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TMI Blog2017 (9) TMI 1633X X X X Extracts X X X X X X X X Extracts X X X X ..... e of land holding these cash payment falls under exceptional circumstances r.w.r. 6DD of Income Tax Rules. The appellant craves leave to add or amend any ground of appeal before the appeal is heard or disposed off. 2. The brief facts of the case are that the search operation was conducted on 17.9.2008 in Kamdhenu Group of cases. M/s Marigold Merchandise (P) Ltd-assessee company belongs to Basant Bansal subgroup. No surrender of undisclosed income was made in this group. Notice u/s. 153A of the Income Tax Act, 1961 (hereinafter referred as the Act) was issued on 09.3.2010 and served on the assessee. A return of income filed on 30.3.2010 by the assessee at declaring income of Rs. NIL. Notice u/s. 143(2) and 142(1) of the Act was issued on 20.5.2010. In response to the same, the assessee replied the notices and submitted that the payment towards purchase of a capital asset does not attract provisions of section 40A(3) as is the case of the asseseee and relied upon the case law of ITAT, Delhi Bench in the case of Kanshi Ram Madan La. Vs ITO (1983) 3 ITD 290 (Delhi) wherein it has been held that the provisions of section 40A(3) are not applicable in the case of capital expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arigold Merchandise (P) Ltd. vs. DCIT reported in (2015) 55 taxmann.com 358 (Del. Trib). v) ITAT, SMC Bench, New Delhi in the case of Radhey Shyam Manchanda vs. ITO passed in ITA No. 5238/Del/2016 (ASY 2012-13) vide order dated 17.8.2017. 6. We have heard both the parties and perused the records available on record especially the impugned order. With regard to disallowance u/s. 40A(3) of the Income Tax Act is concerned, we find that assessee has purchased the land at Village Nangli Umarpur Distt. Gurgaon for a sum of ₹ 3.69 Cr. from the seller parties namely Sh. Pohap Singh, Sh. Chet Singh, Sh. Chandra, Sh. Kishan, Smt. Vidhya, Smt. Jagwati, Smt. Veerwati and Smt. Lali. The purchase of agriculture land is evidenced through sale deed and the payment is also evidenced by way of the sale deed executed before the Sub Registrar. There is no dispute on the fact that the identity of e payee is proved, the genuineness of the transaction is proved and the source payment is also established in as much as such amount is found to be withdrawn from the HDFC bank account of the appellant company. The AO's case is that the provisions of sec. 40A(3) are of mandatory nature whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that since the genuinity of the payments made to the parties is not doubted by the revenue, the provisions of section 40A(3) could not be made applicable to the facts of the instant case. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment. 4.4. In this regard, it is pertinent to get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs. ITO reported in (1991) 191 ITR 667 (SC) Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of ₹ 2,500 (Rs.10,000/- after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 - Jurisdictional High Court decision It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding ₹ 20,000/- since it is not made by crossed cheque or bank draft but by hearer cheques and has computed the payments falling under provisions to Section 40A(3) for ₹ 78,45,580/- and disallowed @20% thereon ₹ 15,69,116/-. It is also made clear that without the payment being made by beater cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the ld. CIT(Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT(Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine. Anupam Tete Services vs ITO in (2014) 43 Taxmann.com 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to befall on account of non- observation of section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions it being free from vice of any device of evasion of tax is relevant consideration. 4.6. The Hon'ble Apex Court in the case of CIT vs Swastik Roadways reported in (2004) 3 SCC 640 had held that the consequences of non-compliance of Madhyapradesh Sales Tax Act , which were intended to check the evasion and avoidance of sales tax were significantly harsh. The court while upholding the constitutional validity negated the existence of a mens rea as a condition necessary for levy of penalty for non-compliance with such technical provisions required held that in the consequence to follow there must be nexus between the consequence that befall for noncompliance with such provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter. The Supreme Court has opined that the existence of nexus between the tax evasion by the owner of the goods and the failure of C F agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Learned AR that the assessee had made payment to his agent Mr.Arnit Dutta for purchase of sim cards and others and hence would fall under the exception provided in Rule 6DD(k) of the IT Rules. For the sake of convenience, Rule 6DD(k) is reproduced herein below:- Rule 6DD(k) of the IT Rules 1962 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to the profits and gains of business or profession under subsection (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely:- *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; The said rule says that if the payment is made by a person to his agent who is required to make payment in cash for goods and services on behalf of such person: Admittedly, Shri.Arnit Dutta is only the agent of H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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