2021 (9) TMI 773 - HC - Income Tax

Disallowance u/s 40(A)(3) - cash payments were made to the vendors beyond the threshold limit - CIT(A) did not agree with the assessee and confirmed the disallowance - HELD THAT - For assessment year 2007-08 tribunal tested the correctness of the decision of the CIT(A). The assessee was a builder and developer and the lands purchased by the assessee were in the nature of stock-in-trade and certain purchases were made in cash and such purchases by cash would be hit by Section 40A(3) of the Act unless otherwise exempted under Rule 6DD of the Rules. Tribunal noted that the assessee was a business man and the cash payments were done for the purchase of lands and also took note that in majority of land dealings, land owners would insist upon payment of money in cash. Furthermore, the Tribunal also noted that the payments were duly recorded in the sale deed, that the same has been registered by the Sub-Registrar and that the amount had been taken into consideration for the purpose of calculating stamp duty and registration.Thus, we find, on facts, that there is no question of law, much less substantial question of law arising in the relevant appeals. For the assessment year 2008-09 - we are of the view that it is not a case where the CIT(A) passed a cryptic order nor the order passed by the Assessing Officer is without application of mind. The assessee has to be blamed for the same because of not giving a proper explanation/reply to the query raised by the Assessing Officer. In any event, we do not propose to non suit the assessee on the ground that certain details were not furnished in proper form. The assessee would state that certain of the vendors, who did not have bank accounts, could not come out of the village to open up the bank account and after insistence, they had opened the bank accounts and in certain cases, advance was paid to the vendors so as to enable them to keep up various other commitments, to which, they had been fastened.In the light of the order of remand passed by us for the assessment year 2008-09 with regard to disallowance u/s 40A(3) stand allowed. While vacating the remarks made by the Tribunal as against the CIT(A) and the Assessing Officer, we remand the matter to the Assessing Officer to consider the genuineness of the stand taken by the assessee in so far as the payments made afford an opportunity of personal hearing to the authorized representative of the assessee and redo the assessment only to the extent indicated in accordance with law Disallowance of land development expenses - Non rejection of books of accounts - HELD THAT - On appeal before the CIT(A), the assessee had elaborately made submissions and primarily contended that the Assessing Officer did not reject the books of accounts of the assessee, that the accounts were duly certified by a Chartered Accountant and that there was no debit entry, etc. After taking note of the factual position, the CIT(A) held that the disallowance was not justified. CIT(A) noted that the assessee produced vouchers, which contained the details of the names, amounts and signatures and merely because the addresses were not given, the vouchers could not be treated as bogus vouchers. CIT(A) agreed with the assessee that the debit vouchers were not created for claiming any expenditure, but they actually vouched the expenses incurred by the assessee. Furthermore, the CIT(A) noted that the Assessing Officer had checked only the vouchers for the period from 25.3.2007 to 31.3.2007 on a test check basis and not for the whole year. In addition, the CIT(A) observed that the Assessing Officer had not brought out any material on record to establish that the vouchers were bogus. CIT(A) noted was that in spite of the so called high expenditure incurred for land development, the assessee was able to show the net profit rate of 16.01%, which, by any standard, was very reasonable. Thus, the Tribunal set aside the disallowance made by the Assessing Officer. The finding rendered by the CIT(A) was tested for its correctness by the Tribunal, which re-appreciated the facts and concurred with the CIT(A). Therefore, we find no good ground to interfere with the said factual finding. We also find that there are no questions of law, much less substantial questions of law arising in these appeals. Initiation of proceedings under Section 153A - presence of incriminating materials for the assessment years 2008-09 and 2011-12 to 2013-14 or not? - HELD THAT - Tribunal examined the correctness of the order passed by the CIT(A), who proceeded entirely on the merits of the matter and therefore, the assessee was granted relief by the CIT(A) solely for the reason that there was no incriminating material. But, the CIT(A), having been satisfied on facts, held that no addition needed be made. So far as the order of the Tribunal for the assessment year 2011-12 Mr.T.R.Senthilkumar, learned Senior Standing Counsel appearing for the appellant/Revenue is right in his submission that the Tribunal granted relief to the assessee for the reason that no incriminating material had been found in the course of search and confirmed the order passed by the CIT(A). CIT(A) examined the merits of the matter and found that there was no justification for various disallowances. Therefore, the Tribunal probably missed out this factual position presumably because a batch of cases were before the Tribunal and in all probabilities, both the assessee and the Revenue might not have placed full break up details in a convenient format. The relief granted to the assessee is on facts and on merits of the disallowances made and not on the ground that no incriminating material was available. In one of the cases, the correctness of this decision was tested by the Tribunal and the view taken by the CIT(A) has been affirmed. Since the entire dispute revolves on the factual matrix, we are not expected to substitute our opinion in an appeal under Section 260A of the Act. Thus, we hold that there is no question of law, much less substantial question of law arising for consideration on this issue. Addition on account of escapement of sales - Whether ITAT was justified in deleting the addition in respect of the receipts from Kannagapattu land purchased from Smt.D.Sangupathi and M/s.SSD Homes Estate Developers P limited later transferred to the assessee as advances which ought to have been accounted for sales but has been classified under advances? - HELD THAT - On perusal of the order passed by the CIT(A) dated 03.4.2018, it is seen that the CIT(A) considered the factual aspects in a detailed manner and deleted the additions. This finding has been affirmed by the Tribunal after re-appreciating the facts. We find no substantial question of law arising for consideration.

