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TMI Blog2017 (11) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... o dispute regarding the identity of the payees and the genuineness of the land transactions in respect of which payments have been made. It is notable that r.6DD(k) provides an exception in respect of cash payment which is made on a day on which the banks were closed. This proves that the object of the legislature is to provide exception in respect of such payment which is required to be made in cash or absence of banking facilities. Rule 6DD(h) must be interpreted keeping in view this object and purpose. Therefore, the cash payments recovered under section proviso to s. 40A(3) and r.6DD(h). The AO is directed to delete the addition - Decided in favour of assessee. - D. B. Income Tax Appeal No. 250 / 2017, D. B. Income Tax Appeal No. 146 / 2014 - - - Dated:- 4-10-2017 - K. S. Jhaveri And Vijay Kumar Vyas, JJ. For the Appellant : Mr. Anuroop Singhi For the Respondent : Mr. Siddharth Ranka JUDGMENT 1. By way of these appeals, the appellants have challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assessee and dismissed the appeal of the department. 2. This Court while admitting the ITA No.250/2017 on 18.09.2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 40A (3) of the Act, which provides for disallowance of 20% for the expenditure exceeding ₹ 20,000/- if incurred in cash. 4. The CIT(A) confirmed the same order, observing as under:- 4.2 The submission of A.R. has already been considered by the undersigned as discussed in earlier paragraphs and it has been held that payment made by the appellant in cash in excess of ₹ 20,000/- attracts the provisions of Section 40A(3) and the case of the appellant is not covered in the exception provided in rule 6DD in view of the facts and circumstances of the case and the legal position on the issue under consideration. Considering that the fact and circumstances related to these further noticed cash payments by the undersigned are same as for the other cash payments held to be covered under Section 40A (3), these further noticed cash payments are also held to be covered under Section 40A(3) requiring disallowance of 20% out of these further noticed cash payments of ₹ 2,69,28,892/-. Accordingly, disallowance is enhanced by ₹ 53,85,778/-. 5. However, considering the matter, the Tribunal held as under:- 11. We have heard rival submission and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade has to be treated as claimed in the trading account. In our view these observations of ld. CIT (A) are not correct as assessee has not claimed any expenditure. Since entire land was shown in asset side in the Balance Sheet and advance received was shown in liability side as advance, therefore, in our view there was no trading during the year under cosideration. 11.1 It is also a well settled proposition in law that the entries in the books of account are not determined in nature to hold that any expenditure has been claimed or not as held by Hon ble Supreme Court in case of Jute Corporation of India. Therefore, merely on the basis of entries in the books of account it cannot be determined that assessee has claimed any expenditure. The assessee has shown Nil income and same has been accepted by the AO also. Therefore, we are of the view that since no expenditure was claimed during the year under consideration, therefore, provisions of section 40A(3) cannot be attracted. 12. In case of CIT vs. Balaji Engineering and Construction Works, 323 ITR 351 (Kar.), the Hon ble Karnataka High Court has held that where the assessee being a principal contractor had passed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Pvt. Ltd. At ₹ 3,57,13,900/-, and to Shri Chordia at ₹ 2,85,00/- which has been made in cash. They are residents of Jaipur. Therefore, provisions of section 40A(3) can be applied on these payments. However, in case of other parties, provisions of sections 40A(3) cannot be applied as they are residing in villages where no banking facilities were available. 18. Similar issue came up before the Tribunal in case of M/s Rishabhdev Township Developers P. Ltd. The Tribunal while deciding the appeal of the department in ITA No. 181/JP/2010 vide its order dated 29.4.2011 has held as under:- 7. After considering the submissions and perusing the material on record, we find no infirmity in the finding of ld. CIT (A). The department is in appeal and if they want to verify whether there is a branch in village Ballupura or not can be verified at any point of time which they have not done. It will be just futile exercise in sending the matter back to the file of AO to just satisfy himself by giving him opportunity. The exception provided under Rule 6DD(g) is very clear by it is provided that where the payment is made in a village or town, which on the date of such paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ensure that the payment has been made to the right person. Fort the sake of convenience, in the receipt the place is mentioned as the town where the document is registered. The AO has not made any effort to examine any of the sellers to verify as to whether the payments were received at the villages or at the town. Considering the entire facts the proposition that the payments were made at villages where banking facilities did not exist is accepted. Even if it is assumed that payments were made at a town where banking facilities were available, the case of the appellant-company would still fall under the exception of r.6DD. Rule 6DD(h) has to be interpreted liberally so as not to frustrate the object of the legislature. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs in the villages, provisions of Section 40A(3) are not applicable as held by the Tribunal above. Since we have allowed the issue toto in favour of the assessee by holding that no expenditure can be disallowed under section 40A(3) as assessee has not claimed any expenditure in its profit loss account, therefore, we hold that even part disallowance cannot be made on account of payment made to the parties residing in Jaipur. Accordingly, we delete the entire disallowance sustained by id. CIT(A). 6. Counsel for the respondent has relied upon the following decisions:- 1. Attar Singh Gurmukh Singh vs. ITO - [1991] ITR 667 (SC) observed as under : The terms of section 40A(3) are not absolute . Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section . It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. 2. Hotel Nagas Pvt. Ltd. vs. CIT [2016] 69 taxman.com 438 (Mad.) ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of assessee for making cash remittances was acceptable in the light of modus operandi of assessee s business, payments in cash could not be disallowed. 7. Sri Laxmi Satyanarayana Oil Mill v. CIT observed as under: Whether since assessee had placed proof of payment of consideration for its transaction to seller, and later admitted payment and there was no doubt about genuineness of payment, no disallowance could be made under section 40A(3). 8. Gurdas Garg v. CIT [2015] 63 taxman.com 289 (Punjab Haryana) observed as under: Section 40A(3) of the Income Tax Act, 1961, read with rule 6DD of the Income Tax Rule, 1962 Business disallowance Cash payment exceeding prescribed limits (genuineness of transactions) - During assessment proceedings Assessing Officer noted that assessee, who was engaged in trading in properties, made certain transactions in cash in excess of ₹ 20,000/- and disallowed same under section 40A(3) Whether since genuineness of said transactions had not been disbelieved by the authorities below, it made out a case of business expediency and could not be disallowed u/s 40A(3) - Held, yes [paras 4,5,6,7,8,9 and 10] [in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are stock in trade and villagers paid the amount in cash. Such transaction may not be allowed but nevertheless discussed by the Gujrat High Court (supra) which was followed by Tribunal in case of PACL India Ltd., 38 DTR 1 (JP) in Para 19, reads as under :- 19. Similar view has been expressed by the Tribunal in case of PACL India, Ltd., 38 DTR 1 (JP) also wherein it has been held as under : Clause (h) of r.6DD takes out of the purview of s. 40A(3) such case payment which is made in a village or town which I snot served by any bank to any person who ordinarily resides or is carrying on any business in such village or town. There is no dispute that the sellers or the land are villagers engaged in farming activities and are residing at places and are carrying on farming activities at places which are not served by any bank and such sellers have no bank accounts anywhere. It has been emphatically argued on behalf of the appellant-company that all payments were made at the villages prior to registration of the sale. This submission cannot be outrightly rejected. Normally, illiterate poor farmers would insist on cash payments, especially when such payments involve huge amou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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