9911796707
TMI Blog2023 (9) TMI 1620X X X X Extracts X X X X X X X X Extracts X X X X ..... n 15.05.2023, an application seeking adjournment was filed by assessee through Inward No. 159 dated 11.05.2023. Acceding to the request made by assessee, the case was adjourned to 08.06.2023 (today) granting last opportunity to assessee. Since none has appeared today and the Ld. DR for revenue is ready for arguments, it is not possible to grant any more opportunity. Therefore, the hearing is proceeded and the case is decided on the basis of available material and after hearing Ld. DR. 3. The assessee is a company engaged in the business of land development, sale of plots, etc. During scrutiny-assessment of relevant assessment-year framed u/s 143(3), the AO found that the assessee has made cash payments of Rs. 2,63,60,750/- against purchase of lands to be held as stock-in-trade and thereby attracted disallowance u/s 40A(3). Ultimately, while completing assessment, the AO made disallowance. The assessee carried matter in first-appeal whereupon the CIT(A) deleted disallowance. Now, the Revenue is aggrieved by action of CIT(A) and therefore in appeal before us. The assessee has also filed Cross-Objection. We would first take up Revenue's appeal and thereafter Assessee's Cross- Objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression "expenditure" in section 40A(3) of the Act. Reliance is placed in this regard on the verdict of Hon'ble Punjab & Haryana High Court in the case of CIT Vs Kishan Chand Maheshwari Dass 121 ITR 232. The assessee has further argued that the genuineness of the transaction has not been questioned. Here it is noteworthy to mention that genuineness of the transaction is not sufficient as it would amount to defeat the object of enactment. The assessee as well as all the sellers had maintained their bank accounts. On perusal of the title deeds, it can be seen that major part of sale consideration has been paid through cheques to all the sellers. The need of making part payments in cash is unjustifiable. It is reiterated that not merely genuineness of transaction but existence of circumstances warranting cash payment is to be proved by the assessee. The assessee has failed to make out a case of unavoidable circumstance in which it was compelled to make part payments in cash. The assessee has further claimed that the sellers of the properties were strangers for the assessee hence it had to give token money in cash. The claim of the assessee is baseless because on perusal of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 308/1, 309, 310, 314, Vill Kalyanpur, Patwari Halka No. 13 Old and 19 New. Fanda Tehsil Huzoor, Dist. Bhopal 25.03.2014 1,74,49,000/- 51,000/-on dt. 16.03.2014 Shri Govind Singh Survey No. 307/1, 308/1, 309, 310, 314, Kalyanpur, Patwari Halka No. 13 Old and 19 New, Fanda Tehsil Huzoor, Dist. Bhopal 25.03.2014 1,75,00,000/- Nil 2. Shri Pradeep Agrawal Survey no 3/2/2/2, 6/1/1, 6/1/3, 6/2/1 etc. Vill- Gudawal, paiwari halka no.20, chiklodkhurd, The-Goharganj, Dist-Raisen 19.08.2013 2,86,62,000/- 60,00,000/- dt.19.08.2013 3. Shri Gaurishankar Survey No. 101/1, Vill. Joshi Guradia, Patwari Halka No. 27. (New No. 67), Simrol, Tehsil Mhow, Dist. Indore 08.07.2013 26,00,000/- 16,38,000/- 4. Shri Kayum Khan Survey No. 246/2 246/1, Vill. Shivnagar, Patwari Halka No. 27. Tehsil Mhow, Dist. Indore 30.03.2014 18.50,000/- 35,90,000 on dt.29.03.2014 Sint Madhu Tanwar Survey No. 246/2 246/1, Vill. Shivnagar, Patwari Halka No. 27. Tehsil Mhow, Dist. Indore 30.03.2014 18,63,750/- 35,76,250- 5. Shri Mansoor Patel Survey No. 240/2, 241/2, Vill. Shivnagar, Patwari Halka No. 27, Tehsil Mhow, Dist. Indore 27.01.2014 2,17,20,000/- 50,000/- on dt. 21/01/2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of ITO Vs Jitendra Kumar Mandlecha, 23 ITJ 644 In this case the facts of the case was as under:- "Assessee made payment of business expenditure above Rs. 20000/- in cash, AO made disallowances of the same - ITAT Held that object behind the provisions is that persons are not allowed to show false expenditure for avoiding income tax and therefore, once the genuineness of payment and identity of the payee is established fully, the object is achieved and in such a situation, if the payment has been made looking to the necessity of settlement or difficulty of payee as payee was in need of money after banking hours. The same cannot be said to have been made in violation of object of the rules - Expenditure is therefore allowable in present case, as same is genuine and duly recorded and out of business exigencies Therefore, respectfully following the same the addition made by the AQ amounting to Rs. 2,63,60,750/- is Deleted. Therefore, the appeal on this ground is Allowed. 5. As a result, the appeal is Allowed. (H. P. Meena) Commissioner of Income-tax (Appeals)-1, Indore. Copy to: 1. The Chief Commissioner of Income Tax, Indore. 2. The Pr. Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances in Rule 6DD and having failed to bring the same under the exceptional clauses, the authorities as well as the Tribunal rightly denied relief to the assessees. Further, it is submitted that the assessees did not furnish the full details in the relevant column in the return of income and these details were available only in the annual report, which will go to show the conduct of the assessees. It is further submitted that the assessees are established parties and therefore, to say that they effected cash payments due to certain circumstances is an unacceptable plea. That apart, both the assessees are based on Chennai and nothing prevented them to avoid payment through banking channels. Further, the assessees have failed to prove unavoidable circumstances, which necessitated payments by cash over and above a sum of Rs. 20,000/-. Further, the genuineness of the transaction is not a factor to be considered while deciding a case under Section 40A(3) of the Act. Further, it is submitted that commercial expediency or business expediency depends on facts and, the authorities rightly concluded on facts against the assessees. 14. As rightly pointed out by the learned Standing Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any banking facility. The assessing officer has found that the place at which the payment was made had banking facility and therefore, has held that the assessee failed to prove that it was covered in the exception clause as provided under Section 40A(3) read with Rule 6DD. The aforesaid finding has been affirmed by Commissioner of Income Tax (appeals) vide order dated 23.02.2011. The relevant extract reads as under: "Considering the various fats, I find that the appellant could not demonstrate with cogent evidences that there was business expediency or sufficient cause for such cash payments to various parties in the relevant assessment year. The explanation of the appellant that the transaction has taken place in Devenahalli Taluk which lacked the banking facilities in and around the place is not acceptable in the light of the fact that these transactions have taken place in the vicinity of Bangalore District, Devenahalli Taluk, which had umpteen number of banks and branches. Further, the contention of the appellant that the recipients had insisted on cash payment is not acceptable. Though the parties were identifiable and cash payments were genuine, these payments were square ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilarly in case of second land parcel the assessee has paid sum of Rs. 1 lac in cash out of the total consideration of Rs. 79,10,000/-. Thus, Ld. AR has submitted that the cash payment made by the assessee was only a token amount at the time of deal which is a tradition and practice in this business without which the parties are not bound by their promise to strict to the deal. He has further submitted that at the time of initial negotiation and deal it is not possible to make token payment in Cheque and therefore, a minor amount of cash payment as a token money has been paid due to business expediency and the same would not attract the provision of section 40A(3) of the Act. 5. He has further submitted that the AO has not disputed the genuineness of the transactions as it is duly recorded in the sale deeds and payment was made to the land owners who are parties to the registered sale deed. Thus, the transactions and genuineness of the payment of cash is not in dispute. The identity of the payee is also not disputed by the AO as it is recorded in the sale deed. Therefore, when the payment was made to the land owners as token money at the time of initial negotiation for purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in case of Nam Estates Pvt. Ltd. v. ITO (2020) 428 ITR 186. He has also relied upon the judgment of Hon'ble Supreme Court in case of Attar Singh Gurmukh Singh vs. ITO 191 ITR 667. He has relied upon the orders of the authorities below. 8. We have considered the rival submission as well as relevant material on record. It is evident from the record that the assessee has paid cash of Rs. 25000/- to seven persons and Rs.1 lac to another person the details of which are given by the AO in the assessment order as under: XXX 9. The first seven payments of Rs. 25,000/- each are made by the assessee in respect of the land purchased from these persons, vide sale deed dated 27.03.2014 for total consideration of Rs. 4,05,30,000/-. It is evident from the sale deed that this amount of Rs. 25000/- each paid by the assessee is also reflected in the sale deed to these seven persons and balance purchase consideration was paid through Cheques as per details given in the sale deed itself. Therefore, the payment was made as token amount at the time of initial negotiation which is almost three months prior to the date of sale deed and thus we find merit and substance in the explanation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the Rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of Section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the Section. It is open to the assessee to furnish to the satisfaction of the assessing officer the circumstances under which the payment in the manner prescribed in Section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is relevant, read as under: (i) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike: 19. It could be appreciated that s. 40A and in particular sub-clause (3) thereof aims at curbing the possibility of on-money transactions by insisting that all payments where expenditure in excess of a certain sum (in the present case twenty thousand rupees) must be made by way of account payee cheque drawn on a bank or account payee bank draft. 