TMI Blog2016 (5) TMI 1515X X X X Extracts X X X X X X X X Extracts X X X X ..... UNJAB HARYANA HIGH COURT] Where the identity of the persons who has received payment in cash is established and genuineness of transactions is established, no disallowance can be made under the provisions of section 40A(3). In the present case even if it is assumed that assessee had first purchased the land and had made the payments to sellers of land the identity of sellers of land is established as is evident from the copy of agreement to sell impounded during survey and also the identity of assessee is established who is deemed to have purchased the land and therefore, also the facts and circumstances of the present case read with judgment of Hon ble Punjab Haryana High Court in the case of Sh. Gurdas Garg suggest that no disallowance could have been made in the present case. In view of the above we allow ground Nos.3 to 6 of the appeal of the assessee. - I.T.A No.475(Asr)/2014, 478(Asr)/2014 - - - Dated:- 27-5-2016 - Sh. A.D.Jain, Judicial Member And Sh. T.S. Kapoor, Accountant Member Appellant by: Sh. Umesh Takyar (DR) Respondent by: Sh. Ashwani Kalia (CA) ORDER T. S. Kapoor, These are cross appeals fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been mae as well as the genuiness of the transaction is establiseed. 3. The brief facts of the case as noted in assessment order are that assessee declared total income of ₹ 40,46,970/-. During the course of assessment proceedings the Assessing Officer observed that assessee had declared to have earned short term capital gain of ₹ 38,53,000/- and after setting off of brought forward short term capital loss of ₹ 26,95,879/-, had declared net capital gain to the tune of ₹ 11,57,121/- The Assessing Officer further observed that the other income offered by assessee included ₹ 25,00,000/- surrendered by assessee during the course of survey proceedings u/s 133A. He further observed that during the survey proceedings a copy of purchase agreement of some land was found from the premises of assessee wherein the fact of having advanced an amount of ₹ 25,00,000/- for purchase of a land was mentioned and assessee during survey proceedings had surrendered this amount of advance. The Short Term Capital Gain declared by assessee was on account of profit from sale of such land which was sold in the form of plots. Since the assessee had treated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of plotting in the shape of a map1 found during the survey. This map is reproduced as follows g) The above map shows the plots made by the assessee. The following examples are visible in the map. 19.58 M Kailaso Devi 16.28 M Tarun Thakur 60.20 M Ajay Mahajan 11.50 M Aman The above are the plots sold as per the map and these also occur in details available in impounded material2 regarding the same land. The plots were sold by registries and the names in registration deeds are different. The rates in registration deeds are also different. The difference is there because the impounded material speaks of actual transactions while the registration deeds contain only the white portion of the transactions. The names are different because the registered sale is shown between original landholders and final customers while the transactions have taken place in cash in different names. In any case, it is established that the map contains the graphic versi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation received by assessees and price of land to tax treating transaction as an adventure in nature of trade - Whether transaction of purchase and sale of land by assessees was an adventure in nature of trade - Held, yes 2. G. Venkataswami Naidu Co. v. CIT [1959] 35 ITR 594 (SC). Conduct prior to purchase is also a relevant factor - If a person invests money in land intending to hold it, enjoys its income for sometime, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Just as the conduct of the purchaser subsequent to the purchase of a commodity improving or converting it so as to make it more readily resaleable is a relevant factor in determining the character of the transaction, so would his conduct prior to the purchase be relevant if it shows a design and a purpose - 3. Raja J. Rameshwar Rao v. CIT[\96\] 42 ITR 179 (SC). Where land is purchased, then developed and later sold in bits, it is a business venture - When a person acquires land with a view to selling it later after developing it, he is carrying on an activity resulting in profit, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less : Brokerage for 121.78 Marla land on proportionate basis ₹ 4,90,869.29/- Profit = ₹ 3862100.70/- The above figures are as per the assessee s own calculations with only variation being the nature of profit which is now being assessed as business income. Further Assessing Officer held that since the transactions has been held to be business transactions and therefore all the provisions for calculation of income from business and profession will apply. From the facts and circumstances the Assessing Officer held that assessee must have first purchased the land himself and then he got the Registries made in the names of ultimate buyers and therefore, Assessing Officer held that