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TMI Blog2016 (5) TMI 1515X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance u/s 40A(3) cannot be made in view of the judgment in the case of Sh. Gurdas Garg [ 2015 (8) TMI 569 - PUNJAB HARYANA HIGH COURT] Where the identity of the persons who has received payment in cash is established and genuineness of transactions is established, no disallowance can be made under the provisions of section 40A(3). In the present case even if it is assumed that assessee had first purchased the land and had made the payments to sellers of land the identity of sellers of land is established as is evident from the copy of agreement to sell impounded during survey and also the identity of assessee is established who is deemed to have purchased the land and therefore, also the facts and circumstances of the present case read with judgment of Hon ble Punjab Haryana High Court in the case of Sh. Gurdas Garg suggest that no disallowance could have been made in the present case. In view of the above we allow ground Nos.3 to 6 of the appeal of the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case as noted in assessment order are that assessee declared total income of ₹ 40,46,970/-. During the course of assessment proceedings the Assessing Officer observed that assessee had declared to have earned short term capital gain of ₹ 38,53,000/- and after setting off of brought forward short term capital loss of ₹ 26,95,879/-, had declared net capital gain to the tune of ₹ 11,57,121/- The Assessing Officer further observed that the other income offered by assessee included ₹ 25,00,000/- surrendered by assessee during the course of survey proceedings u/s 133A. He further observed that during the survey proceedings a copy of purchase agreement of some land was found from the premises of assessee wherein the fact of having advanced an amount of ₹ 25,00,000/- for purchase of a land was mentioned and assessee during survey proceedings had surrendered this amount of advance. The Short Term Capital Gain declared by assessee was on account of profit from sale of such land which was sold in the form of plots. Since the assessee had treated the sale of land as short term capital gain the assessee was asked to explain as to why the profit fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. The following examples are visible in the map. 19.58 M Kailaso Devi 16.28 M Tarun Thakur 60.20 M Ajay Mahajan 11.50 M Aman The above are the plots sold as per the map and these also occur in details available in impounded material2 regarding the same land. The plots were sold by registries and the names in registration deeds are different. The rates in registration deeds are also different. The difference is there because the impounded material speaks of actual transactions while the registration deeds contain only the white portion of the transactions. The names are different because the registered sale is shown between original landholders and final customers while the transactions have taken place in cash in different names. In any case, it is established that the map contains the graphic version of the sale of land undertaken by the assessee. g) It is also visible that considerable development of land has been undertaken by the assessee by leaving out streets for proper colonization of the said land. The map area of total does not match, as the assessee has claimed that the entire land subject to the land purchase agreement was not purchased and only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oys its income for sometime, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Just as the conduct of the purchaser subsequent to the purchase of a commodity improving or converting it so as to make it more readily resaleable is a relevant factor in determining the character of the transaction, so would his conduct prior to the purchase be relevant if it shows a design and a purpose - 3. Raja J. Rameshwar Rao v. CIT[\96\] 42 ITR 179 (SC). Where land is purchased, then developed and later sold in bits, it is a business venture - When a person acquires land with a view to selling it later after developing it, he is carrying on an activity resulting in profit, and the activity can only be described as a business venture. Where the person goes further and divides the land into plots, develops the area to make it more attractive and sells the land not as a single unit as he bought it but in parcels, he is dealing with land as his stock-in-trade, and carrying on business and making a profit - 4. CIT v. Premji Gopalbhai [1978] 113 ITR 785 (Guj.) Sole intention to resell at a profit, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chased the land himself and then he got the Registries made in the names of ultimate buyers and therefore, Assessing Officer held that assessee must have made payment for purchase of land in cash and therefore, he held that the assessee had violated provisions of section 40A(3) and therefore made a disallowance of ₹ 1,53,60,890/-. Calculated on the basis of proportionate cost of land of 121.78 marlas out of total land of 246.50 marlas, sold during the year. 4. Aggrieved with the additions the assesses filed appeal before learned CIT(A) and learned CIT(A) partly allowed the relief by holding as under: "6. I have gone through all these case-laws quoted by the assessee and as well as by the AO in this regard. And I have gone through various points noted by the AO in para 3.2 on page 5, 6 & 7 of his order. It is clear that each such transaction has to be analyzed and evaluated on facts pertaining to that transaction and can not merely be decided on the basis of quoted case-laws. Help can taken from various test laid-down by Hon'ble Supreme Court in this regard. It is fact that assessee was not having sufficient fund at the time of purchase of such land and in view of clear i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished and explanation 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. (c) CIT vs. Brii Mohan Singh and Co.: 209 ITR 7531P&H): The assessee was a liquor contractor under permits granted by the Excise and Taxation Department. Under the terms of the permits the actual amount for which purchases of liquor were to be made were known only at the time of actual purchase. During the assessment year 1984-85, the assessee made cash purchases of liquor to the tune of ₹ 12,70,683 which were not treated as expenditure by the assessing officer in the assessment framed for contravention of provision of section 40A(3) and the deduction was not allowed, i.e., addition to that extent was made in the income assessed. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On second appeal, the Tribunal deleted the addition as it was satisfied about the bona fides of the payments and genuineness of the transactions. The Tribunal also rejected reference application of the revenue observing that no question of law arose from its decision. In the instant case, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en overlooked. In view of the aforementioned, it was held that the Tribunal was wrong in holding that the assessee by making the payments above ₹ 10,000 to the third parties had violated the provisions of section 40A(3) of the Act. 6.2 The assessee has further relied on its averment that expenditure for purchase of land was ot claimed as expenses) in books of account and in view of same section 40A(3) is not applicable,. The assessee has further submitted that earnest money of ₹ 25,00,000/- surrendered pursuant to survey and offered to tax as "income from other sources" can not be disallowed u/s 40A(3) as same has been offered to tax as income from other sources and it will amount to double taxation. 