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TMI Blog2017 (5) TMI 1658X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Shri Seukram 3,34,000 4. Shri Seukram 11,,67,000 5. Smt. Sudha Agrawal 83,55,000 6. Automobile Grah Nirman 4,00,000 7. Shri Anil S/O Paramanand 85,00,000 8. Shri Nemichand S/o. Paramanand 40,00,000 9. Smt Nirupama Pandey 15,65,000 Total: 3,41,84,000 4. The Assessing Officer further observed that the land was stock-in- trade and, therefore, the expenditure was revenue in nature and provisions of section 40A(3) are applicable. No plausible explanation was given. Therefore, he disallowed Rs. 3,41,84,000/- u/s. 40A(3) of the Act. 5. On appeal before the CIT(A), the assessee submitted that the seller had insisted for cash payment, the identity was established by furnishing photo, addresses and witnesses. The deal was made in the presence of competent authority, which has cross checked the payment. The entire deal was made as per the regulation of transfer of property Act, which has been checked by the Government officials. It was also business practice in this line of business. It was further argued that the object of section 40A(3) is to check tax evasion and not to deprive the assessee of the deduction which he was otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P dated 6.7.1968. "76 Sub section (3) of new section 40A makes a provision of the disallowance of expenditure incurred in business and professions for which payment is made in an amount exceeding Rs. 2,500/-, otherwise than by a crossed cheques drawn on a bank or a crossed bank draft. This provision will apply in respect of payments made after a date to be notified by the Government, being a date not later than 31.03.1969. This provision is deigned to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the Department as to the identity of the payee and the reasonableness of the payment. " 3.5 The objective of section 40A(3) requiring such payments to be made by crossed cheque or draft has been repeatedly stressed by the Court, as for example, in Walford Transport (Eastern India) vs CIT as under. "From a perusal of decision of different High Courts referred to above, it clearly emerges that the purpose of section 40 A(3) of the Act is not to penalize the assesseefor making cash payment of an amount ofRs.2,500/-or above. The purpose is only preventive and to check evasion of tax and flow of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced by the assessee either during the course of hearing before the Assessing Officer or even before the CIT(A) to show that the payments were made in cash out of business exigencies and, therefore, the CIT(A) was not justified in deleting the addition on the ground of business exigencies following the decision in the case of R.P.Real Estate Pvt Ltd (supra) by the CIT(A). 9. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. In the instant case, the undisputed facts of the case are that the assessee is in business of real estate dealings and during the year, the assessee purchased land for Rs. 3,41,84,000/- and made payment to 9 persons exceeding Rs. 20,000/- in cash in violation of provisions of section 40A(3) of the Act. In the absence of any plausible explanation given by the assessee to the Assessing Officer, the Assessing Officer disallowed deduction for Rs. 3,41,84,000/- u/s.40A(3) of the Act. 10. On appeal, the CIT(A) deleted the addition by following the decision of the CIT(A) in Appeal No.508/10-11 dated 29.4.201 in the case of R.P.Real Estate Pvt Ltd (supra), wherein, the CIT(A) has deleted the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no other option but to purchase on the terms and condition of the sellers. There was business compulsion to purchase the particular land as the assessee has already purchased adjoining lands for the purpose of its housing project. It was submitted that the assessee wanted to acquire all the adjoining lands in the vicinity for the launch of its project, it was under compulsion to purchase land on the terms of the sellers, otherwise it would have hampered its business. Thus, the instance of cash payment was out of business compulsion and not optional. Although the assessee haas strived to make major purchase in cheques, sometimes due to unavoidable circumstances, it was imperative to make cash payment to the sellers. 13. The assessee explained that business compulsion was that all the purchases are part of Ph 139, the major portion for the launch of the project within Ph 139 had already been acquired by the assessee for its housing project. The fact can be verified from the sale deeds which are already on record of the Assessing Officer. After acquisition of the above land, the assessee launched its housing project. Part of the land was acquired in the assessment year 2008-09. Also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o succumb to the terms and conditions of the sellers of the land and make payment in cash. It is also the submission o ld A.R. that the identity of the payees are not in doubt or debate as in the registered sale deed, the photographs of the sellers are affixed and they have signed the sale deed in the presence of the Sub-Registrar and also in the presence of witnesses. Therefore, as the identity of the payees are not doubt, no disallowance u/s.40A(3) can be made in view of the decision of Hon'ble Jurisdictional High Court in the case of R.P.Real Estate Pvt Ltd., (supra). Ld D.R. has simply relied on the order of the Assessing Officer during the course of hearing. He could not point out any good reason to not to follow the order of the Hon'ble Jurisdictional High Court in the case of R.P.Real Estate Pvt. Ltd., (supra). 16. The Hon'ble P& H High Court in the case of Gurdas Garg Vs CITA),2015 (8) TMI 569 , for assessment year 2009-10, while considering the similar issue, held as under: 3. The appellant is engaged inter alia in trading in properties in his individual name. As noted in the assessment order, during the course of assessment proceedings, the details of the closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... know the vendors and obviously therefore, insisted for payment in cash and that as a result thereof, payments had to be made immediately to settle the deals. The Tribunal did not doubt this case. The Tribunal, however, held that the claim for deduction was not sustainable in view of Section 40A(3) as the payments which were over Rs. 20,000/- were made in cash. The Tribunal, therefore, disallowed the same only on a construction of Section 40A(3). The Tribunal restricted the ambit of the proviso to the circumstances mentioned in Rule 6DD of the Income Tax Rules, 1962. We find it convenient to let the order of the Tribunal speak for itself:- "There is no intention of the legislature to make a list of nature and extent of banking facilities available and other factors to be drafted by the assessee at their whims and fancies and as suits to the assessee. Therefore, Rules have been prescribed which are Rule 6DD of I.T. Rules, 1962 and nothing beyond that. xxx xxx xxx The Ld. CIT(A) has not taken the said proviso in the right spirit and has just accepted the submissions and arguments made by the assessee and has deleted the addition, which is against the facts of the case and agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfy the requirements of Rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of Rule 6DD(j). 18. It appears that fulfilment of the conditions of paragraph 5 of the circular has clearly escaped the attention of the Tribunal. The circular clearly indicates that ordinarily where the Income-tax Officer is satisfied about the genuineness of the transaction and payment and identification of the cash payment is established, the Income-tax Officer shall record his satisfaction about the fulfilment of the conditions for allowing the benefit of Rule 6DD(j). Apparently, Section 40A(3)was intended to penalize the tax evader and not the honest transactions and that is why after framing of Rule 6DD (j), the Board stepped in by issuing the aforesaid circular. 19. This clarification, in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business." 9. At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. 10. In the circumstances, the order of the Tribunal in this regard is set aside. The payments cannot be disallowed under Section 40A(3) of the Act." 17. The Amritsar Bench of the Tribunal in the case of RAKESH KUMAR vs. ASSISTANT COMMISSIONER OF INCOME TAX, (2016) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Rule 6-DD that they arc 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. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business." At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which ITAT have already adverted to, have not been disbelieved. In ITAT view, assuming these reasons to be correct, they clearly make out a case of business expediency. In the present case, the genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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