possession and then merely reject it, without carrying out any verification or enquiry into the material placed before him. For the assessment year 2004-05 , the Assessing Officer sought to include a sum of ₹ 55.5 lakhs in the total income of the assessee. In response to the query with regard to the sum of ₹ 55.5 lakhs, the assessee had furnished various documents in support of the share application money received by it. Those doc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version