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2014 (2) TMI 1021 - AT - Income TaxAddition made u/s 40A(3) of the Act - Claim of exemption in respect of cash payments Held that - The decision in Sahitya Housing Pvt. Ltd. vs. DCIT 2014 (2) TMI 811 - ITAT HYDERABAD followed - 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 - since there is no evidence brought on record by the AO to suggest the availability of banking facility in the place where the properties were purchased by the assessee - as per Rule 6DD(g) the disallowance cannot be made u/s 40A(3) of the Act thus, the CIT(A) is justified in deleting the addition. Addition of payments were made to agents Held that - The strong contention of the Department is that the above agents worked for other persons as agents and they cannot be agents to the assessee - There is no prohibition or restriction on a middleman to work as agent of different parties, if he was acting on behalf of the assessee as agent - The assessee s case falls under the purview of clause 6DD(k) of IT Rules, 1962 thus, exemption is to be given and addition cannot be made u/s 40A(3) of the Act - The reasons advanced by the Department are not appropriate thus, the claim of the assessee is allowed Decided partly in favour of Assessee.
Issues Involved:
1. Addition/Deletion made under Section 40A(3) of the Income-tax Act, 1961. Detailed Analysis: 1. Addition/Deletion under Section 40A(3): Background: The appeals were cross-appeals against the order of the CIT(A)-II, Hyderabad for the assessment year 2009-10. The assessee-company, involved in purchasing land in bulk and selling developed plots, filed its return of income declaring a total income of Rs. 93,79,560. The case was selected for scrutiny, and the assessment was completed under Section 143(3) of the Act. The primary issue was the cash payments for land purchases and the applicability of Section 40A(3) of the Income-tax Act, 1961. Assessing Officer's Observations: - Payments in Places without Banking Facilities: The AO noted cash payments amounting to Rs. 4,49,45,449 in places allegedly without banking facilities. However, the AO found that these areas in Krishna and Guntur districts were covered by banking facilities, and many farmers possessed Kisan Cards issued by banks. - Payments on Bank Holidays: The AO observed that cash payments of Rs. 69,29,000 were made in installments on bank holidays. The AO argued that these payments could have been delayed until the banks reopened. - Payments through Agents: The AO contended that brokers used by the assessee were not agents but merely messengers. The AO disallowed Rs. 3,15,65,268, stating that the brokers were not required to make payments in cash. CIT(A)'s Decision: - Payments in Places without Banking Facilities: CIT(A) deleted the addition of Rs. 4,45,20,449, accepting the assessee's claim that these payments were made in areas without banking facilities. However, CIT(A) confirmed an addition of Rs. 4,25,000, as banking facilities were available in that village. - Payments on Bank Holidays: CIT(A) directed the AO to verify the payments made on public holidays and allow them if they met the criteria under Rule 6DD of the IT Rules. - Payments through Agents: CIT(A) disallowed Rs. 3,15,65,263, distinguishing brokers from agents and confirming that the payments were not made to agents of the company. Tribunal's Analysis: - Payments in Places without Banking Facilities: The Tribunal agreed with CIT(A), emphasizing that transactions in villages often occur in cash due to convenience and lack of banking facilities. The Tribunal noted that the assessee provided confirmations from village surpanches about the absence of banking facilities. The Tribunal cited Rule 6DD(g), which exempts disallowance if payments are made in villages without banking facilities. - Payments on Bank Holidays: The Tribunal upheld CIT(A)'s direction to the AO to verify if the payments were made on public holidays and allow them accordingly. - Payments through Agents: The Tribunal found that the brokers acted as agents for the assessee, facilitating land purchases and receiving commissions. The Tribunal held that the payments fell under the exemption provided by Rule 6DD(k), which covers payments made to agents required to make payments in cash. Conclusion: - The Tribunal upheld the deletion of Rs. 4,45,20,449 related to payments in places without banking facilities. - The Tribunal confirmed the CIT(A)'s direction regarding verification of payments on bank holidays. - The Tribunal allowed the assessee's claim of Rs. 3,15,65,263 for payments made through agents, recognizing them as agents under Rule 6DD(k). - The Tribunal confirmed the addition of Rs. 4,25,000, as banking facilities were available in that village. Final Judgment: The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed. The order was pronounced in the open court on 12th February 2014.
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