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TMI Blog2016 (3) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- could be assessed. This offer of the assessee has duly been recorded in the assessment order - we therefore, hold that after considering the submissions as well as the method of valuation, at best, a sum of ₹ 2,31,360/- could be upheld by CIT(A), instead of granting the total relief - thus AO is directed to compute the addition accordingly - allowed for statistical purposes. Disallowance made u/s 40A(3) - Held that:- the expenditure was towards purchase of uniform and payment to staff. Each payment was described by the assessee - CIT(A) has examined the expenditure incurred and thereupon arrived at a conclusion that the payments although were in cash but petty in nature - On that basis he has held that the provisions of section 40A(3) were wrongly invoked - Decided in favor of assessee. Disallowance of expenditure incurred by partners - Held that:- the expenses was incurred for the purpose of travel, pooja expenses, office expenses etc. CIT(A) has held that considering the nature of the business as well as the scale of the business, the expenditure in question was related to the business activities of the assessee - thus CIT(A) has rightly granted relief after cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 143(3) dated 26-12-2011 were that the assessee firm is in the business of land development and construction. The AO had made an observation that during the year the assessee had purchased six land properties. On perusal of the purchase deeds it was found that the assessee had made cash payment of ₹ 64,35,000/-. The cash payment was over and above the payments made through banking transaction. The total cost of the lands purchased shown as stock in trade amounted to ₹ 3,61,12,567/-. The objection of the AO was that the payments have been made in excess of ₹ 20,000/- in cash, hence infringed the provisions of section 40A(3) of the I.T. Act. The details of the payment made in cash was listed by the AO as under : a. Banwadi Land dt. of purchase on 25/08/2008 Kh.No.88/1 for ₹ 29,00,000/- Rs.7,06,000/- at the time of agreement. Rs.4,94,000/- at the time of Registry on 25/08/2008. b. Banwadi Land dt. Of purchase on 25/08/2008 Kh. No. 88/2 for ₹ 57,60,000/- Rs.25,60,000/- at the time of agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had purchased agricultural land from the villagers situated in rural areas or villages. The land was recorded as agricultural land in Maharashtra Land Revenue Record. Therefore, under such specific circumstances, the part of the payment was made in cash. Case laws relied upon are as under : i) Attar Singh Gurmukh vs. ITO (1991) 191 ITR 667 (SC). ii) Ace India Abodes Ltd. vs. ACIT in ITA No. 79/JP/2001 dated 12- 08-2011. iii) S.A. Builders Ltd. vs. CIT(Appeals) 288 ITR 001 (SC) 6. On the other hand, from the side of the Revenue, learned D.R. Mr. Narendra Kane appeared and supported the orders of the Revenue authorities. He has pleaded that the payments in cash are exempt if covered under Rule 6DD. He has placed reliance on the order of MRS Roadways vs. CIT 52 taxmann.com 99 (Kerala). Learned D.R. has also pleaded that the payment in cash was squarely covered by the provisions of section 40A(3). Hence the action of the AO deserves to be affirmed. 7. We have heard both the sides and perused the material placed before us. At the outset it is worth to mention that on identical facts and circumstances where a Developer had made payments to farmers in cash at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious villagers for purchase of agricultural land. Normally illiterate poor farmers would insist on cash payments, specially when such payments involve huge amounts at the place of their residence for the simple reason that they would like to avoid the risk of receiving cash at town where the sale deed is to be registered before sub-registrar and which may be far way from the sellers village. In this situation, the seller has to confirm before the sub-registrar that full payment as per recital of the sale deed has been received by him. At the same time, the government authority i.e. sub-registrar satisfied himself upon the identity of the seller to ensure that the payment has been made to the right person. For the sake of convenience in the receipt, the place is mentioned as the town where the document is registered. From the assessment order we observe that the Assessing Officer has not made any effort to examine the very fact whether the payments were made and received by the sellers at their villages or at the town where the sale deed was registered. 11. Considering the entire facts and proposition that the payments were made at villages where banking facilities did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D(h) of the Rules. 13. On the basis of discussions made hereinabove we finally hold that the authorities below were not justified in confirming the disallowance of `.3,27,488 being the disallowance at 20 percent of cash payments to the land seller villagers of `.16,36,440 in excess of `.20,000 and the disallowance made u/s 40A(3) of the Act under appeal is found to be unjust, perverse which is not sustainable in the backdrop of statutory provisions. Accordingly, impugned order is set aside and disallowance and additions made thereunder are hereby deleted. 