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TMI Blog2014 (2) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... – 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. - ITA No. 695/Hyd/2013, ITA No. 612/Hyd/2013 - - - Dated:- 12-2-2014 - Shri Chandra Poojari And Smt. Asha Vijayaraghavan,JJ. For the Petitioner : Sri D. Sudhakar Rao For the Respondent : Sri T. Chaitanya Kumar ORDER Per Chandra Poojari, AM: The above appeals are cross appeals directed against the order of the CIT(A)-II, Hyderabad dated 19.2.2013 for assessment year 2009-10. 2. The issue involved in both the appeals is with regard to addition/deletion made u/s. 40A(3) of Income-tax Act, 1961. 3. Brief facts of the care are that the assessee-company filed its return of income on 30.09.2009 declaring a total income of Rs. 93,79,560. The return was processed u/s. 143(1) of the Act. The case was selected for scrutiny and assessment was completed u/s. 143(3) of the Act. The assessee-company is in the business of purchase of land in bulk and sale of developed plots. During the year under consideration the assessee- company purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by banks. He further stated that payments were made partly in cash and partly in cheque. Some of the recipients are residing in towns having banking facilities. He also enlisted cash payments made in excess of Rs. 20,000 to persons living in towns at para 7, page-7 of the assessment order. He further stated that the assessee contended that even where there were banking facilities available, the farmers insisted on cash payments. He did not accept the assessee's argument that the payments are genuine and, therefore, in such a situation cash payments in excess of the limit prescribed under the Act and Rule 6DD cannot be disallowed and also did not accept the decision relied upon by the assessee in the case of M/s Ace India Abodes Ltd. vs. ACIT, Central Circle, .Jaipur in ITA No 79/JP/2011 dt. 12.8.2011 (b) The aggregate amount paid in cash to the sellers of land on bank holidays during the accounting year stood at Rs. 69,29,000. With regard to the cash payments made on bank holidays, the AO observed that the assessee made payments in cash in instalments and not on a single day: i.e., on a holiday when the deal is clinched on a holiday. He further observed that there was no requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich day banks are closed on account of holiday, the CIT(A) directed the AO to verify these cash payments to satisfy where these payments are made on public holidays, if it is so to allow the same as rule 6DD of the IT Rules, 1962. Regarding cash payment to agents, the CIT(A) disallowed a sum of Rs. 3,15,65,263 as the payments are not made to the agents of the company but they worked as middlemen and offered their services to other parties as well. He distinguished the brokers from agents and confirmed addition of Rs. 3,15,65,263. Against sustaining the addition of Rs. 3,21,65,268, the assessee is in appeal before us. 6. We have heard both the parties and perused the material on record. In this case, the CIT(A) deleted the addition of Rs. 4,45,20,449 on the reason that the payments were made in the places where there is no banking facility available. The facts of the case under consideration need to be examined. As stated earlier the assessee company is in the business of real estate purchasing bulk lands and developing them into plots and selling of the same. It is common knowledge that in villages generally the transactions are by cash not because the transactions are not genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso to section 40A(3). As noted from the assessment order that the assessee submitted confirmations from the Surpanchs of the villages with regard to non-availability of banking facilities in the said villages along with the confirmation of the addresses of the seller-farmers. There is nothing on record to show that the AO had made any enquiries in this regard. Accordingly, as decided by the Tribunal Jaipur 'B' Bench in the case of Sri Salasar Overseas Pvt. Ltd. vs. DCIT (supra) where it has been held that the assessee having made cash payments for purchasing land from farmers residing in villages where there is no banking facility, the disallowance cash payment u/s. 40A(3) read with rule 6DD(g) is not warranted. 