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Silver Oaks Township Ltd. Versus D.C.I.T. Central Circle-III Ludhiana

Addition u/s 40A(3) - purchase of land by making cash payment to the Sellers - Held that:- From the perusal of accounts filed before us, we see that no claim of any expenditure or even purchases have been made during the year. The lands purchased have been transferred to ‘project in progress’ account. The language of the section is very clear that in cases of expenditure incurred by the assessee in cash, no deduction on account of that expenditure is allowed under this provision. We are aware of .....

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assessee does not fall in any of the clauses of Rule 6DD, being the exceptions provided invoking the provisions of section 40A(3) of the Act can be dispensed with if the assessee is able to prove the business expediency out of which it had to make the cash payments and the genuineness of the transaction has also to be proved. We observe that none of the lower authorities have questioned the genuineness of the transaction. The only reason for disallowance is the provisions of section 40A(3) of th .....

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. 750/Chd/2014, ITA No. 464/Chd/2014, ITA No. 751/Chd/2014 - Dated:- 30-3-2016 - Bhavnesh Saini (Judicial Member) And Rano Jain (Accountant Member) For the Appellant : Sudhir Sehgal For the Respondent : Manjit Singh, DR ORDER Rano Jain (Accountant Member) This bunch of four appeals filed by the same assessee are directed against the separate orders of the learned Commissioner of Income Tax (Appeals)-I, Ludhiana dated 23.6.2014, 23.6.2014, 27.3.2014 and 23.6.2014, relating to assessment years 200 .....

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ssessee being in the business of real estate developer had purchased land during the year amounting to ₹ 1,43,13,750/- out of which purchases to the extent of ₹ 60,50,000/- were made in cash. On being confronted by the Assessing Officer, the assessee replied that no business has been done during the year and only purchases had been made, therefore, the provisions of section 40A(3) of the Income Tax Act, 1961 (in short the Act ) are not applicable. It was further submitted that the pa .....

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. Further, it was argued that the cash payment was made to the agriculturists for purchase of their land, on account of business expediency because there was no other option with the assessee but to make payment in cash as it was essential to purchase land for running the business of the assessee. Reliance was placed on a number of judgments including that of the Jaipur Bench of the I.T.A.T. in the case of Ace India Adobes Ltd. Vs. ACIT in ITA No.79/JP/2011. However, the learned CIT (Appeals) di .....

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s, he dismissed the appeal of the assessee. 6. Aggrieved by this, the assessee has come in appeal, raising the following grounds of appeal : 1. That the Worthy Commissioner of Income Tax (Appeals), Ludhiana has erred in confirming the addition of ₹ 12,10,000/- u/s 40A(3) of the Income Tax Act, 1961 on account of purchase of land by making cash payment of ₹ 60,50,000/- to the Sellers. 2. That Ld. CIT(A) erred on facts and law in confirming the addition made by the AO by invoking the p .....

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counsel for the assessee withdrew the same during the course of hearing. 8. The only issue in this appeal remains is the disallowance under section 40A(3) of the Act. The learned counsel for the assessee drew our attention to Paper Book pages 3 to 7 to show that during the year, no business has been conducted by the assessee. The assessee being a real estate developer, is in the process of collecting land by purchasing the same from various farmers. During the year under consideration, the land .....

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o the farmers for purchase of land was on account of business expediency because there was no other option with the assessee but to make the payment in cash. Reliance was placed on the judgment of Hon'ble Punjab & Haryana High Court in the case of Gurdas Garg Vs. CIT, ITA No.413 of 2014, dated 16.7.2015, which was delivered after considering the judgment of the Hon'ble Apex Court in the case of Attar Singh Gurmukh Singh Vs. ITO, whereby it was held that cash payments made by real est .....

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ue to be decided by us is whether the cash payment amounting to ₹ 60,50,000/- is exigible to disallowance by invoking the provisions of section 40A(3) of the Act. The undisputed facts of the case are that the assessee has made cash payment of ₹ 60,50,000/- to some agriculturists for purchase of land. The assessee is a real estate developer during the year and is in the process of accumulating land from various sources. It has not done any business during the year. From the perusal of .....

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cheque drawn on bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. 11. The language of the section is very clear that in cases of expenditure incurred by the assessee in cash, no deduction on account of that expenditure is allowed under this provision. We are aware of the proposition that even if the expenditure is in the nature of purchases, the same is prone to disallowance under section 40A(3) of the Act. However, wh .....

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No.751/Chd/2014 : & ITA No.464/Chd/2014 : 15. The issue is same in these two years also. The findings given by the Assessing Officer as well as the learned CIT (Appeals) are also the same. However, during the course of hearing, it was brought to our notice by the learned counsel for the assessee that in these years, the assessee was into the business of real estate and the purchases form part of stock-in-trade and not a part of project in progress as in earlier two years. In view of this, it .....

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tatives of both the parties, perused the findings of the authorities below and considered the material available on record. The issue is identical to the facts of the case of Gurdas Garg (supra) decided by the Punjab & Haryana High Court. This case has been very aptly analyzed in following terms in the order of the I.T.A.T., Chandigarh Bench in the case of Dhuri Wine (supra) : 10. Since heavy reliance was placed on a latest judgment of the Hon'ble Jurisdictional Punjab & Haryana High .....

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section 40A(3) of the Act, the Assessing Officer made the disallowance. The learned CIT (Appeals) in his order gave finding that the identity of the payees i.e. the vender in respect of the land purchased by the assessee was established. The sale deeds were produced, the genuineness thereof was accepted. The amount paid in respect of each of these agreements was certified by the Stamp Registration Authority. In this way, the learned CIT (Appeals) held that the bar against the grant of deductions .....

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ed for payment in cash. The Tribunal did not doubt this case. However, the Tribunal held that claim for deduction was not sustainable in view of section 40A(3) of the Act as the payments were made in cash over ₹ 20,000/-. The Hon'ble High Court while deciding the issue relied upon the judgment of Hon'ble Rajasthan High Court in the case of Smt.Harshila Chordia Vs. ITO (2008) 298 ITR 349, whereby it was held that there being no dispute about the genuineness of the transaction and th .....

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d Rule 6DD of the Income Tax Rules were intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. After analyzing all these, the Hon'ble High Court held that the Tribunal has not disbelieved the transactions or the genuineness thereof, nor has it disbelieved the fact of payments having been made, more importantly, the reasons furnished by the assessee for making the cash payments have not bee .....

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that even if the case of the assessee does not fall in any of the clauses of Rule 6DD of the Income Tax Rules, invoking the provisions of section 40A(3) of the Act can be dispensed with if the assessee is able to prove the business expediency because of which it have to make the cash payments, the genuineness of the transactions have also to be verified. In the present case, detailed submissions with corroborative evidences were filed at every stage including that of the Assessing Officer as wel .....

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person has licence in his own name to make the sales and purchases as per the terms of these licence agreements. Further, it is quite a known fact that in the business of the liquor, transactions are to be done in cash. All these facts have not been controverted by the Assessing Officer or even by the learned CIT (Appeals). This makes out a case that the assessee has business expediency under which it have to make payments in cash. Further, not a single transaction has been questioned at any st .....

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