2019 (7) TMI 928 - AT - Income Tax

Addition u/s 40A(3) - cash payment for the purchase of land - exception as per Rule 6DD - On the day of transaction, purchaser demanded cash - registration of land took place in the afternoon of 07-03-2009 that the day happens to be Saturday followed by public holiday Sunday - HELD THAT - We noticed that assessee has completed the registration on 07/03/2009 and the document indicates that it was prepared on 02/03/2009. The registration formalities were completed only on 07/03/2009 and suitably modifying the document in hand writing. The argument of AO is that the document and transaction was completed on 02/03/2009 but only registration was made on 07/03/2009. The CIT(A) has clarified the above observation of AO as improper and gave a finding that the substantial money would not be given without registration. No prudent purchaser will pay such huge funds without proper registration. No purchaser will make payment without registration on 02/03/2009 and make registration on 07/03/2009. The facts and sequence of events are in favour of assessee that the actual transaction took place only on 07/03/2009 and not on 02/03/2009. Therefore, we are inclined to accept the findings of ld. CIT(A) and the order of CIT(A) is upheld dismissing the grounds raised by the revenue. - Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 40A(3) of the Income-tax Act, 1961 to cash payments.
2. Validity of the assessment order passed under Section 263 of the Income-tax Act, 1961.
3. Examination of the genuineness of the cash payment and its exemption under Rule 6DD of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Applicability of Section 40A(3) of the Income-tax Act, 1961 to Cash Payments:

The primary issue was whether the cash payment of ?9,00,000 made by the assessee for the purchase of land violated the provisions of Section 40A(3) of the Income-tax Act, 1961, which restricts cash payments exceeding ?20,000. The Assessing Officer (AO) initially determined that the payment was made on 02-03-2009, a non-holiday, and thus did not fall under any exceptions provided in Rule 6DD. The assessee contended that the payment was made on 07-03-2009, a Saturday, followed by a public holiday, and was necessitated by the vendor's urgent need for cash. The CIT(A) found the explanation convincing, noting that substantial money would not have been given without registration. The Tribunal upheld the CIT(A)'s decision, agreeing that the transaction was completed on 07-03-2009 and not on 02-03-2009, thus dismissing the Revenue's appeal.

2. Validity of the Assessment Order Passed Under Section 263 of the Income-tax Act, 1961:

The Commissioner of Income Tax (CIT) invoked Section 263, setting aside the original assessment order on grounds that the AO had not examined certain aspects, including the cash payment of ?9,00,000. The ITAT had previously upheld the CIT's invocation of Section 263 but restricted the direction to the disallowance under Section 40A(3). The AO, following the ITAT's order, again disallowed the payment under Section 40A(3). The CIT(A), however, found the assessee's explanation regarding the sequence of events convincing and directed the deletion of the addition. The Tribunal supported the CIT(A)'s findings, thus validating the revised assessment order.

3. Examination of the Genuineness of the Cash Payment and Its Exemption Under Rule 6DD of the Income Tax Rules, 1962:

The CIT(A) and the Tribunal both examined whether the cash payment fell within the exceptions of Rule 6DD, which provides circumstances under which cash payments exceeding ?20,000 are permissible. The assessee argued that the payment was made under exceptional circumstances, including the vendor's urgent need for cash and the timing of the transaction. The CIT(A) found the payment to be genuine and substantiated by a registered sale deed, aligning with judicial precedents that disallowance under Section 40A(3) is not warranted if the genuineness of the payment is not disputed. The Tribunal agreed with this assessment, noting that no prudent purchaser would pay such a substantial amount without proper registration, and upheld the CIT(A)'s decision to delete the addition.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of ?9,00,000 under Section 40A(3). The Tribunal agreed with the CIT(A)'s findings that the payment was made on 07-03-2009 under exceptional circumstances and was genuine, thus not attracting the disallowance under Section 40A(3). The Tribunal also validated the revised assessment order passed under Section 263, restricted to the disallowance issue. The judgment emphasized the importance of examining the genuineness of transactions and the applicability of exceptions under Rule 6DD.

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