20. As held by the apex Court in case of Attar Singh Gurmukh Singh (supra). In our opinion, there is little merit in this contention. Sec. 40A(3) must not be read in isolation or to the exclusion of r. 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Sec. 40A(3) only empowers the AO to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a distributor, insisted that cheque payment from a co-operative bank would not do, since the realization takes a longer time; (ii) the assessee was, therefore, required to make cash payments only. (iii) Tata Tele Services Ltd. assured the assessee that such amount shall be deposited in their bank account on behalf of the assessee; (iv) It is not disputed that the Tata Tele Services Ltd. did not act on such promise (v) if the assessee had not made cash payment and relied on cheque payments alone, it would have received the recharge vouchers delayed by 4/5 days and thereby severely affecting its business operations. We would find that the payments between the assessee and the Tata Tele Services Ltd, were genuine. The Tata Tele Services Ltd. had insisted that such payments be made in cash, which Tata Tele Services Ltd, in turn assured and deposited the amount in a bank account. In the facts of the present case, rigors of s. 40A(3) of the Act must be lifted. 24. We notice that the Division Bench of the Rajasthan High Court in case of Smt. Harshila Chordia vs. ITO (2007)208 CTR (Raj) 208 (2008) 298 ITR 349 (Rai) had observed that the exceptions contained in r. 6DD are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions are made at a place whether either the purchaser or the seller does not have a bank account; or c. the transactions and payments are made on a bank holiday; or d. the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller; or e. the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchase the goods; or f. specific discount is given by the seller for payment to be made by way of cash. 15. It was further clarified in paragraph 6 that the above circumstances are not exhaustive but illustrative. 16. Therefore, in our opinion, the Tribunal was clearly in error in not travelling beyond the circumstances referred to in paragraph 4 of the Circular and to consider the explanation submitted by the assessee on its own merit. 17. Significantly paragraph 5 reproduced hereinbelow gives a clear indication that Rule 6DD(j) has to be liberally construed and ordinarily where the genuineness of the transaction and the payment and identity of the receiver is established, the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides an under: "Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1965) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction." 8. It contains the proviso as under: "Provided further that no disallowance under this sub- section shall be made where my payment in a sum exceeding ten thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of having facilities available, considerations of business expediency and other relevant factors." 9. The Appellate Tribunal found that the genuineness of the payee has not been doubted by the Assessing Officer. It was found that the payment of the exceeding the limit was made under exceptional and unavoidable circumstances. Placing reliance on Porwal Udyog (India) v. CIT (1982) 135 IIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hostile to the purpose and object and that the assessee was required to be given the benefit of such payments made in exceptional circumstances. Law lives on logic and as such illogicality, resting on technical view, it to be spurned. 15. This finding of fact, not shown to be perverse or perishable, reached by the Tribunal did not give, as held in CIT Ashoka Marketing LA [1976] 103 ITR 543 (SC) and CIT Kotrika Venktaswamy and Sons (1971) 79 ITR 499 (SC), rise to any question of law." 14. Therefore, the disallowance u/s 40A(3) cannot be made without considering the business expediency and other relevant factors falling in the exceptions given in Rule 6DD of I.T. Rules. The Coordinate Bench of this Tribunal in asessee's own case for A.Y.2010-11 arising from the original assessment order passed u/s 143(3) (supra) has considered this issue in para 8 to 10 as under: "8. We have heard rival contentions and perused the records placed before us and gone through the paper book filed by the assessee. The issue raised in this appeal by the assessee revolves around the disallowance of Rs. 5,40,000/- u/s 40A(3) of the Act. We observe that the assessee is into the business of purchase and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions of Hon'ble jurisdictional High Court and Coordinate Bench of this Tribunal we decide this issue in favour of the assessee and consequently disallowance made by the AO u/s 40A(3) is deleted." [Emphasis supplied] 9. Thus, the broader conclusions drawn by this Bench in above decision can be summed up as follows: (i) Section 40A(3) prescribes disallowance for cash payment exceeding a particular limit. But then the proviso to section 40A(3) prescribes that no disallowance shall be made "in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors". (ii) In Attar Singh Gurumukh Singh Vs. ITO (1991) 59 taxmann 11 (SC), the Hon'ble Supreme Court has observed that section 40A(3) must not read in isolation or to