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TMI Blog2017 (3) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... me of Rs. 12,08,340/-. The AO completed the assessment u/s 143(3) of the Act by determining the total income at Rs. 43,93,962/-. 3.1 A survey under section 133A was conducted on the premises of the assessee on 28.02.2006 and books of accounts were impounded during survey. On examining the books of accounts, it was found that the assessee had made several payments in cash exceeding Rs. 20,000/- thereby violating the provisions of Section 40A(3) of the Act. The payments were primarily made towards land development, miscellaneous expenses, land payments. The Assessing Officer found that a large number of payments were made in violation of section 40A(3). Accordingly, the additions were made as per paras 3 to 8 of the Assessment Order. 4. During appeal proceedings, the assessee's main arguments were that the payments were made to poor agriculturists who did not have bank accounts. Secondly, the assessee stated that it did not hire any contractor and the payments with regard to the development works were made to the staff of the assessee and the mastries. It was also stated that the payments were made directly to the labourers. The third argument is that some of the payments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of the persons to whom the commission was paid and copies of the statements so recorded were not provided to the assessee. It was further submitted that in the assessment order the AO mentioned at page 11 the rate of commission ranges between Rs. 50 and 100/- per sq.yd. and arrived at a rate of 4% to 8% based on the sale price of each sq. yard but restricted the same to 6.4%. It was submitted that this is the probable amount arrived at by him as against the actual amount paid and recorded in the books of account. Finally, it was submitted that as the AO did not provide an opportunity to cross examine the persons to whom commission was paid, the assessee submitted that the addition made by the AO was not justifiable. 8. The CIT(A) after considering the submissions of the assessee observed that no enquiry had been conducted at the back of the assessee and it was the assessee who was asked by the AO to provide details of all the persons, to whom commissions were paid. He observed that as clearly brought out in the assessment order by the AO, the assessee could not even furnish the names and address of most of the persons to whom it had claimed to have given commission payments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Sec.40(a)(ia) in respect of Silicon County-II and further erred in arriving at the disallowance of Rs. 46,751/-. 9. The learned Commissioner of Income-Tax (Appeals) erred in arriving at a disallowance of Rs. 10,06,154/- on account of payments towards commission in respect of Silicon County. 10. The learned Commissioner of Income-Tax (Appeals) erred in arriving at a disallowance of Rs. 6,16,109/- on account of payments towards commission in respect of Silicon County-II." 9.1 The grounds raised by the assessee in AY 2007-08 are as follows: "1. The order of the learned Commissioner of Income-Tax (Appeals) is erroneous, unjust and contrary to the facts of the case. 2. The learned Commissioner of Income-Tax (Appeals) erred in confirming the addition of Rs. 1,48,89,771/- made by the Assessing Officer applying the provisions of Sec. 40A(3) in respect of the following projects: a) Highway Paradise .. Rs.17,76,764 b) Silicon County .. Rs.18,08,077 c) Silicon County-II .. Rs.16,02,401 d) Silicon County-III .. Rs.66,13,927 e) Royal Residency .. Rs.29,37,438 f) Crystal Park .. Rs. 1,51,164 3. The learned Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to commission payments, ld. AR submitted that in the real estate business, commission agents play a crucial role as they have to approach, convince and bring the customers to the company. The Company is bound to announce attractive commission for the agents in order to improve the business, which was in fact around 20% of the sale price. He reiterated that the payment made by the assessee to the agents were according to the policy adopted by the assessee and were actual payments made to the agents. He, therefore, contended that AO cannot determine quantum of commission which the company should have incurred. 11. Ld. DR basically supported the orders of AO and CIT(A) and further substantiated and argued that rule 6DD(g) basically speaks about only ordinary residence of the parties. It is relevant to notice that chart submitted before the Hon'ble Tribunal by the AR in which the addresses were given, which highlights that ordinary residence of the parties, who sold land to the assessee are ordinary residents in and around Hyderabad where there is no shortage of banking facilities. It is only to infer that these payments were made in the place of residence and not in the place of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. And also furnishes evidence to the satisfaction of the Assessing Officer as to the genuineness of the payment and identity of the payee". The above clause (j) of Rule 6DD has been omitted by the IT (fourteenth amendment) Rules 1995 w.e.f. 27.5.1995. It is pertinent to refer at this juncture, to the decision of Hon'ble Andhra Pradesh High Court in the case of Smt. Ch. Mangayamma Vs. Union of India and others (239 ITR 687), wherein considering the constitutional validity of the provisions of S.40A(3) of the Act in the light of the above amendment made to Rule 6DD of the IT Rules, the Hon'ble High Court observed and held at page 693 of the Reports (239 ITR 687) as follows: "In view of the aforesaid principles as laid down and the object as sought to be achieved u/s 40A(3) of the Act, any changes made in the subordinate legislation would not in any way affect the substantive provision. Moreover, by deleting the circumstances as contemplated earlier, viz., sub clauses (1) and (2) of rule 6DD(j) the objects of curbing the circulation of black money and regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the Assessee and the necessity for them to pay cash to the land owners we are of the opinion that the condition under Rule 6DD for exemption viz., transactions should have taken place on Bank Holidays should be read down in the case of the Assessee. 17. In the case under consideration, no banking facility is available where the properties 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. In view of the above discussion, we set aside the order of CIT(A) and delete the addition of Rs. 4,09,98,105/- made u/s 40A(3) of the Act." 13.1 In the case under consideration, the facts are similar to the facts in the above decision of the coordinate bench. As per the said decision, the payments are made in the place of registration wherein there is no banking facilities, are not covered by the provisions of section 40A(3). In the given case, ld. DR submitted that as per 6DD(g), the ordinary residence of the land owners are relevant, as the payment would have made in the place of residence not in the place of registration. We are not in a position to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. ITA No. 753/Hyd/2014 by the revenue for AY 2007-08 15. In this appeal, the revenue has raised the following grounds of appeal: i. The order of the CIT(A) is erroneous both in law and in facts of the case. ii. The CIT(A) erred in deleting the disallowance of Rs. 1,29,10,312/- made u/s 40A(3) of the Act representing the payments made in cash to land owners. iii. The CIT(A) erred in deleting the disallowance of Rs. 49,900/- made u/s 40A(3) towards payments made to employees for incurring expenditure on development. iv. The CIT(A) erred in ignoring the provisions of Rule-46A where in the CIT(A) has to call for remand report from the Assessing Officer, before accepting the additional evidence produced before him. v. The CIT(A) erred in ignoring the provisions that the Company will not get any immunity from the application of provisions of section 40A(3), as the assessee failed to produce evidence in support of its claim that the circumstances stipulated under Rule 6DD(g) were prevailing on the dates of payments in cash. vi. The CIT(A) erred in ignoring the fact that the assessee had filed separate Trading and P & L Account for separate ventures and shown payments t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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