assessee must have made payment for purchase of land in cash and therefore, he held that the assessee had violated provisions of section 40A(3) and therefore made a disallowance of ₹ 1,53,60,890/-. Calculated on the basis of proportionate cost of land of 121.78 marlas out of total land of 246.50 marlas, sold during the year. 4. Aggrieved with the additions the assesses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the proper conduct of the company s business, no disallowance under section 40A(3) of the Act was called for. b) Harshila Chordia vs. ITO : 289 ITR 349 (Raj) - The assessee had made certain payments of sale price of scooters/mopeds, which exceeded in each case ₹ 1'0,000, to the principal agent in Udaipur in cash instead of through cross cheques or bank draft. The payments were disallowed under section 40A(3). The Tribunal upheld the disallowance. The Court held that there was no dispute about the genuineness of the transactions and the payment and identity of the receiver were established. The Court further held that where genuineness of transaction and identity of payee were established and explanation of assessee for making cash remittances was acceptable in the light of modus operandi of assessee s business, payments in cash could not be disallowed. (c) CIT vs. Brii Mohan Singh and Co.: 209 ITR 7531P H): The assessee was a liquor contractor under permits granted by the Excise and Taxation Department. Under the terms of the permits the actual amount for which purchases of liquor were to be made were known only at the time of actual purchase. During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payee and genuineness of the payments and the revenue had neither denied nor contested the same.-further, the assessee hadalso filed before the Tribunal a copy of its bank account statement as well as ledger account of the parties to whom the payments were required to be made. It was also apparent that the assessee was not doing well in its business and was facing liquidity and financial crunch. An examination of the bank account statement shows that whenever cash deposit was made in the bank account, it was immediately thereafter utilized to issue cheques towards the expenditure. The High Court held that these were relevant and material aspects which were required to be considered and examined by the Tribunal but have been overlooked. In view of the aforementioned, it was held that the Tribunal was wrong in holding that the assessee by making the payments above ₹ 10,000 to the third parties had violated the provisions of section 40A(3) of the Act. 6.2 The assessee has further relied on its averment that expenditure for purchase of land was ot claimed as expenses) in books of account and in view of same section 40A(3) is not applicable,. The assessee has further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouble taxation of same income and under the circumstances, disallowance under 40A(3) is restricted to ₹ 1,28,60,890/- only. Thus action of the AO is confirmed to the extent of ₹ 1,28,60,890/- u/s 40A(3). 5. Aggrieved both the parties are in appeal before us. 6. The learned AR first took up assessee s appeal and submitted that assessee is aggrieved with the two findings of the authorities below, one of which is that Revenue has considered the transaction of purchase of land as business transaction whereas the assessee had never carried out any activity in the Real Estate and had intended to hold the asset as an investment. He further submitted that deal of purchase could not materialize because one of the partners of assessee backed out from his part of investment and assessee was not in a position to pay the entire balance amount and, therefore, he requested the sellers of land to sell the land to other persons and in lieu of his right of specific performance he was promised to get his advance amount of ₹ 25,00,000/- back along with some portion out of profits earned from sale of such land. He submitted that assessee had relinquished his right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for making cash payments in excess of ₹ 20,000/- and the Hon ble High Court had held that where identity of the payees was established and sale deeds were executed and genuineness thereof was accepted and amount of payments in respect of each sale deed was certified by Revenue Authorities the disallowance u/s 40A(3) can not be made. The learned AR submitted that in the present case also the identity of the payee is established as the agreement to sale itself states the names and particulars of payees and identity of buyers of land is also established as sale deeds has been executed in their favour and therefore argued that keeping in view the ratio of case law of Gurdas Garg the disallowance u/s 40A(3) was not warranted. 9. Further arguing the learned AR relied upon an order of Punjab Haryana High Court in the case of Santosh Jain, 296 ITR 324, for the proposition that if the transactions were done out side the books of accounts, no disallowances can be made u/s 40A(3). 