2022 (3) TMI 162 - HC - Income Tax

Disallowance towards purchase of land u/s 40A(3) - Cash payment exceeding permissible limit - submission made by the counsel for the appellant is that ₹ 20,00,000/- had to be paid in cash as the transaction had to be closed and the money was required to be paid on a Sunday, when the Bank was closed - HELD THAT - Tribunal, having regard to the totality of facts, has, in fact, remanded the matter to the AO for enabling the appellant to satisfy the AO as to why the payments in cash had to be made on a Sunday, and why the provisions of Section 40A(3) of the Act would not apply in the appellant s case, when the land is reflected as a non current investment in the audited financial statements and is, consequently, not claimed as an expenditure in the Profit and Loss Account. We had asked the learned counsel for the appellant as to whether any agreement to sell was executed between the parties prior to the sale.However, counsel for the appellant was unable to answer our query. We had also asked the learned counsel for the appellant as to whether any copy of the sale deed has been placed on record. Learned counsel for the appellant says that the copy of three 3 sale deeds, which are in issue, have not been placed on record. The interest of the appellant is still intact as the Tribunal has remitted the matter to the AO. The appellant, in our view, as correctly held by the Tribunal, needs to satisfy the AO as to whether in the facts and circumstances of the case, the provisions of Section 40A(3) of the Act would apply. The aspect of immediacy of making payment on a Sunday i.e., a Bank holiday may also have to be addressed. No interference is called for with the order of the Tribunal. - Appeal dismissed.

Summary

Issues:
1. Disallowance of payment for land purchase under Section 40A(3) of the Income Tax Act, 1961.

Detailed Analysis:
The appeal before the Delhi High Court was against an order of the Income Tax Appellate Tribunal (the Tribunal) sustaining the disallowance of a payment made by the appellant towards the purchase of land under Section 40A(3) of the Income Tax Act, 1961. The appellant's taxable income was assessed at ?22,88,072, with a disallowance of ?20,00,000 made by the Assessing Officer (AO) for cash payments towards land purchase. The appellant's appeal to the Commissioner of Income Tax (Appeals) was rejected, leading to the appeal before the Tribunal (Para 2-4).

The appellant contended that the disallowance under Section 40A(3) was unjustified as the cash payment of ?20,00,000 was necessitated by the urgency of closing the transaction on a Sunday when banks were closed. The appellant relied on Rule 6DD(j) of the Income Tax Rules, 1962, which exempts payments made on days when banks are closed due to holidays or strikes from disallowance under Section 40A(3). The Tribunal remanded the matter to the AO to ascertain the necessity of cash payments on a Sunday and the applicability of Section 40A(3) in the appellant's case (Para 5-5.3).

During the proceedings, the appellant was unable to provide information regarding the execution of an agreement to sell or the submission of sale deed copies related to the land purchase. The High Court noted that the Tribunal's decision to remit the matter to the AO indicated that the appellant needed to justify the cash payments under Section 40A(3) and address the immediacy of making payments on a Sunday. Consequently, the High Court upheld the Tribunal's decision, emphasizing the appellant's obligation to satisfy the AO regarding the application of Section 40A(3) (Para 6-8).

In conclusion, the High Court dismissed the appeal, concluding that no interference was warranted with the Tribunal's order. The decision highlighted the importance of the appellant demonstrating the necessity of cash payments on a Sunday and the compliance with Section 40A(3) provisions to address the disallowance issue effectively (Para 9).