TMI Blog2017 (11) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... such a myopic view is taken regarding the interpretation of r.6DD(h), the very object of the legislature would be frustrated. There is no dispute regarding the identity of the payees and the genuineness of the land transactions in respect of which payments have been made. It is notable that r.6DD(k) provides an exception in respect of cash payment which is made on a day on which the banks were closed. This proves that the object of the legislature is to provide exception in respect 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 recovered under section proviso to s. 40A(3) and r.6DD(h). The AO is directed to delete the addition - Decided in favour of assessee. - D. B. Income Tax Appeal No. 45 / 2012 - - - Dated:- 11-9-2017 - K. S. Jhaveri And Vijay Kumar Vyas, JJ. For the Appellant : Mr. Anil Mehta with Mr. Sameer Sharma For the Respondent : Mr. Siddharth Ranka ORDER 1. By way of this appeal, the appellant has challenged the judgment of the Tribunal whereby the Tribunal has allowed the appeal filed by the assessee. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard rival submission and considered them carefully. After considering the submissions and various case laws, we are of the view that assessee deserves to succeed in its appeal on the ground that no expenditure has been claimed in the year under consideration in the Profit Loss account and, therefore, no disallowance can be made under section 40A(3). First, we would like to see the provisions of section 40A(3) which are as under:- 40A(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. After going through the above provisions, it is seen that where any expenditure has been incurred in cash then in that case no deduction will be allowed. Assessee has not claimed any deduction on account of purchase of land which was shown in stock-in-trade. The ld. CIT(A) by placing heavy reliance on the decision of Hon ble Apex Court in case of Attar Singh Gurmukh vs. ITO, 191 ITR 667 (SC) has held that once an item has been sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor had passed on the amount to the sub-contractor, such amount could not be treated as an expenditure as the same was not claimed in its Profit Loss account. 13. The facts in this case were that the assessee was a civil contractor who entrusted work to a sub-contractor and payment of ₹ 37,17,788/- were made to sub-contractor. The AO disallowed the same by holding that expenditure paid by way of cash was contrary to section 40A(3) of the Act. The ld. CIT(A) as well as the Tribunal held that it was not an expenditure claimed by assessee but it was a payment made to sub-contractor pursuant to an agreement. On appeal, as stated above, the Hon ble Karnataka High Court affirmed the view of the Tribunal. 14. This ratio of Hon ble Karnataka High Court can be applied on the facts of the present case as in this case also no expenditure has been claimed by the assessee in its Profit Loss account. Language of section 40A(3) is very clear where it is provided that no deduction will be allowable if any expenditure has been incurred in cash. 15. We further noted that the Board had occasion to deal with several representations from various Chambers of Commerce, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town, then no disallowance can be made under section 40A(3). In fact, the ld. CIT (A) has mentioned sub clause (h) whereas the correct clause is 6DD(g). The ld. Counsel of the assessee has made statement at Bar that there is no bank branch in village Ballupura at the time of purchase of the land from various sellers. It was also submitted by ld. A/R that normally the villagers paid in cash at the time of entering into agreement and sale deed is completed at a later stage wherein they have agreed to receive the amount from the assessee either in cash or cheque as the case may be. This contention of the ld. Counsel of the assessee remained uncontroverted, therefore, we see no reason to interfere with the finding of ld. CIT (A) and held that ld. CIT (A) was right in deleting the disallowance made by AO under section 40A(3). 19. Similar view has been expressed by the Tribunal in case of PACL India Ltd., 3 8 DTR 1(JP) also wherein it has been held as under:- Clause (h) of r. 6DD takes out of the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee in view of absence of banking facilities at the place of payment. In the present case, even if it is assumed that the payment was made at the District headquarter, the admitted position is that the sellers did not have any bank accounts at such town and they did not reside or carry on any business or farming activity at such town. It would be too much to expect that the appellant company would be able to compel the villagers to open bank accounts at the town which ultimately they will not be able to operate as they do not reside at such town. If such a myopic view is taken regarding the interpretation of r. 6DD(h), the very object to the legislature would be frustrated. There is no dispute regarding the identity of the payee and the genuineness of the land transactions in respect of which payments have been made. It is notable that r. 6DD(k) provides an exception in respect of cash payment which is made on a day on which the banks were closed. This proves that the object of the legislature is to provide exception in respect 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 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69 taxman.com 438 (Mad.) observed as under : Therefore, if as rightly observed by the Tribunal in paragraph 4 of its order, the purpose of Section 40A(3) is to discourage cash transactions leading to circulation of unaccounted money, then, the same may not normally happen before the Sub Registrar at the time of registration of documents, as the payments made at that time get recorded officially.[Para 22] All the three authorities have failed to appreciate that when a vast extent of agricultural lands is purchased from several persons, especially in villages, it is not possible to expect the villagers to accept the sale consideration by way of crossed account payee cheque or bank draft. Therefore, so long as the payees are identified and the genuineness of the transaction is not questioned and so long as the payments have been made at the time of registration in the presence of the Sub Registrar, the case would fall under the exceptions provided in Clause (j) of Rule 6DD. This position has also been clarified by Circular No. 220, dated 31-5-1977. [Para 23] 3. CIT vs. Chaudhary and co. [1996] 217 ITR 431 (Allahabad) observed as under : The object of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and 10] [in favour of assessee] 9. Anupam Tele Services v. ITO [2014] 43 taxman.com 199 (Gujarat) observed as under: Section 40A(3) of the Income Tax Act, 1961, read with rule 6DD of the Income Tax Rules, 1962 Business disallowance Cash payment exceeding prescribed limit (rule 6DD (j) - Assessment year 2006-07 Assessee was working as an agent of Tele Services Limited for distributing mobile cards and rechrgae vouchers - Principal company Tata insisted that cheque payment from assessee s cooperative Bank would not do, since realisation took longer time and such payment should be made only in cash in their bank account If assessee would not make cash payment and make cheque payments alone, it would have received recharge vouchers delayd by 4/5 days which would severely affect its business operation Assessee, therefore, made cash payment Whether in view of above, no disallowance u/s 40A(3) was to be made in respect of payment made to principal - Held, yes [ paras 21 to 23] 10. CIT V/s Balaji Engineering [2010] 323 ITR 351 (Karnataka) observed as under: The assessee who was a civil contractor, after obtaining a contract from the Government entrus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolve 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 to confirm before the Sub-Registrar the full payment has been received by him. At the same time, the Sub-Registrar satisfies himself about the identity of the seller to ensure that the payment has been made to the right person. For the sake of convenience, in the receipt the place is mentioned as the town where the document is registered. The AO has not made any efforts to examine any of the sellers to verify as to whether the payments were received at the villages or at the town. Considering the entire facts the proposition that the payments were made at villages where banking facilities did not exist is accepted. Even if it is assumed that payments were made at a town where banking facilities were available, the cash of the appellant-company would still fall under the exceptions of r.6DD . Rule 6DD(h) has to be interpreted liberally so as not to frustrate the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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