2016 (3) TMI 1247 - AT - Income Tax

Disallowing expenditure under section 40A(3) - bonus payable/paid to commission agents on the purchase of agricultural land - Held that - In the present case, the genuineness of payment has not been doubted as Assessing Officer himself has held that sale deeds of properties were registered with the Revenue Department of Govt. Therefore, we find that the Hon ble Punjab & Haryana High Court in the case of Gurdas Garg vs. CIT (2015 (8) TMI 569 - PUNJAB & HARYANA HIGH COURT ), under similar facts and circumstances has held that where the genuineness of payments is not disbelieved the disallowance u/s 40A(3) cannot be made - Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 40A(3) of the Income Tax Act, 1961.
2. Eligibility for exceptions under Rule 6DD of the Income Tax Rules, 1962.
3. Genuineness of cash payments for property purchases.
4. Relevance of precedents and judicial interpretations.

Issue-wise Detailed Analysis:

1. Applicability of Section 40A(3) of the Income Tax Act, 1961:
The primary issue was whether the cash payments made by the assessee for the purchase of agricultural land should be disallowed under Section 40A(3) of the Income Tax Act, 1961. The Assessing Officer (AO) observed that the payments were made in cash, which attracted the provisions of Section 40A(3). The AO relied on the case law of Attar Singh Gurmukh Singh Vs. ITO, 191 ITR 667 (SC), which mandates that payments exceeding Rs. 20,000 should be made by crossed cheque or bank draft to be allowable as deductions. The AO disallowed the expenditure of Rs. 16,70,000/- for non-compliance.

2. Eligibility for exceptions under Rule 6DD of the Income Tax Rules, 1962:
The assessee argued that the payments were covered under exceptions provided in Rule 6DD, which allows for certain circumstances where cash payments are permissible. The assessee contended that the payments were made to agriculturists for the purchase of agricultural land and that it was not feasible to make payments through banking channels due to trust issues and other difficulties. However, the AO and the CIT(A) rejected this argument, stating that Rule 6DD(e) pertains to payments for agricultural produce, not land purchases. The CIT(A) also cited the case of Vaishali Builders & Colonizers (2012) 138 ITD 227, supporting the AO's stance.

3. Genuineness of cash payments for property purchases:
The assessee further contended that the genuineness of the transactions was not disputed, and thus, the disallowance under Section 40A(3) was not justified. The assessee relied on the decision of the Punjab & Haryana High Court in the case of Gurdas Garg Vs. CIT, Bathinda, where it was held that if the genuineness of transactions is not disbelieved, payments in excess of Rs. 20,000 cannot be disallowed under Section 40A(3). The Tribunal found that in the present case, the AO did not dispute the genuineness of the transactions as the properties were registered with the Revenue Department, and thus, the case of the assessee was covered by the decision in Gurdas Garg Vs. CIT.

4. Relevance of precedents and judicial interpretations:
The Tribunal also considered various judicial precedents, including the Supreme Court's decision in Attar Singh Gurmukh Singh vs. ITO, which emphasizes that Section 40A(3) and Rule 6DD must be read together, allowing for exceptions based on business expediency and other relevant factors. The Tribunal noted that the genuineness of the transactions and the identity of the payees were established, aligning with the principles laid down in the cited judgments.

Conclusion:
The Tribunal concluded that the disallowance under Section 40A(3) was not justified as the genuineness of the transactions was not doubted, and the case was covered by the decision of the Punjab & Haryana High Court in Gurdas Garg Vs. CIT. Therefore, the appeal filed by the assessee was allowed, and the disallowance of Rs. 16,70,000/- was set aside. The order was pronounced in the open Court on 9th March, 2016.

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