8. Further we came across a decision of the co-ordinate Bench in the case of Sahitya Housing Pvt. Ltd. vs. DCIT in ITA No. 246/Hyd/2011. The Tribunal vide order dated 24.1.2014 held as under: "13. We have heard the arguments of both the parties, perused the record and have gone through the orders of the revenue authorities. Sec 40A(3) reads as under: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition stands now 20% of the cash transactions exceeding Rs. 20,000 are disallowed in computing the business expenditure but not the entire Rs. 20,000/- While the amended provision confers advantage to the assessee to this extent, the circumstances permitted to be taken into account by the Assessing authority are no longer available by reason of deletion of old rule 6DD(j). But that by itself does not make section 40A(3) arbitrary and unconstitutional. One cannot plead ignorance of law and make cash payments contrary to law. It is too late in the day to accept any such proposition. Furthermore, in the present day banking scenario, the mode of payment by way of crossed cheques or demand drafts cannot be said to be onerous duty case on an assessee which can be made a foundation for attacking the validity of the said section. Therefore, it is not open for attacking the provision as violative of any provision of the constitution. There is no arbitrariness or discrimination in the said provision warranting interference by this court under the circumstances. In view of the above there is absolutely no merits in the challenge made as to the validity of section 40A(3) of the Act by me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 11. Now coming to sustaining addition of Rs. 3,15,65,263 where payments were made to agents. The learned AR submitted that during the assessment proceedings the Assessing Officer has summoned the agents for verification. Out of 7 agents 6 have appeared before him (seventh one could not appear because of illness) and confirmed that they had arranged the sale transaction for the assessee company, and the sellers insisted on cash payment. They have also confirmed that they have received commission from the assessee company for the services rendered, on which TDS was also made. The Assessing Officer held that the said agents are only brokers and a broker cannot be treated as an agent and the exemption under Rule 6DD is available only in respect of payments made through an agent of the party concerned. The AO was of the view that the agents utilised the vehicles provided by the company to hand over the cash to the intended agriculturists which goes to prove that they were acting only as messengers of the employees of the assessee- company. 12. The AR submitted that As per Rule 6DD(k) which says "where the payment is made by any person to his agent who is required to make payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so. My responsibility ends with registration. Because I am illiterate, I take support from my nephew, G. Srinivasa Rao. Q. 15 On your own, did you make any advances to the landlords? A. 15 No. I did not make any payments to fanners on behalf of Abhinandana. Q. 16 So, you are not involved in paying any amounts to landlords? A. 16 On my own, I did not give any amounts. After deal struck, cash will be will be paid by Abhinandana to the farmers through me. If there is big amount, farmers will come to the company. If there are little amounts, I take the money from Abhinandana and the same are paid to the farmers. Every transaction was routed through by me only. As submitted earlier, in all these transactions, I use to take support from my nephew. Q. 22 At any time, did Abhinandana pay the amount towards cost of land by cheques into your account? A. 22 No, all the amounts paid in cash only to me, towards commission income. Q. 23 Have you given any receipts in respect of cash received by you on behalf of landlords? A. 23 I give receipts to Abhinandana in proof of cash taken by me. After receipt from the landlords, I take back the initial receipt given by me to Abhinandana. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective farmers who are willing to sell land and introduce the same to the company. 1 use to act us mediator from the agreement stage till the registration. Sworn statement of Munnangi Siva Seshaiah Q. 6. Please explain the modus operandi of services rendered? A. 6 Abhinandana people approached me for acquiring of land. I introduce the company's people to the interested farmers and I acted as agent between the two parties. I participate in the negotiation process also. Sworn statement of Bashyam Hari Babu Q. 5 Please furnish the details of source of your income. A. 5 I cultivate on behalf of my own and my deceased brother-inlaw's agricultural land. Out of the same, 1 acre on my wife's name. My another source of income is commission of real estate broking. During the year 2008-09, 1 earned about Rs. 1.30 lakhs. In the previous years, it was about Rs. 40 to 50 thousand. In 2010, I took Rs. 37,000/- and in 2011 till today, 1 got around Rs. 20,000/-. Q. 6 Please furnish full details of your commission income. What was the basis of determination of commission income and what are the duties and responsibilities as commission agent? A. 6 I am doing real estate works since 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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