2016 (6) TMI 733 - AT - Income Tax

Provision made for Development of Land - whether is ascertained liability? - Held that - Undisputedly, there is no change in the facts and circumstances of the case. The issue in question is covered in favour of the assessee by the earlier decisions of the Coordinate Benches in assessee s own case - Decided in favour of assessee Addition u/s 40A(3) - payment made in cash - Held that - Undisputedly the genuineness of the transactions and identity of the parties have been clearly spelt out by the assessee and forms part of the assessment records. The payments were made to farmers for purchase of their agricultural land and the payments are duly supported by the various documentation in form of agreement to sale, conveyance deed etc. The fact that the payments were made earlier through cheque cannot be made the sole basis for disallowance u/s 40A(3) of payments being made in cash. The assessee has explained the circumstances in which the land deals/negotiations are done with the farmers and the need for cash payment given the lack of banking facility, cheques given earlier not being deposited thus requiring cash payments in respect of these 21 transactions. Further, it is noted that these cash payments of ₹ 74.51 lacs constitute only a small percentage of total payments towards purchase of land totalling to ₹ 236.90 crores during the year under consideration and thus constitute an exception rather than a norm. In our view, the need for cash payments on Sundays/after banking hours and test of business expediency has been satisfactorily fulfilled in the instant case and the second proviso to section 40A(3) read with Rule 6DD which provides relaxation from the rigour of disallowance under section 40A(3) is clearly attracted. Further it is noted that the assessee has been in this line of business and in the past under similar circumstances, cash payments have been made to the farmers for purchase of the land and the Co-ordinate Bench vide its order dated 28.03.2014 has deleted the disallowance in A.Y. 2006-07, 2007-08 and 2008-09. Thus we find no infirmity in the order of the ld. CIT(A) who has rightly deleted the disallowance - Decided in favour of assessee

Summary

Issues:
1. Disallowance of provision for development expenses
2. Disallowance of cash payments exceeding ?20,000 for land purchase under section 40A(3)

Issue 1: Disallowance of provision for development expenses:

The appeal by the Revenue challenges the deletion of ?5,18,11,442 made by the CIT(A) as a provision for development expenses. The AO disallowed the provision, stating that the funds were used for business expansion rather than land development. The AR argued that the provision is an ascertained liability, following consistent accounting practices. Previous ITAT decisions favored the assessee, upholding the provision as an eligible deduction. The AR emphasized that the facts and circumstances remained unchanged, supporting the allowance of the provision. The ITAT concurred, dismissing the Revenue's appeal.

Issue 2: Disallowance of cash payments exceeding ?20,000 for land purchase under section 40A(3):

The Revenue contested the deletion of ?74,51,000 made by the AO under section 40A(3) for cash payments exceeding ?20,000 for land purchase. The AR cited previous ITAT decisions in the assessee's favor for similar circumstances. The genuineness of transactions and identity of parties were not in doubt, supported by relevant documentation. The AR explained the necessity of cash payments due to lack of banking facilities and business expediency, qualifying for the second proviso to section 40A(3). The ITAT noted that the cash payments were a small percentage of total transactions, constituting an exception rather than a norm. Considering the past decisions and the fulfillment of business expediency, the ITAT upheld the CIT(A)'s decision to delete the disallowance under section 40A(3).

In conclusion, the ITAT dismissed the Revenue's appeal on both issues, affirming the allowance of the provision for development expenses and the deletion of cash payments disallowed under section 40A(3).