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2017 (9) TMI 1633 - AT - Income TaxAddition made u/s. 40A(3) - purchase of land holding these cash payment falls under exceptional circumstances r.w.r. 6DD of Income Tax Rules - Held that - CIT(A) has rightly held that the assessee s case is found to be covered under the exceptional circumstances under rule 6DD of IT Rules. Accordingly, the addition made by the AO amounting to ₹ 60 lacs was rightly deleted by the Ld. CIT(A). - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition made under Section 40A(3) of the Income Tax Act, 1961 towards purchase of land through cash payments under exceptional circumstances as per Rule 6DD of Income Tax Rules. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 40A(3): The Revenue challenged the decision of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the addition of ?60,00,000 made under Section 40A(3) of the Income Tax Act. The core issue was whether cash payments for the purchase of land, amounting to ?3 crores, fell under the exceptional circumstances outlined in Rule 6DD of the Income Tax Rules, thus exempting them from disallowance. Brief Facts: A search operation was conducted on the assessee company on 17.09.2008, leading to the issuance of a notice under Section 153A. The assessee filed a return declaring NIL income. The Assessing Officer (AO) disallowed 20% of the cash payment for land purchase, adding ?60,00,000 to the assessee's income, citing a violation of Section 40A(3). Arguments by Revenue: The Revenue argued that the amended Rule 6DD(j) mandates disallowance of 20% of cash expenditure exceeding prescribed limits, irrespective of exceptional or unavoidable circumstances. They emphasized that the provisions of Section 40A(3) are mandatory. Arguments by Assessee: The assessee contended that the identity of the payee, genuineness of the transaction, and source of payment were established, thus falling under the exceptional circumstances of Rule 6DD. They cited several judicial precedents, including the Rajasthan High Court's decision in Harshila Chordia vs. ITO, which held that genuine transactions where the identity of the payee is established should not attract disallowance under Section 40A(3). Tribunal's Findings: The Tribunal noted that the assessee purchased land for ?3.69 crores, evidenced through sale deeds and payments recorded in the sale deeds executed before the Sub Registrar. The identity of the payees and the genuineness of the transactions were undisputed. The Tribunal referred to the Rajasthan High Court's ruling in Harshila Chordia vs. ITO, which supported the assessee's position that genuine transactions with established payee identity fall under exceptional circumstances per Rule 6DD. The Tribunal also reviewed several ITAT decisions, including the ITAT Kolkata's decision in Sri Manoranjan Raha vs. ITO, which emphasized that Section 40A(3) aims to curb tax evasion through fictitious transactions, and genuine transactions should not be disallowed merely due to cash payments. Conclusion: The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee's case was covered under exceptional circumstances of Rule 6DD, and thus the addition of ?60,00,000 under Section 40A(3) was rightly deleted. The Tribunal dismissed the Revenue's appeal, reinforcing that the genuineness of the transaction and the identity of the payee were crucial factors in applying Rule 6DD. Final Order: The appeal of the Revenue was dismissed, and the order of the CIT(A) was upheld. The Tribunal pronounced the order in the open court on 11/09/2017.
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