the exclusion of Rule 6DD and co- joint reading of this section and rule 6DD makes it clear that the provisions are not intended to restrict the business activities. Further the payments by crossed cheque or bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or it was out of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls, the assessee had to make part- payment in cash. Before CIT(A), the assessee has submitted a detailed chart in a tabular format giving explanation of circumstance/commercial expediency of all six transactions. This chart, as re-produced by Ld. CIT(A) on Page No. 5 to 10 of his order, is scanned and re-produced below: S.No Name of Seller Description of the property Particulars of Transaction Cash Paid Circumstances/Business Expediency and Remarks 1. Shri Gyan Singh (PAN:EHEPS2072H) Shri Govind Singh (PAN:EIXPS6801L) Rural Agriculture Land situated at Village Kalyanpur, Survey No. 30/1,308/1,309,31 0,314- Patwari Halka No. 13 Old and 19 New Fanda Tehsil Huzoor, Bhopal Dist. Date of Registry 25-03-2014 Value of Land (Rs. In Lakhs) Rs. 350.00 Cash Amount Paid (In Rs.) Rs. 51000/- Rs. Rs. 51000/-, 16-03-2014 The registration of the purchase deed has been executed at the end of financial year. Further the said agricultural land is situated in a rural area which is almost 210 kms from Indore and the seller of land is a uneducated villager. It was necessary for the assessee to get the deed registered at a competitive price hence to materialize the same the appellant gave Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... booking amount to hold the land deal under the impression of routine commercial practice and remaining amount was paid through Cheques and PDC's of Rs. 217.20 Lakhs Further the land is situated at distance of 18 kms from Indore (MP) 4. Shri Kayum Khan Smt. Madhu Tamwar Rural Agriculture Land situated at Village Shivnagar. Survey No. 240/2, 241/2. Parwari Halka No. 27, Tehsil Mhow, Dist. Indore (M.P) Date of Registry 31-03-2014 Value of Land (Rs in Lakhs) Rs. 108.80 Cash Amount Paid (In Rs.) Rs. 35.90.000/- Rs. 35.76.250/- (30-03-2014) Sunday The appellant has purchased the said land from 2 independent joint parties and it was very necessary for the assessee company to purchase the land and get the deed registered in the financial year 2013-14 The seller of land agreed to sell the land after heavy bargaining and since the said land was owned by 2 persons a consensus required between all the 3 parties. Further it is also evident from the evidences on records that the title deeds were registered on 30-03-7014(Sunday) (The registrar 18 open for registration purpose even on Sundays for business), and the next day 31-03-2014 (Monday) the hanks remain close for public. (Last day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash for the concerned land and the complexity of the case cannot be denied as the registration of the purchase materialized at the end of next financial year. For your perusal the registry of the said land is on record and enclosed 6. Pradeep Agrawal Agricultural land situated in village Gudawal, Survey no 3/2/2/2,6/1/1, 6/1/3,6/2/1 patwari halka no 20. Chiklodkhurd The Goharganj Dist. Raisen Date of Registry 19-08-2013 Value of Land (Rs. In Lakhs) Rs. 346.62 Cash Amount Paid (In Rs.) Rs. 60,00,000/- At the out set the said land is situated at a distance of almost 230 kms from Indore (M.P). The said huge chunk of land was purchased for a value of Rs. 346.62 Lacs from the seller of land. Further after huge bargaining and discussions the seller agreed to sell the land and demanded major payment at the time of registration. The appellant was not available with sufficient amount so that the full payment could be made. The appellant to lock the land deal made payment of token money/booking amount via. Cheque of Rs. 2,00,000/- on 09-08-2013 further since the company was not available with sufficient amount for the said purpose the seller for mandatory payment of Rs. 60.00 Lacs in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... highly under the circumstances to make some payments in cash for the concerned land and the complexity of the case cannot be denied as the registration of the purchase materialized in the end of next financial year. For your perusal the registry of the said land is on record and enclosed." [Emphasis supplied] Thus, the assessee's claim is such that apart from seller, there were 4 other persons interested in the land (joint owner and other relatives/family persons) and the assessee had to make cash payment so that the joint owner and relatives/family persons could give their consent, as each one had interest in land. They demanded cash payment to settle and clear their family consent. Now, when we examine the registered deed of purchase filed at Page No. 99 to 116 of Paper-Book, we find following clause clearly mentioned on Page No. 3 of the registered-deed (Page No. 101 of Paper- Book): [Emphasise by underlining .. supplied by us before scanning] Therefore, there is a clear contradiction in the submission of assessee. While the assessee claims that the sellers insisted for cash payment in order to make payment for clearing consent from joint owner/family members; the joint owne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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