Issues Involved:
1. Land Development Expenses
2. Disallowance under Section 40A(3)
3. Presence of Incriminating Materials
4. Addition on Account of Escapement of Sales

Issue-wise Detailed Analysis:

I. Issue pertaining to Land Development Expenses:

18. One of the issues involved in the batch of cases, which is common to all the assessment years namely 2007-08, 2008-09, 2011-12, 2012-13, 2013-14, and 2014-15, is with regard to land development expenses incurred by the respondent/assessee.

19. Since the issue is common for all the aforementioned assessment years, we have examined the order of assessment passed under Section 143(3) of the Act for the assessment year 2007-08 dated 29.12.2009. On appeal by the assessee, the CIT(A), by order dated 18.3.2011, partly allowed the appeal by confirming the disallowance made by the Assessing Officer under Section 40A(3) of the Act and by allowing the claim of the assessee towards development expenses. Aggrieved by that, both the Department as well as the assessee filed two appeals before the Tribunal. The two salient features in the order dated 09.7.2013 passed by the Tribunal are (i) upholding the order passed by the CIT(A) in deleting the disallowance made under Section 40A(3) of the Act and (ii) allowing the claim of the assessee towards land development expenses.

20. The Assessing Officer was of the opinion that the expenditure claimed by the assessee towards land development was highly excessive and bogus. The Assessing Officer examined each of the heads of expenses namely JCB work, bulldozer hire charges, tractor hire charges, land leveling charges, expenses towards jelly and sand materials, etc. and disallowed the expenses claimed by the assessee, which was approximately to the tune of ?27 lakhs per acre of land.

21. On appeal before the CIT(A), the assessee had elaborately made submissions and primarily contended that the Assessing Officer did not reject the books of accounts of the assessee, that the accounts were duly certified by a Chartered Accountant and that there was no debit entry, etc. After taking note of the factual position, the CIT(A) held that the disallowance was not justified. The CIT(A) noted that the assessee produced vouchers, which contained the details of the names, amounts and signatures and merely because the addresses were not given, the vouchers could not be treated as bogus vouchers.

Further, the CIT(A) agreed with the assessee that the debit vouchers were not created for claiming any expenditure, but they actually vouched the expenses incurred by the assessee. Furthermore, the CIT(A) noted that the Assessing Officer had checked only the vouchers for the period from 25.3.2007 to 31.3.2007 on a test check basis and not for the whole year. In addition, the CIT(A) observed that the Assessing Officer had not brought out any material on record to establish that the vouchers were bogus.

22. One more important fact, which the CIT(A) noted was that in spite of the so-called high expenditure incurred for land development, the assessee was able to show the net profit rate of 16.01%, which, by any standard, was very reasonable. Thus, the Tribunal set aside the disallowance made by the Assessing Officer.

23. The finding rendered by the CIT(A) was tested for its correctness by the Tribunal, which re-appreciated the facts and concurred with the CIT(A). Therefore, we find no good ground to interfere with the said factual finding. We also find that there are no questions of law, much less substantial questions of law arising in these appeals.

24. Accordingly, with regard to the issue of land development expenses, all the above tax case appeals filed by the Revenue stand dismissed.

II. Issue pertaining to Disallowance under Section 40A(3) for the Assessment Year 2007-08:

25. The second issue is with regard to disallowance under Section 40A(3) of the Act for the assessment year 2007-08.

26. The Assessing Officer did not agree with the assessee that cash payments were made to the vendors and went by the letter and spirit of Section 40A(3) of the Act that cash payments have been effected beyond the threshold limit and therefore disallowed the same.

The assessee preferred an appeal before the CIT(A), who examined the genuineness of the transaction as to whether the assessee would be entitled to claim the benefit of the proviso to Section 40A(3) of the Act. The CIT(A) rejected the finding on the fact that the cash payments were duly recorded in the registered sale deed and they were endorsed by the concerned Sub-Registrar and the total sale consideration was taken into consideration for the purpose of demanding the stamp duty and registration purposes. Therefore, the CIT(A) held that when the Government official namely Registering Authority certified that the payments were actually made to the sellers and when the genuineness of the sale was not doubted, the disallowance under Section 40A(3) of the Act could not be made. The CIT(A) did not agree with the assessee and confirmed the disallowance.

