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TMI Blog2020 (11) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... s agree to execute a sale deed for sale and purchase of land and the consideration is discharged in cash, it is clearly a case of business expediency which has necessitated the assessee who wants to acquire the said piece of land to discharge the sale consideration in cash due to lack of formal banking facility and in absence of any bank account in name of the seller. Sale deed has been executed on 18.8.2013 and the payment has been made on the said date which happens to be Sunday and thus a bank holiday again necessitating the payment in cash coupled with the fact that the seller doesn t have a bank account - in respect of second sale transaction, the test of business expediency has been met as the initial/advance payment of ₹ 1 lac as insisted by the seller has only been made in cash to secure the transaction and rest all payments have been made through cheque. As held in case of Smt. Harshila Chordia[ 2006 (11) TMI 117 - RAJASTHAN HIGH COURT] the consequences, which were to befall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of ld. CIT(A)-3, Jaipur dated 27.08.2018 wherein the assessee has taken the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in confirming addition of ₹ 30,60,000/- made u/s 40A(3) of the Income Tax Act, 1961 arbitrarily without considering the submissions made and evidences adduced and the exceptional circumstances as per Rule 6DD of the Income Tax Rules, 1962, hence the addition of ₹ 30,60,000/- so made deserves to be deleted. 1.1 That the Ld. CIT(A) has further erred in ignoring the evidences adduced in the shape of certificate from Sarpanch as well as the affidavit of the seller who sold the property that there were no banking facility available at the place where the seller was residing and moreover by ignoring that the seller (Smt. Teja Devi) did not have any bank account and thereby the payment so made was fully covered within the exceptions provided in Rule 6DD of I T Rules. Hence the addition so made deserves to be deleted. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the unsecured loans of ₹ 9,00,000/- taken from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire Gram Panchayat of Chousala nor is available within 5 6 Kms surroundings of the village Chousala. Referring to the provisions of Rule 6DD, the ld A/R submitted that the rules clearly provided for exemption from the provisions of section 40A(3) of the Act where the payment is made to a person who resides in a village which is not served by any bank. It was submitted that the seller actually resided in Chosla-Village which is not disputed by lower authorities. It was submitted that the assessee had made payment out of his disclosed sources of funds which fact is again not doubted by both the lower authorities. Further, reference was drawn to the CBDT Circular No. 220 dated 31.05.1977 which provides that all the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of these circumstances as spelt out in the said circular which would seem to meet the requirements of the said rule includes the transactions which are made at a place where either the purchaser or the seller doesn t have a bank account. It was accordingly submitted that case of the assessee is covered by exception provided under rule 6DD read with CBDT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajasthan High Court in case of Smt. Harshila Chordia vs ITO [2008] 298 ITR 349 and the Co-ordinate Bench decisions in case of ITO vs. Shyam Apparels (P) Ltd. (ITA No. 497/JP/2016), Shree Salasar Overseas (P) LTD 66 DTR 9, M/s Daga Royal Arts, Jaipur vs. ITO, Jaipur (ITA No. 1065/JP/2016 dated 15.05.2018). It was accordingly submitted that the assessee has furnished sale deed/registered sale deed in respect of all the payments made, identity as well as genuineness of transaction is proved beyond doubt. Further, payments have been made by the assessee out of his disclosed sources of income, which is duly reflected in his regular books of accounts and were never doubted. It was accordingly submitted that the payments made by the assessee under business exigencies and exceptional circumstances and therefore are covered within Rule 6DD of Income Tax Rules, and thus disallowance of ₹ 30,60,000/- made by Assessing Officer needs to be deleted. 4. Per contra, the ld. D/R submitted that as regards the first transaction of purchase of land, per the sale deed, it is mentioned therein that the assessee has paid in cash a sum of ₹ 29,60,000/- to Smt. Teeja Devi on the date of exec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be relevant to refer to the provisions of section 40A(3) of the Act which reads as under: (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. (3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees: 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) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in time, has held as under:- 6. As to the validity of section 40A(3), it was urged that if the price of the purchased material is not allowed to be adjusted against the sale price of the material sold for want of proof of payment by a crossed cheque or crossed bank draft, then the income-tax levied will not be on the income but it will be on an assumed income. It is said that the provision authorizing levy tax on an assumed income would be a restriction on the right to carry on the business, besides being arbitrary. 