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TMI Blog2013 (12) TMI 1605X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the ambit of Rule 6DD(j), hence provisions of section 40A(3) will not apply to such payments. Therefore, payments made in cash atleast to the extent made on Sundays and Holidays cannot be disallowed u/s.40A(3) of the Act. We, therefore, direct the AO to verify such payments made on Sundays and Holidays and delete the addition of these amounts. So far as addition of the rest of the amount sustained by the CIT(A) we do not find any infirmity in the impugned order to interfere with the same. It is not only a fact that assessee has paid the amount of ₹ 2,32,20,500/- to third parties but such payments have also been made through cheques. The assessee has also furnished back account copies, TDS particulars, PAN of the said parties. Therefore, the entire transactions having been made through proper banking channel is transparent. Only because third parties have withdrawn the amount and paid the same in cash to landlords, assessee cannot be brought within the mischief of section 40A(3) of the Act. Accordingly, we confirm the order of ld CIT(A) on this issue. - I.T.A. No.324/Viz/2012, I.T.A. No.384/Viz/2012 - - - Dated:- 11-12-2013 - S/Shri B. Ramakotaiah (AM) Saktijit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts relating to the issue in disputes are that the assessee is a partnership firm engaged in the business of developing and selling of residential plots. For the impugned assessment year, assessee filed its return of income on 28.9.2008 declaring total income of ₹ 55,34,960/-. During the scrutiny assessment proceedings, the AO after examining information available on record noted that the assessee firm during the year had purchased lands from landlords by entering into un-registered sale agreements. Subsequently, the landlords registered the lands in favour of the assessee by executing registered sale agreementcum- GPA. He further noted that as per the unregistered sale agreement, the value of the lands was ₹ 5,14,60,550/-, whereas as per the registered documents, registered sale cum-GPA value of the land was ₹ 75,11,500/-. Therefore, there was a difference of ₹ 4,39,49,050/- between the unregistered sale documents and registered sale cum-GPA so far as value of the lands are concerned. He further noted that assessee has paid entire consideration as mentioned in the unregistered sale document to the landlords either through their partners or through land agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in case of goods and not in case of immovable property as in the case of the assessee. Therefore, the agricultural land considered to have been purchased by the assessee cannot be stock in trade or inventory. Assessee further submitted that at no point of time, the possession was given to the assessee by the land owner hence, it cannot be said that sale was complete. AO, however, did not accept the contention of the assessee and disallowed the entire cash payment of ₹ 5,02,60,550/- and added the same to the income of the assessee for the impugned assessment year. Being aggrieved of such addition, assessee preferred appeal before ld CIT(A). 5. In the course of hearing before the CIT(A), detail submissions were made on behalf of the assessee orally as well as in writing. So far as amount of ₹ 2,32,20,5000/- out of total amount of ₹ 5,02,60,550/- is concerned, ld CIT(A) observed that the said payment was made to landlords through medium of other persons other than the partners, firm or employees of the firm. He further noted that the entire payments were made through account payee cheque to the third parties and they have withdrawn the amount from bank acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced w.e.f. 27.5.1995. As per amended clause (j) of Rule 6DD, it will be only applicable if the payments made on Sunday and Holiday on the insistence of landlords. Since as per the said provision only cash payments which were required to be made will come within the exception. The CIT(A) held that the landlords being locals, could have received the amounts on any date and it is improbable to assume that they would sell the land only on Sundays and holidays. He further held that assesse has also not furnished any evidence to show that there were exceptional circumstances requiring such payments on Sundays and Holidays. He, therefore, held that exception in clause (j) of Rule 6DD is not applicable to the facts of assessee s case. The CIT(A) ultimately held that though assessee has claimed to have made cash payment through partners or through other brokers but since in case of partnership firm, partners are bound by the actions of the firm and the firm is bound by the actions of the partners, carried out in conduct of the business of the firm, hence provisions of section 40A(3) are clearly attracted. He therefore upheld the addition to the extent of ₹ 2,70,40,050/- under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity of the recipients which has not been disputed by the AO. The fact that the transactions are genuine has not at all been disputed at any stage. Therefore, the object for which section 40A(3) was brought to the statute is absent in assessee s case. It was submitted by the ld AR that expression requires as appears in sub-rule (j) of Rule 6DD also appears in clause (k) of said rule. It was submitted that the Hon ble Delhi High Court in the case of R.C.Goel vs CIT, 259 CTR (Del) 5, while interpreting the meaning of the expression required as appears in Rule 6DD(k) held that it has to be understood to mean that requirement of cash payment is to sub serve the purpose of business and not to stifle it. Relying upon another judgment of Hon ble Delhi High court in the case of Basu Distributor (P) Ltd vs. ACIT, 19 Taxmann.com 111 (Delhi) , ld A.R. submitted that the Hon ble High Court after looking into the object and purpose for which section 40A(3) and Rule 6DD(j) have been introduced in the statute book and considering the fact that if the assessee would not have made cash payment they would have missed out on the business opportunity and, therefore, cash payment was for business exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Ld D.R. submitted that so far as applicability of Rule 6DD(g) is concerned, assessee has never raised this issue before the AO, Ld D.R. submitted that assesee having also failed to substantiate business expediency in making such payment, the disallowance is justified. In support of this contention, ld D.R. relied upon the following decisions: i) CIT vs. Keshrichand Jaisukhal, 221 ITR 571(Gau) ii) Aggarwal Steel Traders vs CIT Anr, 250 ITR 758(P H) 9. In the rejoinder, ld A.R. submitted that assessee in fact during the appellate proceedings before the