27. The Tribunal tested the correctness of the decision of the CIT(A). The assessee was a builder and developer and the lands purchased by the assessee were in the nature of stock-in-trade and certain purchases were made in cash and such purchases by cash would be hit by Section 40A(3) of the Act unless otherwise exempted under Rule 6DD of the Rules. The Tribunal noted that the assessee was a businessman and the cash payments were done for the purchase of lands and also took note that in the majority of land dealings, landowners would insist upon payment of money in cash. Furthermore, the Tribunal also noted that the payments were duly recorded in the sale deed, that the same has been registered by the Sub-Registrar and that the amount had been taken into consideration for the purpose of calculating stamp duty and registration.

28. Thus, we find, on facts, that there is no question of law, much less substantial question of law arising in the relevant appeals.

Accordingly, with regard to the issue of disallowance under Section 40A(3) of the Act for the assessment year 2007-08, TCA.Nos.570 and 571 of 2015 stand dismissed. No costs.

III. Issue pertaining to Disallowance under Section 40A(3) of the Act for the Assessment Year 2008-09:

29. The issue relating to disallowance under Section 40A(3) of the Act also arises for the assessment year 2008-09, which is a question of law to be decided in TCA.Nos.228 of 2014 and 792 of 2019.

30. The assessee purchased the land from 67 vendors, out of which, in respect of 12 vendors, the assessee paid the amounts by cheques. For 40 vendors, the payments were effected both by cheques and by cash and for the remaining 15 vendors, payments were made only by cash. The assessee was called upon to explain as to why payments were effected especially to the extent of such a huge amount of money. They stated that the landowners, from whom, the agricultural lands were purchased, were residing in Kannagapet and Chettipunniyam villages where there was no banking facility, that as per the details given by the vendors, they did not have any bank account, that the payments were made at their respective houses in the villages, that in some cases, the initial advance was paid through agents only and that subsequently, on account of compulsion, some of the vendors opened the bank account in the nearby town and the assessee paid the amounts by cheque. They further stated that the vendors were uneducated, that they were not able to come out of their village to open the bank account, that in such a situation, the assessee was compelled to pay the amount by cash and that in some cases, the assessee paid the amount by cash on holidays as the vendors had to honour their commitments.

31. The Assessing Officer was not convinced with the explanation offered by the assessee and accordingly disallowed that portion of the payments, which were made by the assessee by cash to the vendors excluding the amounts paid for stamp duty and registration charges.

32. Aggrieved by such an order, the assessee preferred an appeal before the CIT(A). The factual position was explained before the CIT(A), who found that for the payment made in respect of 15 landowners to the tune of ?3,93,00,000/-, the vendors were residents of Kannagapattu Village, that they did not have banking facilities and that the Village Administrative Officer concerned certified that there was no bank in Kannagapattu Village. Hence, the explanation offered by the assessee was accepted and the disallowance to that extent was deleted. With regard to the balance payments namely the payments made to 40 vendors, which were by cash as well as by cheque to the tune of ?10,25,77,251/-, the CIT(A) did not agree with the assessee stating that there was no acceptable reason given by the assessee as to why they could not effect the entire payment by cheque when they were able to pay certain amounts through cheque. Therefore, the disallowance made by the Assessing Officer to that extent was sustained.

33. The assessee carried the matter by way of appeal to the Tribunal. The Revenue was also on appeal. The findings rendered by the Tribunal in its order dated 21.6.2013 in ITA.No.1241/Mds/2011 were in paragraphs 9 and 10. The Tribunal stated that the order passed by the CIT(A) was a cryptic order and that he had not examined as to whether any part of the extent would be covered by Rule 6DD of the Rules. Further, the Tribunal commented upon the Assessing Officer for having made observations, which, in the opinion of the Tribunal, were without application of mind. Accordingly, the orders passed by both the CIT(A) and the Assessing Officer were set aside and the matter was remitted back to the Assessing Officer for a fresh examination.

34. In our considered view, the order passed by the CIT(A) cannot be taken to be a cryptic order as could be seen from paragraph 7 of the order dated 15.4.2011. The CIT(A) tested the correctness of the order passed by the Assessing Officer and granted partial relief to the assessee. In respect of the remaining amount where the disallowance was sustained, the CIT(A) assigned reasons as to why he did not agree with the assessee. The decisions, which were relied upon by the assessee, were taken note of by the CIT(A) and reasons were given as to why they would not apply to the case of the assessee. Hence, we do not agree with the finding of the Tribunal that the order passed by the CIT(A) is a cryptic order.

35. So far as the order passed by the Assessing Officer is concerned, the Tribunal stated that it was without application of mind.

This observation also seems to be factually incorrect because sustainability of the reply given by the assessee was examined by the Assessing Officer. In paragraph

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