7. In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. 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 40A(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 to ascertain whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be regarded as curtailing the freedom of trade or business. The Hon ble Supreme Court has thus laid great emphasis on the intention behind introduction of these provisions and it would therefore be relevant to examine whether in the present case, there is any violation of such intention and if ultimately, it is determined that such intention has been violated, then certainly, the assessee deserves the disallowance of the expenditure so claimed. 24. The Hon ble Supreme Court referring to the provisions of section 40A(3) as existed at relevant point in time which talks about considerations of business expediency and other relevant factors and Rule 6DD(j) which provides for the exceptional or unavoidable circumstances and the fact that the payment in the manner aforesaid was not practical or would have caused genuine difficulty to the payee and furnishing the necessary evidence to the satisfaction of the Assessing Officer as to the genuineness of the payments and the identity of the payee has held that: The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and unavoidable circumstances rather it was restricted to payment by way of salary to employees and thereafter, by virtue of lastest amendment in year 2008 to payments made on a day on which the banks were closed on account of holiday or strike. 27. We do not believe that by virtue of these amendments, the legal proposition so laid down by the Hon ble Supreme court regarding consideration of business expediency and other relevant factors has been diluted in any way. At the same time, we also believe that Rule 6DD as amended are not exhaustive enough and which visualizes all kinds and nature of business expediency in all possible situations and it is for the appropriate authority to examine and provide for a mechanism as originally envisaged which provides for exceptional or unavoidable circumstances to the satisfaction of the Assessing officer whereby genuine business expenditure should not suffer disallowance. 28. Further, the Courts have held from time to time that the Rules must be interpreted in a manner so as to advance and not to frustrate the object of the legislature. The intention of the legislature is manifestly clear and which is to curb the chances and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in which the provisions of clause (j) under rule 6DD would operate to be exhaustive of such circumstances and had not been properly understood its implication. It was further observed by the Hon ble High Court that primary object of enacting section 40A(3) in its original incarnation was two-fold, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out such transaction and, secondly, to inculcate the banking habits amongst the business community. The consequence which was provided was to disallow of deduction of such payments/expenses which were not through bank either by crossed cheques or by demand draft or by pay order. It was further held by the Hon ble High Court that: Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequences, which were to befall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration which has been overlooked by the Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were that the assessee who is involved in the business of distribution mobile and recharge vouchers of Tata Tele Services Ltd had made payment of ₹ 33,10,194/- to Tata Tele Services Ltd., by cash on different dates. The assessee had made such payment through account payee cheques till 22nd Aug, 2005, when a circular was issued by Tata Tele Services Ltd., requiring the appellant to deposit cash at the company s office at Surat. In that factual background , the Hon ble High Court held as under:- 17. Rule 6DD of the IT Rules, 1962 provides for situations under which disallowance under s. 40A(3) shall not be made and no payment shall be deemed to be the profits and gains of business or profession under the said section. Amongst the various clauses, cl. (j) which is relevant, read as under: (j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike; 18. It could be appreciated that s. 40A and in particular sub-cl. (3) thereof aims at curbing the possibility of on-money transactions by insisting that all payments where expenditure in excess of a certain sum (in the present case twenty thousand rupee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the case of the assessee did not fall under the said exclusion clause nor was covered under any of the clauses of r. 6DD, consequences envisaged in s. 40A(3) of the Act must follow. 