8. We find that the above case law is applicable on the facts of the case. Payees in this case also are illiterate villagers who wanted some of the payments to be done in cash. There is no dispute regarding identity of the payees and genuineness of the transaction. Moreover the above observations of the Tribunal are squarely applicable on the facts of the case. On the facts and circumstances of the case, we have no reason to differ from the view taken by the Tribunal as above which are directly applicable on the facts of the present case. The Hon ble Apex Court in the case of Honda Ciel Power Products, Civil Appeal no. 5412 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther if the method of valuation is changed, a corresponding change in the valuation of the opening stock would also have to be made which would nullify the impact of changing the valuation of closing stock. Also, in the event of upward valuation of the closing stock, a corresponding effect would have to be given in the opening stock in the subsequent year. Considering the above facts the said addition of ₹ 11,65,769/- is hereby deleted. This ground is therefore allowed. 12. On this short issue we have heard both the sides and perused the material placed before us. The method adopted by the assessee was average purchase price. However, the AO had considered certain expenses such as legal expenses etc. for the purpose of valuation of the closing stock. The assessee has furnished the calculation of the valuation stock and before the AO he has admitted that at best a difference in stock of ₹ 2,31,360/- could be assessed. This offer of the assessee has duly been recorded in the assessment order. We, therefore, hold that after considering the submissions as well as the method of valuation, at best, a sum of ₹ 2,31,360/- could be upheld by learned CIT(Appeals), ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the learned CIT(Appeals) has rightly granted relief after considering the nature of expenditure incurred vis-a-vis the nature of the business carried out by the assessee. As a result, this ground of the Revenue is, therefore, dismissed. 17. Ground No. 4: Whether on the facts and in the circumstances of the case and in law the learned CIT(Appeals) has erred in deleting the additions of ₹ 89,700/- made by the AO on account of Travelling for marketing claimed by assessee without appreciating the fact that the same are interlinked expenses (visit to Domak village) being personal in nature. The expenditure of ₹ 1,64,871/- was claimed by the assessee as travelling expenses, out of which the AO had disallowed ₹ 89,700/- because of the reason that the expenditure were not related to the business of the assessee. It was found to be for personal purposes such as Domak tour and Shree Gajanan tour etc. When the matter was carried before the first appellate authority, learned CIT(Appeals) has allowed the claim by assigning the reason that in real estate business travelling is required. However, the said reasoning is general in nature as against that the AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . By invoking the provisions of section 40A(2)(b) he has disallowed ₹ 5,02,900/- as per the following calculation : In this background the assessee was asked to submit the details of the above persons against whom commission is payable/paid, the plots booked by them amount paid by those plot holders as booking amount or total payment made during the year by the customers brought by the above commission agents during the F.Y. 2008-09 relevant to A.Y. 2009-10. The assessee has filed detail chart showing cost of plot, payment made by these plot holders. The following details are provided by the assessee: Total cost of plots booked By 9 agents. Amount paid by these plot Holders during the F.Y. 2008-09. Balance payment due from plot holders as on 31/03/2009. Rs.2,17,97,806/- Rs.1,34,32,961/- ₹ 83,68,591/- 100% 61.61% 38.39% The above figures show that only 61.61% of payment is received by the assessee during the year against total cost of plots. This fact is also confirmed by assessee as state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year. As such the deletion of addition is justified even after considering the factual working of closing stock. 2. The Ld. ClT Appeals was further justified in deleting the addition of ₹ 46,660/- u/s 40A(3) spent on uniforms of staff after due verification of fact that the individual expenditure was less than ₹ 20,0001- per person as supported by vouchers which was not disputed or doubted as genuine by the Ld. Assessing Officer. 3. The Ld. CIT Appeals was further justified in deleting the addition of ₹ 39.915I- after due verification of vouchers and nature of expenses incurred on Travel, Pooja Expenses and Office Expenses which are directly relating to the business. 4. The Ld. CIT Appeals was further justified in deleting the addition of ₹ 89,700/- spent on business promotion duly supported by bills and vouchers which was relating to travelling for marketing of Layout 1 Plots and duly supported by vouchers and clearly incurred for business purposes. 5. The Ld. CIT Appeals was further justified in deleting the addition of ₹ 17,689/- towards tea and snacks incurred on customers on visit to the site of Layouts and as such correctly claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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