10. The learned DR, on the other hand submitted that the impounded documents found during survey clearly established that assessee had entered into a business transaction as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 27.01.2010 Smt. Shakuntla Devi Sh. Ram Murti 27.01.2010 Sh. T Mohan Lal Sh. Ram Murti 02.03.2010 Sh. Atam Prasad as power of attorney holder of Rani Mahajan Sh. Tarun Thakur Further we find that the above sale deeds were executed in the presence of Sub-Registrar, Pathankot and Photographs of sellers and buyers is also affixed on the sale deeds and below the photographs of sellers and buyers, there is no mention of the name of the assessee. Therefore, one fact is clear that assessee was not a party to the sale deeds and, therefore, the presumption made by the authorities below that land was sold by assessee is not based upon the facts and material on record. The authorities below has wrongly made a presumption that assessee must have first purchased the land and must have paid the payment to sellers of land after obtaining the same from the ultimate buyers and further has wrongly presumed that such payments were made in cash and therefore w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - made to the vendors for land in view of Section 40A of the Income Tax Act, 1961 (for short the Act ). The Hon High Court has decided the question in favour of assessee by holding as under: 3. The appellant is engaged inter alia 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 as on31.03.2009 alongwith details of sales/purchases were placed on record. The consideration, which in respect of each of the transactions was admittedly in excess of ₹ 20,000/-, was paid in cash. Payment by demand draft was made only in respect of one of the transactions. These payments in cash were disallowed by the Assessing Officer and the order in this regard was upheld by the Tribunal. The CIT(Appeals) had allowed the deductions. Section 40A(3) of the Act reads thus:- 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 allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 against the provisions of law. 6. Rule 6DD(j) is not exhaustive of the circumstances in which the proviso to Section 40A(3) is applicable. It is only illustrative. 7. The respondent/assessee's case is supported by several judgments. The Rajasthan High Court in SmL Harshila Chordia vs. Income Tax Officer, (2008) 298ITR 349 held as under:- 1 About this clause, many doubts were raised and enquiries were directed to the Board clearly that all the circumstances in which the conditions laid down in Rule 6DD(j) 4. as to what shall constitute exceptional and unavoidable circumstances within the meaning of Clause (j). That led to issuance of Circular by the Board on May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fulfillment 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 opinion, is in conformity with the principle enunciated by the Supreme Court in CTO v. Swastik Roadways as noticed above. 20. In this case, there is no dispute about the genuineness of the transactions and the payment and identity of the receiver are established. Therefore, the case clearly fell within the parameters of paragraphs 4 and 5 of the aforesaid circular read together. 8. The respondent's case is also supported by the judgment of the Supreme Court in Attar Singh Gurmukh Singh vs. ITO, (1991) 4 SCC 385. After referring to Rule 6DD, the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. From the above judgment we find that the Hon ble Court has held that where the identity of the persons who has received payment in cash is established and genuineness of transactions is established, no disallowance can be made under the provisions of section 40A(3). In the present case even if it is assumed that assessee had first purchased the land and had made the payments to sellers of land the identity of sellers of land is established as is evident from the copy of agreement to sell impounded during survey and also the identity of assessee is established who is deemed to have purchased the land and therefore, also the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not hold any force as any person, can venture into a business in any one year and then may not continue it. 16. In view of the above facts and circumstances, we do not agree with the contention of learned AR, therefore, Ground No.1 2 of assessee appeal are dismissed. 17. In nutshell, the appeal of the assessee is partly allowed. 18. Now, coming to Revenue s appeal, we find that that learned CIT(A) while upholding the disallowance u/s 40A(3) had partly allowed relief of ₹ 25,00,000/- which the assessee had surrendered as initial investment and for which he had held that provisions of Section 40A(3) were not applicable. The Revenue is aggrieved with this deletion, however, we find that learned CIT(A) has rightly deleted the addition as further disallowance of this amount u/s 40A(3) would have made the income subject to double taxation as this amount has already been offered as other income. Further we have already in assessee s appeal held that the disallowance u/s 40A(3) itself was not warranted, therefore, otherwise also the appeal of the Revenue is not maintainable. Further we find that tax effect in the Revenue s appeal is also less than ..... X X X X Extracts X X X X X X X X Extracts X X X X
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