22. In our opinion, the Tribunal committed an error in coming to such a conclusion. We would base our conclusions on the following reasons: (a) The paramount consideration of section 40A(3) is to curb and reduce the possibilities of black money transactions. As held by the Supreme Court in Attar Singh Gurmukh Singh (supra), section 40A(3) of the Act does not eliminate considerations of business expediencies. (b) In the present case, the appellant assessee was compelled to make cash payments on account of peculiar situation. Such situation was as follow- (i) the principal company, to which the assessee was a distributor, insisted that cheque payment from a co-operative bank would not do, since the realization takes a longer time; (ii) the assessee was, therefore, required to make cash payments only; (iii) Tata Tele Services Ltd. assured the assessee that such amount shall be deposited in their bank account on behalf of the assessee; (iv) It is not disputed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordia v. ITO (Supra) and the decision of Hon ble Supreme Court in case of Attar Singh Gurmukh Singh v. ITO (Supra). The High Court further observed that the ld. CIT(A) has given a finding that the identity of the payee i.e. vendors in respect of land purchase by the appellant was established, the sale deeds were produced, the genuineness thereof was accepted and the amount paid in respect of each of these agreement was satisfied before the Stamp Registration Authority and the transactions were held to be genuine and the bar against the grant of deductions u/s 40A(3) of the Act was not attracted. The Hon ble High Court further observed that the Tribunal did not upset these findings including as to the genuineness and the correctness of the transactions and it is also important to note that the Tribunal noted the contention on behalf of the appellant that there was a boom in the real estate market and therefore it was necessary, therefore, to conclude the transactions at the earliest and not to postpone them; that the appellant did not know the vendors and obviously therefore, insisted for payment in cash and that as a result thereof, payments had to be made immediately to settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the assessee and against the department. 39. The issue which is being disputed before us has to be considered and decided in light of facts on record and the legal position which emerges from the above referred decisions. The facts of the case are that during the year under consideration, the assessee firm has purchased 26 pieces of plot of land in the month of April and May, 2012 from various persons for a total consideration of ₹ 2,46,28,425/-, out of which payment amounting to ₹ 1,71,67,000/- were made in cash to various persons, payment amounting to ₹ 59,48,920/- were made in cheque to various persons, and ₹ 8,15,700/- and ₹ 6,84,296/- were paid in cash towards stamp duty and court fee respectively. During the course of assessment proceedings, the assessee submitted copies of the sale deed, the particulars of which find mention on page 7 and 8 of the assessment order. On perusal of the said details, it is observed that the said details contains the name of the seller, date of sale deed, plot no., purchase value, stamp duty, Court fee and mode of payment cash/cheque. Therefore, as far as the identity of the persons from whom the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18,00,000 18,00,000 5,07,00 9-Apr-12 - 9,00,000 9,00,000 27,00,000 9-Apr-12 21,93,000 3,34,000 11-Apr-12 - 2,00,000 2,00,000 29,00,000 11-Apr-12 3,73,000 3,34,000 12-Apr-12 - - - 29,00,000 - - 3,34,000 13-Apr-12 - - - 29,00,000 - - 11,97,100 19-Apr-12 - 30,00,000 30,00,000 59,00,000 23-Apr-12 21,36,900 11,57,000 24-Apr-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. It was submitted by the ld AR that in order to secure the deal, assessee had no other option but to make the payment in cash. Cash payments were made from the disclosed sources being the amount withdrawn from bank. It was for sheer insistence of the seller that the payments were made in cash. Had the assessee denied the cash payment looking to the provisions of sections 40A(3), the deal could not have been finalized. In such circumstances, in the business interest and to complete the deal, the assessee had chosen to make the payments in cash fortified through registered sale deed. The payment has been made out of the explained sources, through the registered document and as a disclosed transaction. 42. We find force in the contentions so raised by the ld AR. The transactions have been executed by the assessee within a span of one and half month and there are transactions where the payment has been made through cheque and there are transactions where the payment has been made through cash. The said contentions are supported by the fact that on the same day, there are cash and cheque payments as evidenced from the details of the transactions appearing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 6. In the instant case, we find that the identity of the persons namely Smt Teja Devi and Smt Nana Devi from whom the purchase of land have been made by the assessee has been established and the source of cash payments is duly reflected in assessee s regular books of accounts and the said details were submitted before the lower authorities and have not been disputed by them. It is not the case of the Revenue that any unaccounted or