6.3Thus the assessee has stated that: The disallowance made by the assessing officer u/s 40A(3) of the Act, is erroneous inasmuch as:- Thus the assessee has stated that: a) The said section does not apply to payments made for purchase of capital assets; b) The said section does not apply to cases where the assessee is able to establish the identity of the party and the genuineness of the transaction; c) The appellant merely facilitated the transaction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and assessee was not in a position to pay the entire balance amount and, therefore, he requested the sellers of land to sell the land to other persons and in lieu of his right of specific performance he was promised to get his advance amount of ₹ 25,00,000/- back along with some portion out of profits earned from sale of such land. He submitted that assessee had relinquished his right of specific performance which itself was a capital asset and therefore, relinquishing of this right resulted into sale of capital asset and therefore, assessee had rightly declared the income under the head capital gains. The learned AR submitted that he had relied upon a number of case laws but learned CIT(A) did not consider the same. 6. Arguing upon his contention that the assessee never did any business in Real Estate, he filed computation of income of assessee for Asst. Years: 2008-09, 2009-10 and 2012-13 to highlight that assessee never did any business before the present assessment year or after the present year. Therefore, it was prayed income from the transaction to be treated as capital gain. 7. The learned AR further submitted that the second grievance of assessee is that Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Santosh Jain, 296 ITR 324, for the proposition that if the transactions were done out side the books of accounts, no disallowances can be made u/s 40A(3). 10. The learned DR, on the other hand submitted that the impounded documents found during survey clearly established that assessee had entered into a business transaction as the transaction of purchase and sale was concluded within a short period of time and moreover a map showing plotting of such land was also found during survey and therefore the transaction was indeed a business transaction. In respect of disallowance u/s 40A(3) the learned DR placed his reliance on the orders of authorities below. 11. In respect of Revenue's appeal the learned DR relied upon the order of Assessing Officer whereas learned AR relied upon the order of CIT(A). 12. We have heard the rival parties and have gone through the material placed on record. We find that it is an undisputed fact that an agreement to sell for purchase to 246.50 marlas of land along with a map showing plotting of such land was found during survey proceedings on the assessee. It is also an undisputed fact that assessee had surrendered an amount of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale deeds and furthermore we find that in some of the cases the buyers had made payments to sellers vide cheuqe as is found in the case of Mr. Yogesh Sharma and Vishal Gupta. Further we find that the payments by buyers were made in the presence of SubRegistrar as has been mentioned in the sale deeds itself, therefore, the presumption made by the authorities below is not justified. Further we find that assessee had entered into an agreement for purchase of land measuring 246.50 marlas out of which Authorities below have assumed that only payment for 121.78 marlas of land was made in the year and that is why they have made disallowance under section 40A(3) with respect to amount of purchase for 121.78 marlas. This action of authorities below itself proves that Authorities below had made the addition only on the basis of assumptions. The Assessing Officer has presumed that only sold quantity of land was purchased during the year under consideration. There is nothing on record with the Authorities Below to arrive at this conclusion. In view of the above facts and circumstances we do not find that action of learned CIT(A) in confirming the disallowance made by Assessing Officer u/s 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. " 4. It is important to note some of the findings of fact by the CIT (Appeals). The identity of the payees i.e. the vendors in respect of the lands purchased by the appellant, was established. The sale deeds were produced. The genuineness thereof was accepted. The amount paid in respect of each of these agreements was certified by the Stamp Registration Authority. The CIT (Appeals) held the transactions to be genuine. Accordingly, the CIT held that the bar against the grant of deductions under Section 40A(3) of the Act was not attracted. 5. It is important to note that the Tribunal did not upset these findings including as to the genuineness and the correctness of the transactions. It is also important to note that the Tribunal noted the contention on behalf of the appellant that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 oaument bu wau of crossed cheaue/draft and the purchaser's business interest would suffer due to non-availabilitu of goods otherwise than from this particular seller : or e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchase the goods; or f) specific discount is given by the seller for payment to be made by way of cash. 15. It was further clarified in paragraph 6 that the above circumstances are not exhaustive but illustrative. 16. Therefore, in our opinion, the Tribunal was clearly in error in not travelling beyond the circumstances referred to in paragraph 4 of the Circular and to consider the explanation submitted by the assessee on its own merit. 17. Sianificantlu paraaravh 5 reproduced hereinbelow gives a clear indication that Rule 6DDH) has to be liberallu construed and ordinarilu where the genuineness of the transaction and the paument and identitu of the receiver is established, the requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction 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 to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of Section 40-A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The 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 40-A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6-DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of Section 40-A(3) and Rule 6-DD that they are intended to regulate the business transactions and to prevent the use of un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion because of the following facts. (i) The copy of map showing of land intended to be purchased by assessee along with copy of agreement was found at the premises of assessee. The plotting of land done by sellers of land or by assessee himself suggests that the assessee had invested the amount with the purposes of selling in the form of plots within the earliest available period. (ii) The sale of such land was completed by the sellers of land in a short period of a few months. The map of land reproduced in the assessment order suggests that the sufficient space was left for streets on the entire land. (iii) The assessee was not able to demonstrate with evidence in the form of some agreement with the sellers of land whereby he had relinquished his right for specific performance of not getting the sale deed registered in his name. (iv) The assessee could not demonstrate as to the amount for which such right was relinquished, as he continued to receive payments from owners linked with the sales. (v) The assessee could not demonstrate as to why the payment of compensation was calculated in the form of profits and rather the receipt of profit from the sellers of land in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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