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TMI Blog2023 (7) TMI 1322X X X X Extracts X X X X X X X X Extracts X X X X ..... f business expediency and rules out any scope or intention of tax evasion on the part of the assessee or other parties as the entire transaction was made part of the court order and decree. Therefore, the genuineness of the transactions and payment as well as identification of the payee were beyond the doubt. As decided in case of Anupam Tele Services [ 2014 (2) TMI 30 - GUJARAT HIGH COURT] if section 40A(3) is read together with rule 6DD it will be clear that the provisions are not intended to restrict business activities. The payment by crossed cheque or crossed bank draft is insisted to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. Therefore, if the assessee has brought on record to establish genuineness of the transactions and payment as well as identity of the payee to the satisfaction of the AO then the benefit of Rule 6DD is available. As section 40A(3) was intended to penalize the tax evader and not honest transactions and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come and revenue record showing the cultivation of the land and crop production then the claim of the assessee cannot be denied in toto. The AO has not disputed the claim of agricultural income of Rs. 21,52,089/-for A.Y. 2014-15. Accordingly in the facts and circumstances of the case when the AO has not disputed the claim of agricultural income for assessment year 2014-15 then the disallowance made for the year under consideration is not justified the same is deleted. Disallowance of salary/remuneration paid to the directors - HELD THAT:- Assessee has explained the qualification and work experience as well as business knowledge of the directors who are responsible for overall business affairs of the assessee company. we further note that the AO has made disallowance of 40% of enhancement without doing any exercise to determine what should be the fair salary to the directors having regard to the services they have render to the assessee company. It is matter of record that two of the directors are paying income tax at the maximum marginal rate and therefore, there is no revenue loss on this account. Accordingly we are of the considered view that an ad hoc disallowance made by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in holding that the provisions of Section 40A(3) are applicable w.r.t. the payment of Rs. 17.50 lakhs 2.2 That the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has failed to consider that the Court Order dated 18.07.2009 which confirms the payment of Rs. 17.50 lakhs made by the assessee. 3.1 That the appellant craves leave to add/modify/change any ground of leave before the final disposal of the appeal." 3. Ground No. 1 is regarding validity of reopening of the assessment. At the time of hearing the Ld. AR of the assessee has not advanced any arguments in respect of the issue of validity of reopening. Even this issue was also not pressed before the Ld. CIT(A) as evident from the impugned order wherein the Ld. CIT(A) has stated that no specific pleading has been made on the issue of reopening except a general reference in the statement of fact. Therefore, indeed the assessee has not pressed ground No. 1 challenging the validity of the reopening of the assessment. Accordingly ground No. 1 of the assesses appeal is dismissed as not pressed. 4. Ground No. 2 is reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in dispute and the same is genuine. The identity of the payee is also not in dispute as entire record have been filed before the AO and therefore, the provisions of section 40A(3) are not attracted in this case when the payment of cash in question is genuine transaction and there was no scope of any tax avoidance. In support of his contention he has relied upon the judgment of Hon'ble Gujarat High Court in the case of Anupam Tele Services vs. ITO 366 ITR 122 and submitted that the Hon'ble High Court has observed that paramount consideration of s.40A(3) is to curb and reduce the possibilities of black money transactions when neither the genuineness of the payment nor the identity of the payee were in dispute and the payments were made in the compelling circumstances and on account of peculiar situation then disallowance under section 40A(3) is not sustainable. He has then relied upon the judgment of Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia vs. ITO 298 ITR 349 and submitted that the Hon'ble High Court has observed that the assessee has proved the payment are made to the seller and identity of the payee have also been proved. Once the assessee produced all the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Esam Singh Morya arrived to a settlement under which the assessee has paid sum of Rs. 17,50,000/- in cash on 8th July 2009 and also agree to make the payment of purchase consideration of the land to the land owner as per the schedule of payment agreed upon between the parties. The parties moved an application under order 23 Rules 3 of CPC before Additional District Judge, Bhopal with the prayer that the parties in the suit have arrived to settlement to their full satisfaction and free will and accordingly prayed that the court may accept the settlement and passed decree pursuant to the settlement. The Additional District Judge has consequently passed an order dated 18.07.2009 as well as decree of the suit being settled between the parties. Therefore, the payment of Rs. 17,50,000/- made by the assessee in cash to settled the dispute pending in the court was inhabitable to purchase the land in question. Thus, the payment was made for business expediency and specific circumstances to avoid abnormal delay of transactions of purchase of land which could have adversely affected the business of the assessee. The AO has not disputed the genuineness of the transaction and identity of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solute. Considerations of business expediency and other relevant factors are not excluded. 