undisclosed income of the assessee has been utilised in making the cash payments. The genuineness and the bonafide of both the transactions have been established as evidenced by sale deeds and assessee s books of accounts wherein the transaction particulars have been duly reflected. In terms of business expediency, the assessee has explained that the seller Smt Teeja Devi is a resident of village Chosla which has no banking facility and therefore, she doesn t had an occasion to open any bank account in absence of any bank and in fact, she doesn t have any bank account opened and maintained in her name as on the date of execution of the sale deed and therefore, in such circumstances, the assessee had no option but to discharge the sale con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(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 6DD 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 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. 12. The aforesaid observation does apply in the instant case. The Assessing Officer on the facts noticed has been unable to make out a case of involvement of unaccounted money. 13.It is also a finding of fact recorded by the Commissioner of Income-tax (Appeals) that copies of the ledger accounts were produced before the Assessing Officer who has not found any discrepancy in such books of account and no unaccounted transaction has been reported/noticed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egards non- appearance of the four creditors stated above, it was submitted that common men always hesitate in appearing before Income Tax Department for the fear of getting into unnecessary litigation. It is also a matter of fact that the assessee being a borrower always has the subdued position and could not compel/pursue the lender for physical appearance or give any further documents as asked for or file the necessary documents again, more particularly when they had already furnished confirmation of loan, their PAN and complete address through AR of assessee. It is further submitted that since they are assessed to tax, their creditworthiness could also not be doubted more particularly when the assessee had paid interest after deduction of tax at source and necessary returns of TDS were also filed before ld. AO. In this regard, reliance was placed on the Co-ordinate Bench decision in the case of Umbrella Projects Pvt. Ltd. vs. ITO (ITA No. 5944/Del/2014) in support of the proposition that no adverse inference can be drawn against the assessee merely because the reply to notices issued u/s 133(6) have not been complied with. It was accordingly submitted that addition made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who have chosen not to respond as the notices didn t returned unserved, the AO has proceeded to make the addition in the hands of the assessee and the parties which have responded to such notices, the AO has accepted the transactions as genuine and no addition has been made in the hands of the assessee. We therefore find that merely on account of non- receipt of response to notices u/s 133(6) from these parties, the additions has been made by the AO. The AO has not doubted the details and other particulars so submitted by the assessee in respect of these parties. The assessee has submitted name and address of these parties, their PAN numbers, the amount received through banking channel, the quantum of unsecured loan, the rate of interest paid on such loan transactions and TDS done on such interest payments and necessary confirmation of these parties have been submitted wherein they have acknowledged the transaction and the outstanding balance in their respective loan accounts. We find that similar details were furnished in respect of other loan transactions and which have been accepted by the Assessing officer and therefore, there cannot be a different benchmark in terms of exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence as he did not receive reply from the 4 aforesaid shareholders in response to notice issued by him under Section 133(6). On this issue, firstly, the Ld. AR has drawn our attention to the replies along with evidences submitted by these 4 shareholders to the AO to discredit the allegation of the AO that he did not receive reply in response to notice issued by him under Section 133(6). De horse the non-receipt of the reply, even for the sake of argument we assume that the AO has not received the reply, still the fact remains that 133(6) notice were served on these four shareholders. On going through the assessment order we note that it is not the case of the AO that notices have come back unserved or these shareholders were not available at the address given by the assessee. If that be so, we are of the view that no adverse inference can be drawn against the assessee merely because reply has not been received by the AO in response to notice issued under Section 133(6), but merely non-receipt of reply can be a justification for drawing adverse inference. Our this view is supported by the judgment of the Hon ble Supreme Court in the case of CIT vs. Orissa Corporation 159 ITR 78 wher ..... X X X X Extracts X X X X X X X X Extracts X X X X
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