CIT(A) has submitted a detailed explanation explaining the circumstances under which payments were made , which is very much reflected in the order of the CIT(A) itself. It was submitted by ld A.R. that the assessee firm is formed by the ex-employees of a real estate concern. Since it was a start up period, looking into the business expediency, they had paid advance in cash to the landlords; who are agriculturalists in villages since assessee is only dealing in agricultural lands. It was submitted that since other developers were also exploring to purchase land on payment of cash, assessee for the purpose of business inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f land and the issue of capital asset is concerned, we are not inclined to accept such contention of the assessee due to the reasons discussed in detail by the CIT(A). However, so far as applicability of exception provided under Rule 6DD is concerned, in our view the contention of ld A.R. deserves to be considered. As can be seen from the details provided of payments made through three partners, assessee had paid quite substantial amount on Sundays and Holidays. Therefore, it is the contention of the assessee that exception provided under sub-rule (j) of Rule 6DD squarely applies to these payments. The CIT(A) has however rejected such contention of the assessee by holding that the conditions of sub-rule (j) of Rule 6DD has not been satisfied as assessee has not brought any evidence on record to show that cash payments are required to be made. However, considering the totality of the facts and circumstances of the case, we are of the view that payments made on Sundays and Holidays are coming within the exception provided under subrule( j) of Rule 6DD due to the following reasons: (i) So far as payments by the assessee to the landlords are concerned, it is not disputed. (ii) It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rger public interest element embedded in Section 40A and the underlying principle, at the same time, the Court also notes that the proviso seeks to relieve to a certain extent, the measure of hardship which might be imposed upon small businesses and professionals who are engaged in activities and are dependent entirely on timely cash flow. It is in such cases that Rule 6DD which was formulated as a proviso to Section 40A (3) - steps in to aid such assesses and concerns. In this context, the statutory mandate in Section 6DD (k), at least in the circumstances of the case, has to be so construed as to mean that but for the cash payment, the assessee would have been deprived the benefit of supplies itself. This Court clarifies that the interpretation of the expression who is required to make payment in cash having regard to the circumstances of the case is fact dependent, at least in the present case. The consequence of instances of payment through account payee cheques in small business which are dependent on such supplies would be to completely stifle, if not stop, the business activities. It is in that sense that the expression have to be construed. 15. The Hon ble Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount we were initially inclined to remit the matter. However, looking at the averments made, the assessment years in question and explanation given, we refrain from issuing the said direction and accept the contention of the appellant. 16. The Hon ble Gujarat High Court in the case of Kishor Project (P) Ltd (supra) taking into consideration that the conditions exists to make the payment by way of cheque or drafts not feasible, deleted the addition by applying provisions contained under sub-rule(g) of Rule 6DD. 17. The ITAT Jaipur Bench in the case of PACL India Ltd (supra) on considering the object behind section 40A(3) and Rule 6DD(j) as well as the intention of the legislature in brining such provision in a case involving purchase of land from villagers which is somewhat akin to the facts of the assessee s case held as under: 29. The issue which is being disputed before us has to be considered and decided in the light of the relevant facts and the legal position which emerges from the above mentioned cases. There is no gainsaying that r. 6DD(j) had been deleted and therefore the benefit of this rule is not available to the appellant-company for the assessment year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (h) has to be interpreted liberally so as not to frustrate the object of the legislature. As held in several cases referred to above, the object of s. 40A(3) is not to disallow genuine payments and the r. 6DD has to be interpreted keeping in view the object of the main provision. The second proviso to s. 40A(3) refers to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors , which means that the object of the legislature is not to make disallowance of such cash payments which have to be compulsorily made by the assessee in view of absence of banking facilities at the place of the payment. In the present case, even if it is assumed that the payment was made at the District headquarter, the admitted position is that the sellers did not have any bank accounts at such town and they did not reside or carry on any business or farming activity at such town. The AO and the learned CIT(A) have observed that the appellant-company could have opened bank accounts at such town in the name of the sellers. In our view, it would be too much to expect that the appellant-company would be able to compel the villagers to open bank acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable in those areas to whom payments were made, ordinarily resides or not carrying on any business or profession. Therefore, to that extent we remit the matter back to the file of the AO who shall verify this aspect and decide the issue accordingly. The ratio laid down in the decisions relied upon by the ld D.R. do not apply to the facts of the present case. In the circumstances, grounds raised by the assessee are partly allowed. 20. So far as department s appeal is concerned, on perusal of facts on record, it is revealed that the CIT(A) has deleted the addition since payments were found to be made through account payee cheques to the persons concerned, who in turn have withdrawn from their bank and paid to the landlords in cash. It is relevant to note the observations made by the CIT(A) in this regard, which is as under: 6.8.8. With regard to the payments of ₹ 2,32,20,500/-, made to the landlords through the medium of other persons, other than the partners, firm or employees of the firm, it is seen that cheque payments have been made by the appellant through banking channels and the same have been withdrawn and paid in cash to the landlords. It is seen that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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