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TMI Blog2017 (5) TMI 1658X X X X Extracts X X X X X X X X Extracts X X X X ..... when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business. - Decided against revenue. - ITA No. 114 / Rpr / 2014 - - - Dated:- 11-5-2017 - SHRI N.S SAINI, ACCOUNTANT MEMBER AND GEORGE GEORGE K, JUDICIAL MEMBER Assessee by : Shri Praveen Jain, AR Revenue by : Shri Ajit Kumar Laskar, DR Date of Pronouncement : 11 /05/ 2017 ORDER Per N.S.Saini, AM This is an appeal filed by the revenue against the order of CIT(A)- Raipur, dated 30.4.2014, for the assessment year 2010-2011. 2. The sole issue involved in this appeal is that the ld CIT(A) erred in deleting the disallowance of ₹ 3,41,84,000/ u/s.40A(3) of the Act (Rs.2,66,84,000/- mentioned in ground of appeal) made by the Assessing Officer on the ground that part payments were made by cheque and part payment in cash. 3. The brief facts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of security of the subject property. The assessee relied on the following decisions: i) CIT vs. Brij Mohan Singh Co. (1994) 117 CTR (P H) 391 ii) Giridharilal Goenka vs CIT, 179 ITR 122 iii) Janambhumi vs CIT, 225 ITR 517 (Gau) iv) Hasanand Pinjomal vs CITG, 112 ITR 134 (Guj) v) D.B.Late vs ITO, 16 TTJ (Pune) 136 vi) Janata Rice Mill vs ITO, (2007) Luknow 357 vii) Raj Narain Bhajan Lal vs ITO, 4 ttj (Del) 1145 viii) ITO s. Janki Dass Chatur Bhu, 04 TTJ (Del) 1145 ix) Ashok Kumar Bros vs ITO, 31 TTJ (Del) 353 6. Further, the assessee relied on the decision in the case of R.P. Real Estate Pvt Ltd., Raipur in Appeal No.508/10-11 dated 29.4.2011, where the issue was decided in favour of the assessee. 7. After considering the submissions made by the assessee, the CIT(A) deleted the addition and held as under:- I have gone through the observations of the A.O. and submissions of the appellant. This issue was decided in the case of M/s. R.P. Real Estate Pvt. Itd., Raipur in appellant s favour. The facts and circumstances and appellant's submissions being same, the operative part of the said order is reproduced below: - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensuring check of accounts that such a provision has been enacted requiring routing of transactions through a bank. 3.6 Sub section (3) empowers the AO to disallow, as a deduction any expenditure in respect of which payment is made of any sum exceeding ₹ 20,000/- otherwise than the crossed cheque or crossed bank draft, unless the payment is made under the circumstances which may be prescribed by the rules, having regard to the nature and extent of the banking facilities available, consideration of business expediency and other relevant factors. The object of the provisions is patently and clearly discernible on the face of the provision itself. It is obviously designed to check tax evasion by claims of cash expenditure which are difficult of proper investigation by the revenue. For the reasons mentioned above and ratio decided in the judgment ^d above, I am of the considered opinion that the AO has applied the provision of Section 40A(3) in a mechanical manner without appreciating and getting in to objects behind insertion of Section 40 A(3) in the Income-tax Act, 1961. The AO failed to appreciate that the proviso to Section 40A(3) which has been substituted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the CIT(A) to the effect that there was business exigencies in making cash payment for purchase of land to 9 parties. 11. Ld A.R. has relied on the order of the CIT(A) and further submitted that the order of the CIT(A) in the case of R.P.Real Estate Pvt Ltd (supra) was appealed against the order of the CIT(A) before the Tribunal. The Tribunal in the case of ACIT vs R.P.Real Estate Pvt Ltd., in I.T.A. No.173/Bil/11 vide order dated 17.7.2015 confirmed the order of the CIT(A) on the ground that payees are illiterate villagers, who wanted only cash payment and there was no dispute regarding identity of the payees and genuineness of the transaction. Being still aggrieved, the revenue preferred appeal before the Hon ble High Court of Chhattishgarh , Bilaspur and the Hon ble High Court in Tax case (Income Tax Appeal) No.13 of 2016 in the case of ACIT vs R.P.Real Estate Pvt Ltd., order dated 1.3.2016, copy of which is placed at page 1-3 of the paper book, upheld the order of the Tribunal observing that that the Tribunal has interpreted the provisions of section 40A(3) to hold that cash payments above twenty thousand rupees could be accepted if the conditions prescribed in the rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the amount in question was business expediency of the company to pay in cash, therefore, same is not covered under section 40A(3) of the Act.. It was argued that it is not dispute that the payment was made in cash for purchase of land. Purchases made are duly supported by registered purchase