2020 (10) TMI 1191 - AT - Income Tax

Condonation of delay - delay of 654 days - HELD THAT - As submitted that there has been a change in the management of the company and the present tax matter pertaining to the period prior to change of management it was decided that the same would be handled by the erstwhile management however due to change of management and lack of diligence on part of ershwhile employees the appeal could not be filed. It has been further stated that the matter came to light of the present management on 11.07.2018 when an enquiry was made by the Assessing officer for payment of outstanding demand and thereafter the appeal papers were prepared and appeal was submitted before the Registry As soon as it came to know of the old tax matter pertaining to the period prior to change of the management it took steps and filed the present appeal. Therefore in the factual matrix of the present case we find that there exists sufficient and reasonable cause for condoning the delay in filing the present appeal - in exercise of powers under section 253(5) of the Act we hereby condone the delay in filing the present appeal as we are satisfied that there was sufficient cause for not presenting the appeal within the prescribed time and the appeal is hereby admitted for adjudication on merits. Assessment u/s 153A - Addition u/s 40(A)(3) - HELD THAT - Where the reassessment completed u/s 153A without any reference to the incriminating material following the binding precedents as cited above including that of the Jurisdictional High Court the addition made by the AO u/s 40(A)(3) is not sustainable and the same is hereby deleted. In the result the additional ground of appeal is allowed. Addition u/s 40A - cash payments - Contentions advanced by the ld AR that the provisions of section 40A(3) cannot be invoked in absence of any claim of the expenditure in the profit/loss account as the expenditure incurred on purchase of land has been carried forward as stock-in-trade to the subsequent year? - HELD THAT - Said issue is no more res integra and is covered against the assessee by the decision of Attar Singh Gurmukh Singh 1991 (8) TMI 5 - SUPREME COURT confirming the decision of Kanti Lal Purshottam Co. v. CIT 1985 (1) TMI 31 - RAJASTHAN HIGH COURT and Fakri Automobiles v. CIT 1985 (7) TMI 36 - RAJASTHAN HIGH COURT Whether genuine and bonafide transactions not covered within the sweep of section 40A(3)? -Identity of the persons from whom the purchase of various land parcels have been made by the assessee has been established and the source of cash payments is clearly identifiable in form of the withdrawals from the assessee s bank accounts and the said details were submitted before the lower authorities and have not been disputed by them. It is not the case of the Revenue either that unaccounted or undisclosed income of the assessee has been utilised in making the cash payments. The genuineness of the transaction has been established as evidenced by registered sale deeds wherein the payments through cheque as well as cash has been duly mentioned and lastly the test of business expediency has been met as the initial payments as insisted by the sellers most of whom are farmers have been made in cash to secure the transaction. As held in case of Smt. Harshila Chordia 2006 (11) TMI 117 - RAJASTHAN HIGH COURT the consequences which were to befall on account of non- observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration for which section 40A(3) has been brought on the statute books and which has been satisfied in the instant case. - Decided in favour of assessee.

Summary

Issues Involved: Condonation of delay in filing the appeal, admission of additional ground of appeal, and disallowance under section 40A(3) of the Income Tax Act.

Analysis:

Condonation of Delay:
The assessee filed an appeal with a delay of 654 days. The delay was attributed to a change in management, where the responsibility for handling prior tax matters was assigned to the former management. Due to an oversight by an employee, the appeal documents were misplaced and the delay was only discovered upon an enquiry by the Assessing Officer. The Tribunal found that there was no "culpable negligence or malafide" on the part of the assessee and that there existed "sufficient and reasonable cause" for the delay. Citing the principle that "substantial justice" should be preferred over technical considerations, the delay was condoned, and the appeal was admitted for adjudication on merits.

Admission of Additional Ground of Appeal:
The assessee sought to raise an additional ground challenging the addition under section 40A(3) on the basis that no incriminating material was found during the search to justify proceedings under section 153A. The Tribunal noted that the additional ground was purely legal and did not require new facts to be examined. Given the existing facts and the legal precedents allowing such grounds to be raised at the Tribunal level, the additional ground was admitted for adjudication.

Disallowance under Section 40A(3):
The core issue was the disallowance of Rs. 42,50,000 under section 40A(3) for cash payments made for land purchases. The Tribunal examined whether the disallowance was justified given that no incriminating material was found during the search, and the payments were genuine and made out of disclosed sources. The Tribunal referred to several legal precedents, including the Hon'ble Supreme Court's decision in Attar Singh Gurmukh Singh vs. ITO, which emphasized that the provisions of section 40A(3) are not absolute and allow for consideration of business expediency and genuine transactions.

The Tribunal found that the payments were made to identifiable parties through registered sale deeds, and the cash payments were necessitated by the sellers' demands. The Tribunal concluded that the disallowance under section 40A(3) was not sustainable as the payments were genuine, disclosed, and made under business exigencies. The addition was thus deleted.

Conclusion:
The Tribunal condoned the delay in filing the appeal, admitted the additional ground of appeal, and deleted the disallowance under section 40A(3), emphasizing the genuineness of the transactions and the business exigencies necessitating cash payments.