TMI Blog2023 (1) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... ition on account of interest not charged on the interest-free loans and advances given to the parties - assessee on one hand has incurred interest expenses on the borrowed fund and on the other hand, it has made interest-free loans and advances - Thus the AO computed the amount of interest being 14% on the interest-free loans and advances provided by the assessee and added to the total income of the assessee - HELD THAT:- There is no dispute to the fact that the own fund of the assessee including the interest-free loans and advances exceeds the amount of interest free loans and advances provided by the assessee and therefore a presumption can be drawn that owned fund which is interest-free available with the assessee has been utilized for making such advances - See R.L. KALTHIA ENGGINEERING AUTOMOBILES PVT. LTD. [ 2013 (2) TMI 754 - GUJARAT HIGH COURT] - thus disallowances of interest expenditure in the given facts circumstances where the assessee was having sufficient interest free fund is not justified. - Decided in favour of assessee. - ITA No. 181/AHD/2019 - - - Dated:- 4-1-2023 - SHRI WASEEM AHMED , ACCOUNTANT MEMBER For the Assessee : Shri B. R. Popat , A. R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to Rs. 31,64,040/- only. The AO held that payment against expenses exceeding Rs. 20,000/-to a single party in a single day by any mode other than by account payee cheque or draft is not allowable except the exclusion provided under rule 6DD of Income Tax Rule. However, the assessee failed to establish that payment made by it falls under the exception provided or the day payment made, the bank was closed or the banking facility was not available. The AO further held that the provisions of section 40A(3) of the Act are attracted on the incurrence of expenses as well as the purchase of construction materials and purchase of land as the same is part of stock-in-trade. The AO, in holding so, placed reliance on several case laws which are incorporated in his order. Thus, the AO disallowed the cash payment of Rs. 31,64,040/- against salary expenses, labour expenses, material purchases and land purchases and added to the total income of the assessee. 7. Aggrieved assessee preferred an appeal to the learned CIT-A. 8. The assessee before the learned CIT(A) furnished additional documents including cash book and detailed bifurcation of alleged cash payment of Rs. 20,000/- or above aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, the cash utilized by the particular director for their personal use on different occasion adjusted against their salary. Hence, it is not known whether cash payment/utilization to or by the director exceed Rs. 20,000/- in a single day. Therefore, no disallowance under section 40A(3) of the Act should be made on the said payment of Rs. 7.2 lakh. 11. The assessee with regard to cash payment of Rs. 27,000/- and 26,700/- made against purchase of bricks submitted that the supplier was not having banking facilities. Hence, no adverse inference should be drawn against the assessee. 12. The learned CIT(A) forwarded the submission of the assessee along the documentary evidences to the AO for remand report. The AO vide letter 13-10- 2106 furnished detailed remand report. 13. The AO in the remand report submitted that the claim of the assessee regarding rectification of entry in cash book for Rs. 1,90,000/- in the name of two parties namely Shri Mahesh Rangwani and Shri Girsih Shrimali was not supported by the documentary evidences. The narration in cash book clearly written as payment . The assessee also failed to establish that such payment is not debited in the profit and los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment in respect of these two entries. Therefore, the AO s action in making addition of this amount is confirmed. (ii) Out of the total amount of disallowance made, the amount of Rs.2,00,000/- pertains to payments made to Hira, son of Bhopaji Chapri for purchase of land, A No. 335/67. It is seen from the submissions made that this payment of Rs.2 lakhs has been made for purchase of piece of land at Chapri. The appellant is a dealer in real estate and land purchased by it is in stock-in-trade. Thus, payment made for the purchase of land would constitute business expenditure of the appellant and will attract the provisions of Section 40A(3). It is very clear that the land has been purchased from one person for the amount of Rs.2 lakhs and the payment for the same has been staggered in such a way that each payment does not exceed Rs.20,000/-to circumvent the provisions of Section 40A(3), The agreement in respect of the transaction of this property does not mention that the payment has to he made in 10 installments of Rs.20,000/- each, but states that the sale consideration is Rs.2 lakhs. The appellant has not given any reason as to why the payments were made in 10 install ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40A(3) and make cash payment above the prescribed amount. It is seen that all the other parties to whom payments in excess of Rs.20,000/- have been made are also identifiable. However, if one goes by the logic of the appellant in respect of the amount of Rs.7,20,000/-, then it naturally follows that all the other parties to whom payments have been made by it are not identifiable and should automatically be disallowed. Thus, this argument of the appellant holds no merit and the disallowance to this extent is also confirmed. (vi) The payment amounting to Rs.53,700/- is, by the appellant s own submission, in violation of the provisions of Section 40A(3) and the disallowance to this extent is confirmed. 17. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before me. 18. The learned AR before us filed two paper books running from pages 1 to 44 and 1 to 13 and submitted that the payment against the purchase of the land was less than Rs. 20,000 on different dates and therefore, the same cannot be subject to the disallowance under the provisions of section 40A(3) of the Act. 18.1 The learned AR further with respect to the purchase of other par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 40A(3) is applicable with respect to the expenses incurred by the assessee in respect of which the cash payment has been made exceeding I20,000/- in a single day to a party. Thus the question arises whether the rectification entry passed by the assessee represents the expenses claimed by the assessee in the profit and loss account in the given facts and circumstances. The answer certainly stands in negative. However, the onus lies upon the assessee to establish his submission based on the documents. In other words, if the assessee has shown excess receipts from the parties in the earlier year, then such excess receipt must be reflecting in the balance sheet of the assessee as liability. However, for this purpose, we have referred the balance sheet of the assessee for the year under consideration which was containing the financial data of the earlier year as well. Indeed, the assessee has shown liabilities in its balance sheet of the earlier year as on 31st of March 2011 but the grouping of the same is not available on record. In the absence of such grouping or individual ledgers of the respective parties, I am unable to give specific finding. Therefore, I am incline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the identity of the person to whom the cash payment was made and genuineness of such payment was not doubted. Likewise, the Hon ble Allahabad High Court in case of Smt. Sangeeta Verma vs. CIT reported in 133 taxmann.com 97 where it was held as under: There is no finding to that effect in any of the orders leading to this appeal. The sale deeds are also admitted to be registered documents and there is no other material as may be considered adverse to the claim set up by the assessee. In view of the undisputed facts of the present case we find no good ground to distinguish the law laid down by this Court in Chaudhary Co. (supra) that has held the field for more than 26 years now. Accordingly, question no. (iii) is answered in the negative i.e. in favour of the assessee and against the revenue. 20.5 Coming to the case on hand, I note that the salary paid to the directors has nowhere been doubted by the authorities below. Furthermore, it is the directors who were managing the affairs of the company and they were acting as the custodian of the cash belonging to the assesse. As such the directors of the company closely connected with each other. Thus any salary paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved by the order of the learned CIT-A, the assessee is in appeal before me. 25. The learned AR before me inter-alia contended that the own fund of the assessee exceeds the amount of loans and advances given to the parties without charging any interest. As per the learned AR, the own fund of the assessee stands at Rs.110.14 Lacs including share capital, reserves and unsecured loan i.e. 15.01 lakhs +.42 lakhs +94.71 lakhs respectively which is far excess than the amount of interest free loans and advances amounting to Rs.92.53 Lacs. Therefore, no addition on account of interest can be made in the given facts and circumstances. 26. On the other hand the learner DR, vehemently supported the order of the authorities below. 27. I have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the own fund of the assessee including the interest-free loans and advances exceeds the amount of interest free loans and advances provided by the assessee and therefore a presumption can be drawn that owned fund which is interest-free available with the assessee has been utilized for making such advances. In hol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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