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TMI Blog2019 (7) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... lleged payment in cash in excess of the limit prescribed u/s 40A(3) of the Act for making payment for purchase of land. Disallowance of Rs. 4,26,060/- has been made for Assessment Year 2012-13 and disallowance of 18,50,000/- has been made for Assessment Year 2013-14 u/s 40A(3) of the Act. As agreed by both the parties that the facts and issue remains the same for both the years, we will therefore adjudicate the issue based on the facts and figures for Assessment Year 2012-13. Grounds of appeal raised by the assessee for Assessment Year 2012-13 which reads as follows; 1. That the Ld. CIT(A) erred in confirming the addition of Rs. 4,26,060/- made by the AO in respect of cash payment made for purchase of land u/s 40A(3). That on the facts and in the circumstances of the case, the said addition is bad in law, uncalled for and deserves to be deleted. 2. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. 4. Brief facts of the case are that the assessee is a company belonging to Kalyan Group of Indore engaged in the business of construction, real es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me with regard to such transactions. As per the then prevalent tradition in real estate transactions sometimes cash payments were required to be made on the insistence of the seller, being farmers and also due to the fact that the sellers were always new and no transaction generally happens with same party again. The said transaction, stands properly recorded in books of accounts as well as supported by registered sale deeds. The genuineness of the transaction is duly documented in the sale instrument which was duly registered with the Sub- Registrar of properties being a State Government Authority. It is to be noticed that neither the Learned AO nor Hon'ble CIT(A) controverted the genuineness of the transaction as well identity of the selling party. The disallowance was made in assessment order in mechanical manner by stating that the provision of 40A(3) were violated as cash payments were made to acquire trade assets and that it was not the case that farmers (sellers) did not had bank accounts. The relevant discussion is on page no 3 of the assessment order. The same view was endorsed by the Hon'ble CIT(A) while sustaining the addition u/ s 40A(3), wherein the discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has carried forward the cost of purchase i.e. land as closing stock shown under the head inventories in the balance sheet. 11. We observe that similar issue came up for adjudication before us in the case of DCIT V/s M/s. Brilliant Sare Reality Pvt. Ltd (supra) wherein the disallowance u/s 40A(3) of the Act was deleted observing as follows; 12. It is the case of the assessee that the payment in cash exceeding the monetary limit so prescribed was due to the business expediency as the sellers of the land insisted for making payments in cash. However, substantial payments were made through banking channel. It is contended that the assessee had no intention of evading tax. All transactions are genuine business transactions. The reliance is placed on various judicial pronouncements to buttress the contention that the provisions to be liberally construed. For the sake of clarity, the relevant provisions of section 40A(3) of the Act and Rule 6DD are reproduced as under:- Section 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 paye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the payment is made for the purchase of- (i) Agricultural or forest produce; or (ii) The produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) Fish or fish products; or (iv) The products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products; (f) Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products; (g) Where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; (h) Where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees; (i) Where the payment is made by an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance u/s 40A(3), while claiming such business expenditure in the future. In view of these undertaking of the assessee and keeping in view, the provisions of Section 40A(3) as discussed hereinabove, we do not find any justification for the disallowance made during the year under consideration. Accordingly, we modify the order of both lower authrities and direct the Department to make disallowance by attracting provisions of Section 40A(3) only in the years in which assessee claims such payment as expenditure for arriving at its business profits. we direct accordingly. 14. From the above decision, it is clear that in that case, the assessee had not claimed expenditure in its profit & loss account. The reliance is also placed by the Ld. CIT(A) on the decision of Hon'ble Delhi High Court rendered in the case of CIT Vs. Rhydberg Pharmaceuticals Ltd. 269 ITR 561. The Hon'ble High Court held as under: "We may note that we are not of the view that obtaining a cheque or a bank draft is hazardous and cumbersome procedure. Suffice it to say that in the present case, the Tribunal was of the opinion that the payee insisted for cash payment as observed by the learned CIT(A) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payers and sellers and the same was duly registered. Genuineness of the transaction as well as the concerned parties is not under dispute. But since the land purchased by the assessee forms part of stock and trade the provisions of Section 40A(3) of the Act comes into operation. During the course of hearing when the question was asked to the Ld. Counsel for the assessee that what would be situation if the assessee will claim the cost of land as expenditure in subsequent years then will it not violate the provisions of Section 40A(3) of the Act in the year of claim. In reply Ld. Counsel for the assessee in his capacity as Officer of the court stated that the assessee will give an undertaking to the effect that the impugned amount will not be claimed as expenditure in subsequent years against the revenue/gross turn over. Ld. Departmental Representative also did not oppose to the statement given by Ld. Counsel for the assessee. 12. We therefore in the given facts and circumstances of the case and respectfully following the decision of the Coordinate Bench and other judgments referred and relied by Ld. Counsel for the assessee and also in view of the undertaking which shall be gi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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