TMI Blog2017 (5) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... that the A.O. was erred in disallowing cash payments by invoking provisions of section 40A(3) of the Act. Hence, we direct the A.O. to delete additions made towards cash payments u/s 40A(3) of the Act. - Decided in favour of assessee. - I.T.A.No.458/Vizag/2014 - - - Dated:- 5-5-2017 - SHRI V. DURGA RAO, JUDICIAL MEMBER, AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri G.V.N. Hari, AR For The Respondent : Shri Murthy Naik, DR ORDER PER Shri G. Manjunatha, Accountant Member: This appeal filed by the assessee is directed against order of the CIT(A), Guntur dated 13.5.2014 and it pertains to the assessment year 2010-11. 2. The brief facts of the case are that the assessee is a proprietor of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition of capital asset cannot be disallowed under the provisions of section 40A(3) of the Act. The assessee further submitted that he had made cash payments as per the instructions of the sellers and the sellers are not ready to accept the payments by cheque or draft, therefore, under compelled circumstances, he has made cash payments, therefore, his case do not come under the purview of the provisions of section 40A(3) of the Act. The A.O. after considering the explanations of the assessee held that the land in question is not an agricultural land and no agricultural operations was carried nor intended to carry out any agricultural operations, which is proved from the conduct of the assessee that the land has been immediately convert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of trading in land and the claim of the purchase was originally as an investment is an after thought and not borne out by the facts of the case. With these observations, upheld additions made by the A.O. u/s 40A(3) of the Act. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 4. The Ld. A.R. submitted that the Ld. CIT(A) was not justified in confirming the disallowance of ₹ 52,37,250/- made by the A.O. u/s 40A(3) of the Act. The A.R. further submitted that the Ld. CIT(A) ought to have appreciated the fact that the provisions of section 40A(3) of the Act, are not applicable when the asset is purchased as an investment. The assessee has purchased the impugned land as an agriculturist, for the purpose of holding it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, the investment has been converted into stock in trade, formed sites and sold, therefore, the provisions of section 40A(3) of the Act has no application. 6. Having heard both the sides and considered material on record, we find that the A.O. disallowed cash payment for purchase of land on the sole ground that impugned payment is in excess of prescribed limit provided u/s 40A(3) of the Act. Therefore, the issue needs to be examined is whether on the facts and in the circumstances of the case, the impugned payments made for purchase of lands is allowable u/s 40A(3) of the Act. Section 40A(3) of the Act, provides for disallowance of expenditure, in respect of which any payment is made to any person in cash in excess of ₹ 20,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lands. We find force in the arguments of the assessee for the reason that the provisions of section 40A(3) of the Act, does not apply to a case where the payment is made for acquisition of capital assets or investments. In this case the A.O. as well as the CIT(A) never disputed the fact that the assessee has purchased the impugned lands as investment and subsequently converted into stock in trade. The A.O. allegation is that since both the instances have occurred in the same financial year, the assessee failed to prove the lands were acquired for the purpose of investment. Therefore, were of the view that once the impugned lands were acquired as an investment and subsequently converted into stock in trade in the business, the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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