2014 (2) TMI 811 - AT - Income Tax

Addition made u/s 40A(3) of the Act Payments made to the agriculturists - Purchase of agricultural lands Whether the payments are covered by the exceptions mentioned in Rule 6DD of the IT Rules Held that - There is absolutely no merits in the challenge made as to the validity of section 40A(3) of the Act by mere deletion of sub clauses (1) and (2) of rule 6DD(j) - The provision is perfectly valid and the deletion of sub clauses (1) and (2) of rule 6DD(j) is only a step forward in the achievement of the avowed object envisaged u/s 40A(3) of the Act - the only exception that the Assessee can claim is when payments are required to be made on days when the Banks were closed on account of holidays or strike - Transactions after the banking hours in the course of regular business will not fall within this exception - the payment is not required to be made when the banks are closed i.e. after banking hours - the purpose of the disallowance u/s 40A (3) is to dissuade transactions by cash - no banking facility is available where the properties were purchased by Assessee - there was no choice for the assessee except to make the payments in cash due to exceptional or unavoidable circumstances as provided under Rule 6DD thus, the order of CIT(A) set aside and the addition made u/s 40A(3) of the Act set aside. Addition made u/s 68 of the Act Unexplained credits Held that - Mere guess work is not possible while framing assessment without any proper material - The Assessing Officer shall have the basis for assuming the unexplained credit in the case of the assessee and it is not possible to assess the income of the assessee in the absence of any evidence on arbitrary basis - The unsubstantiated material found in the pendrive cannot be considered in the hands of the assessee as a conclusive evidence so as to make additions towards unexplained credit Relying upon CBI Vs. V.C. Shukla 1998 (3) TMI 675 - SUPREME COURT - file containing loose sheets of paper are not books and entries therein are not admissible u/s 34 of the Evidence Act, 1872 - this is not substantiated by any corroborative evidence to establish that the assessee is involved in this transaction, so as to make addition in the hands of the assessee - in the absence of any corroborative evidence or material to establish that the entry is pertaining to Assessee, the order of CIT(A) set aside Decided in favour of Assessee.

Summary

Issues Involved:
1. Addition of Rs. 4,09,98,105/- under Section 40A(3) of the Income Tax Act.
2. Addition of Rs. 1,30,00,000/- under Section 68 of the Income Tax Act.

Detailed Analysis:

Issue 1: Addition under Section 40A(3) of the Income Tax Act

Facts and Arguments:
The assessee, engaged in the real estate business, was subject to a survey operation under Section 133A, which revealed cash payments exceeding Rs. 20,000 to various individuals, totaling Rs. 20,49,90,525/-. The Assessing Officer (AO) disallowed 20% of these payments, amounting to Rs. 4,09,98,105/-, under Section 40A(3) for violating the provision that restricts cash payments. The assessee contended that these payments fell under exceptions mentioned in Rule 6DD of the IT Rules, specifically citing clauses (g) and (h), arguing that the payments were made in areas not served by banks.

Tribunal's Findings:
The Tribunal examined the facts and the exceptions under Rule 6DD. It noted that the AO provided evidence of banking facilities in the areas where payments were claimed to be made. However, the Tribunal considered the nature of the assessee's business and the necessity of cash payments due to the lack of banking facilities in the property locations. It concluded that the payments were made under "exceptional or unavoidable circumstances" as per Rule 6DD.

Judgment:
The Tribunal set aside the CIT(A)'s order and deleted the addition of Rs. 4,09,98,105/- made under Section 40A(3), acknowledging that the payments were made in areas without banking facilities, thus meeting the exception criteria.

Issue 2: Addition under Section 68 of the Income Tax Act

Facts and Arguments:
During the survey, the AO found an unexplained cash payment of Rs. 1.30 crores to Sri RTV Prasad in the assessee's records. This amount was added to the assessee's income under Section 68. The assessee argued that this amount was already admitted as income by the Managing Director, Sri T. Veeraiah Chowdary, in his individual capacity for the assessment year 2006-07, and thus, taxing it again in the hands of the company would result in double taxation.

Tribunal's Findings:
The Tribunal reviewed the evidence, including the assessment order of Sri T. Veeraiah Chowdary, which confirmed the addition of Rs. 1.05 crores in his hands for the same transaction. The Tribunal found that there was no substantial evidence linking the cash payment of Rs. 1.30 crores directly to the assessee company, and the entry in the pendrive alone was insufficient to justify the addition.

Judgment:
The Tribunal set aside the CIT(A)'s order and deleted the addition of Rs. 1,30,00,000/- under Section 68, concluding that the evidence was not conclusive to attribute the payment to the assessee company.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal deleting both additions made under Sections 40A(3) and 68 of the Income Tax Act. The Tribunal emphasized the necessity of concrete evidence and the applicability of exceptions under Rule 6DD for cash payments in areas without banking facilities.