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2015 (7) TMI 1283 - AT - Income TaxAddition u/s 40A - assessee has purchased land from the parties and made payments exceeding ₹ 20,000/- - Held that - Business compulsion of the assessee that the assessee had to accept the insistence of the villagers as the assessee has purchased a large chunk of land and wanted to acquire the adjacent land in vicinity for launch of its project. It had to agree to some of the villagers in their demand of cash payments although the assessee was able to make major purchases by cheque. Moreover it is also on record that photos of sellers duly signed by them are recorded on the sale deed which was registered before the Sub Registrar. Thus reasonable cause for the assessee s failure to make payment otherwise than by crossed cheques Payees in this case also are illiterate villagers who wanted some of the payments to be done in cash. There is no dispute regarding identity of the payees and genuineness of the transaction. Moreover the above observations of the Tribunal in case of Saraswati Housing and Developers 2013 (12) TMI 1114 - ITAT DELHI are squarely applicable on the facts of the case. - decided in favour of assessee.
Issues Involved:
1. Justification of the CIT(A)'s deletion of the addition of Rs. 61,06,000 made by the AO under Section 40A(3) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Justification of the CIT(A)'s Deletion of Addition under Section 40A(3): The primary issue in this appeal is whether the CIT(A) was justified in deleting the addition of Rs. 61,06,000 made by the Assessing Officer (AO) under Section 40A(3) of the Income Tax Act. The AO had disallowed this amount on the grounds that the assessee made cash payments exceeding Rs. 20,000 for land purchases, which contravenes Section 40A(3). Assessing Officer's (AO) Observations: The AO observed that the assessee, engaged in real estate dealings, made cash payments for land purchases amounting to Rs. 61,06,000. The payments were made to villagers who did not have bank accounts. The AO disallowed these payments under Section 40A(3) as they exceeded the permissible limit of Rs. 20,000. Assessee's Submissions to CIT(A): The assessee argued that the sellers were villagers without bank accounts, necessitating cash payments. The payments were made before the Registrar, a Competent Authority, and were thus covered by Rule 6DD. The identity of the sellers was established through registered sale deeds, photographs, and personal presence at the time of payment. The assessee cited several case laws to support their claim that the payments were made under exceptional and unavoidable business circumstances. CIT(A)'s Findings: The CIT(A) found that the payments were supported by duly registered purchase deeds, establishing the identity and genuineness of the transactions. The CIT(A) emphasized the legislative intent behind Section 40A(3), which is to prevent tax evasion through fictitious transactions. The CIT(A) concluded that the AO applied Section 40A(3) mechanically without considering the genuine business exigencies and the exceptional circumstances of the case. Consequently, the CIT(A) deleted the disallowance. Revenue's Appeal: The Revenue appealed against the CIT(A)'s order, arguing that the assessee made cash payments for land purchases, justifying the disallowance under Section 40A(3). Tribunal's Analysis: The Tribunal noted that the payments were made to illiterate villagers who insisted on cash payments. The genuineness and identity of the sellers were not disputed. The Tribunal found that the assessee made substantial payments by cheque and only a small portion (11.30%) in cash due to business compulsion. The Tribunal referred to the case of Saraswati Housing & Developers v/s. Additional Commissioner of Income-tax, where similar circumstances were considered, and the disallowance under Section 40A(3) was deleted. The Tribunal highlighted that the objective of Section 40A(3) is to prevent tax evasion and not to penalize genuine transactions. The Tribunal concluded that the assessee had reasonable cause for making cash payments and that the transactions were genuine. The Tribunal upheld the CIT(A)'s order, finding no infirmity in it. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition made under Section 40A(3). The Tribunal emphasized the genuine business exigencies and the exceptional circumstances that necessitated cash payments, aligning with the legislative intent behind Section 40A(3). Order Pronouncement: The order was pronounced in the open court on July 17, 2015.
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