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 AO the circumstances under which the payment in the manner prescribed in s. 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 s. 40A(3) and r. 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." 21. It was because of these considerations that this Court in case of Hynoup Foods (P) Ltd. (supra) observed that the genuineness of the payment and the identify of the payee are the first and foremost requirements to invoke the exceptions carved out in r. 6DDG) of the IT Rules, 1962. 22. In the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read together with rule 6DD it will be clear that the provisions are not intended to restrict business activities. The payment by crossed cheque or crossed bank draft is insisted to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. The Hon'ble High Court further observed that provision of section 40A(3) and Rule 6DD are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the changes to use black money for business transactions. A similar view has been taken by Hon'ble Rajasthan High Court in case of Smt. Harsila Chordia vs. ITO (supra) in para 13 to 20 as under: "13. "Clause (j) of Rule 6DD of the Income-tax Rules, 1962, provides that no disallowance under Section 40A(3) of the Income-tax Act, 1961, shall be made where the assessee satisfies the Income-tax Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft. due to exceptiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It can be said that it would, generally, satisfy the requirements of Rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of Rule 6DD(j). 18. It appears that fulfilment 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 afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abolished wealth-tax, Germany, substantially lowered it. The U.S.A. cut capital gains tax and the UK reduced its maximum rate of personal tax from 83 to 60 per cent. In 1982, Sweden reduced its marginal rate of personal income-tax from 85 to 50 per cent. In this country, the Government parsons to simplify the income-tax law but pursues the course, may be due to compulsions, in the opposite direction. The provision on hand is intended to destroy intentions of dealing with unaccounted moneys, the purpose behind insistence on cross-cheque or cross-draft is to assure and ensure "genuiner" of dealing and proper assessment of taxable income Even this provision has a per miso to mitigate the hardships. We notice from the appellate order that the appellate authority found that all the purchases were duly entered in the register through inwards and the production has been accepted. It farther found that the genuineness of the payment was not exposed to any doubt Payments in cash were duly signed by the paynes and the insistence on making the cash payments is founded on the fulcrum that the payees did not have any bank account and that, being illiterates, required the payment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration of Rs. 36,00,000/- assessee paid cash of Rs. 6,20,000/- (verifiable from the Essarjee Constructions Pvt. Ltd ITA No. 900/Ind/2016 Registered sale deed as well as affidavit placed in the paper book). Out of the cash payment of Rs. 6,20,000/- Ld. A.O has disputed only sum of Rs. 5,40,000/- which in view of Ld. A.O was payment for expenditure in cash exceeding Rs. 20,000/-. The total transaction of purchase of land for Rs. 36,00,000/- is not disputed and the complete details of consideration paid in cash and cheque are mentioned in the registry sale deed which has been executed before the Registering Authority and therefore the genuineness of the transaction cannot be doubted. 9. It is pleaded before us that the seller Smt. Anar Bai was not having a bank account on the date of receiving cash and subsequently when the account was opened the consideration was paid in various instalments by account payee cheques. This fact that Smt. Anar Bai was not having the bank account at the initial date of receiving the consideration in cash has not been disputed by the revenue authorities. The said cash payment was made by assessee for business expediency in order to confirm the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the Ld. AR as well as Ld. DR and carefully perused the orders of the authorities below. The AO has passed order u/s 154 on 08.02.2018 for rectification of the mistake as under: "The return of income for A.Y. 2010-11 was files on 30.09.2010 declaring total income of R. 7965390/- order u/s 147/143(3) was passed on 04.11.2015 assessing income of at Rs. 10255390/-. Surcharge and education cess was levied incorrectly in the order u/s 147/143(3). Further, interest u/s 234A, u/s 234B and u/s 220(2) were levied incorrectly. Revised income and tax calculation is as under. Assessed income for A.Y. 2010-11 Rs. 1,02,55,390/- Tax@30% Rs. 30,76,617/- Surcharge@10% Rs. 3,07,662/- EC & SHEC@3% Rs. 1,01,528/- Rs. 34,85,807/- Interest Chargeable u/s 234A Rs. 28,640/- Interest Charged u/s 234A Rs. 10,160/- Short levy of interest Rs. 18,480/- Interest Chargeable u/s 234B Rs. 7,00,607/- Interest Charged u/s 234B Rs. 6,64,650/- Short levy of interest Rs. 35,957/- Interest Chargeable u/s 220(2) Rs. 9,22,471/- Interest Charged u/s 220(2) Rs. NIL Short levy of interest Rs. 9,22,471/- This being a mistake apparent from the record, notice u/s 154 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther sources. 2.2 That the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in not considering the income from agricultural activities 1,79,089 as agricultural income in spite of holding in Para 7.1 that "It also gets reflected from the assessment orders of earlier years that the assessee has been showing purchase of agricultural land and showing. them as stock-in-trade in its status as builder and developer." 3.1 That the ld. Commissioner of Income Tax (Appeals)National Faceless Appeal Centre, Delhi has erred in confirming the disallowance of salary paid to working directors. 