deed in all the cases. The sellers have appeared before the Sub-Registrar at the time of registration. As per general practice, Sub-Registrar satisfies himself about the identity of the seller to ensure that the payment has been made to the right person. Sub-Registrar also asks the sellers whether full sum has been received by them, then only he registers the sale deed. There is total transparency in dealing as regards identity of the person, dealing, title, etc. Further, photos of the sellers duly signed by them at the time of the registry forms part of the sale deed which was registered before the Sub-Registrar. Therefore, the identity and genuineness of the sellers is beyond any doubt. Moreover, same is also affirmed before the witnesses. 14. In the instant case, the assessee is in the business of real estate. During the year under consideration, it purchased land from 9 persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transactions was admittedly in excess of ₹ 20,000/-, was paid in cash. Payment by demand draft was made only in respect of one of the transactions. These payments in cash were disallowed by the Assessing Officer and the order in this regard was upheld by the Tribunal. The CIT(Appeals) had allowed the deductions. Section 40A(3) of the Act reads thus:- 40A(3) Where the assessee incurs any expenditure in respect of which 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, no deduction shall be allowed in respect of such expenditure. It is important to note the following proviso to the Section:- Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section(3) and this sub- section where a payment or aggregate of payment 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 such cases and under such circumstances as may be prescribed, having regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the proviso to Section 40A(3) is applicable. It is only illustrative. 7. The respondent/assessee's case is supported by several judgments. The Rajasthan High Court in Smt. Harshila Chordia vs. Income Tax Officer, (2008) 298 ITR 349 held as under:- 14. About this clause, many doubts were raised and enquiries were directed to the Board as to what shall constitute exceptional and unavoidable circumstances within the meaning of Clause (j). That led to issuance of Circular by the Board on May 31, 1977 ([1977] 108 ITR (St.) 8), which is published in Taxmann, Vol. 1, 1988 Edition. Significantly paragraph 4 of the aforesaid Circular shows very clearly that all the circumstances in which the conditions laid down in Rule 6DD(j) could be applicable cannot be spelt out. However, some of them which will seem to meet the requirements of the said rule are as follows: a. the purchaser is new to the seller; or b. the transactions are made at a place whether either the purchaser or the seller does not have a bank account; or c. the transactions and payments are made on a bank holiday; or d. the seller is refusing to accept the payment by way of crossed ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple enunciated by the Supreme Court in CTO v. Swastik Roadways as noticed above. 20. In this case, there is no dispute about the genuineness of the transactions and the payment and identity of the receiver are established. Therefore, the case clearly fell within the parameters of paragraphs 4 and 5 of the aforesaid circular read together. 8. The respondent's case is also supported by the judgment of the Supreme Court in Attar Singh Gurmukh Singh vs. ITO, (1991) 4 SCC 385. After referring to Rule 6DD, the Supreme Court held:- 7. In our opinion, there is little merit in this contention. Section 40-A(3) must not be read in isolation or to the exclusion of Rule 6-DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40-A (3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Assessment Year 2010-2011 held as under: Punjab Haryana High Court in the case of Gurdas Garg vs. CIT held that . fulfillment of the conditions of paragraph 5 of the circular has clearly escaped the attention of the Tribunal. The circular clearly indicates that ordinarily where the Income-tax Officer is satisfied about the genuineness of the transaction and payment and identification of the cash payment is established, the Income-tax Officer shall record his satisfaction about the fulfilment of the conditions for allowing the benefit of Rule 6DD(j). Apparently, Section 40A(3)was intended to penalize the tax evader and not the honest transactions and that is why after framing of Rule 6DD (j), the Board stepped in by issuing the aforesaid circular. Supreme Court in Attar Singh Gurmukh Singh v. ISO [1991] 191 1TR 667/59 Taxman 11. After referring to Rule 6DD, the Supreme Court held that Section 40-A(3) must not be read in isolation or to the exclusion of Rule 6- DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trad ..... 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