3.2 That the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in confirming the decision of the Id. AO who has erroneously considered that the enhancement in remuneration should lead to enhanced benefits to the company in the very same year. 4.1 That the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in confirming the disallowance of a provision on which tax has not been deducted. 5.1 That the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest bearing fund and interest free funds are put in common pool, the investment or loan given by the assessee would be deemed to have been given from assessee's own interest free fund. The assessees own fund is more than sufficient to advance this amount of Rs. 33,70,000/- to the related party. The Hon'ble Supreme Court in case of CIT vs. Reliance industries limited (supra) has observed in para 7 as under: "7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03." 20. Accordingly in the facts and circumstances of the case when the assessee's own interest free fund are sufficient to advance this amount of Rs. 33,70,000/- to the related party the disallowance made by the AO on account of interest calculated @ 12% is not justified and the same is deleted. 21. Ground No. 2 is regarding the addition made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the year under consideration is not justified the same is deleted. 25. Ground No. 3 is regarding disallowance made by the AO on account of salary/remuneration paid to the directors. AO noted during the year under consideration the assessee paid salary to the directors of Rs. 53,86,500/- in comparison to Rs. 30,24,000/- in the preceding year. The AO was of the view that the increase in the salary is excessive in comparison to the turnover of the assessee. Accordingly the AO made a disallowance of Rs. 9,45,000/- being 40% of the increased in the directors salary u/s 40A(2)(b) of the Act. On appeal the ld. CIT(A) has confirmed the addition made by the AO. 26. Before the Tribunal the Ld. AR of the assessee has submitted that the directors of the assessee are well qualified and having overall responsibility regarding the business of Construction, Finance and marketing. He has referred to the details of the salary, turnover from year to year at pages 84 to 86 of the paper book wherein the educational and professional qualification as well as experience of the directors is explained to justify the salary payment and increase in the salary of the directors. Ld. AR has submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to demonstrate that the payment is actually excessive or unreasonable having regard to market rate for the goods, services or facilities availed or the business need of the assessee or commensurate with the benefit derived by the assessee. In the present case before us also the AO has not carried out any exercise for holding the payment of remuneration to the directors that the same is unreasonable or not in consonance with the payment of directors or remuneration. We note that in this year the turnover is at Rs. 1,42,13,393/- and profit earned is at Rs. 84,40,020/- and remuneration paid to these three directors are at Rs. 75,07,380/-. Even it is accepted position that the directors have paid taxes on these remunerations on maximum margin rate and there is no revenue loss to the Department. In view of the above, we are of the view that in the absence of any findings by the AO that the directors remunerations are excessive and unreasonable, we reverse the orders of lower authorities and allow the appeal of assessee." 30. It is matter of record that two of the directors are paying income tax at the maximum marginal rate and therefore, there is no revenue loss on this account. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be ruled out and accordingly made a lump sum disallowance of Rs. 1 lac and added to the income of the assessee. The Ld. CIT(A) has confirmed the disallowance made by the AO. 35. Before us the Ld. AR of the assessee has submitted that the disallowance made by the AO is highly arbitrary and unjustified without any material to show that these expenses are incorrect for person use of the directors. He has relied upon the judgment of Gujarat High Court in the case of Sayaji Iron and Engineering Co. vs. CIT 253 ITR 749, DCIT vs. Brilliant Esates Private Limited order dated 13.12.2018 in ITA No. 349/Ind/2017 Coordinate Bench of this Tribunal. The order of the Coordinate Bench of this Tribunal in case of DCIT vs. Globus Mega Project Pvt. Ltd. in ITA No. 446 & 447/Ind/2018 dated 08.09.2022. 36. On the other hand, Ld. DR has submitted that the AO has made disallowance on the consent of the Ld. AR of the assessee. Thus, the assessee agrees to the disallowance on this account. He has relied upon the order of the authorities below. 37. We have considered the rival submission as well as relevant material on record. The assessing officer has made adhoc disallowance of Rs. 1 lac in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company incurred an expenditure for the personal use of the directors, i.e., even if there was any personal use by the directors, the same was as per the terms and conditions of service and in so far as the assessee-company was concerned it was a business expenditure and not disallowable as such." Thus, in view of the above discussion and following the judgment of Hon'ble Gujarat High Court the adhoc disallowance is not sustainable and liable to be deleted. ITANo. 09/Ind/2023 for A.Y. 2013-14 The assessee has raised following grounds of appeal: "1. That the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in confirming the disallowance of salary paid to working directors. 1.2 That the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in confirming the decision of the ld. AO who has erroneously considered that the enhancement in remuneration should lead to enhanced benefits to the company in the very same year. 1.3 That the ld. AO has disallowed 40 per cent of the increase in directors' salary which is ad hoc in nature and is not in accordance with the facts of the case and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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