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TMI Blog2024 (8) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... . A. S. Rana, Sr. DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeal has been filed by the assessee against the order of ld. CIT(A), Kathgodam dated 24.02.2020. 2. Following grounds have been raised by the assessee: 1. The Learned Commissioner of Income Tax (Appeals) has without going into the facts has sustained addition aggregating to Rs. 57,17,949.00. 2. The Ld. CIT-A has sustained half of the ad-hoc disallowance land development expenses contrary to facts and law amounting to Rs. 1,62,139.00. 3. The Ld. CIT-A has sustained addition of Rs. 55,55,810.00 U/s 40A(3) of the Act contrary to law and facts. 4. That the order is bad in law, not in agreement with facts and is against the principles of natural justice. Payments - Section 40A(3): 3. During the year under consideration, the assessee has purchased land for a total amount of Rs. 1,87,74,200/-, out of which an amount of Rs. 62,65,010/- has been paid in cash. From perusal of cash book and land owners account, it was found that the assessee had made the following cash payments exceeding Rs. 20,0000/-: Date Bill particulars Particulars Amount (In Rs. ) 15.05.2012 Mr. Sudershan Singh To cash Rs. 20,00,000/- 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of Rs. 31,00,000/- was made in cash and the remaining amount was transferred through banking channels. This clearly proves that the sellers of the land had been accepting payment by way of account payee cheques or through banking channels. Therefore, the contention of the assessee that cash payments were made on the insistence of the sellers is not reasonable. Moreover, Neither the assessee nor could the sellers of the land produce any documentary evidence to substantiate the claim of the sellers that cash was required to settle the medical bills of family members. There is no evidence furnished to reveal that the cash payments so received were utilized for payment of medical bills. Hence, this explanation of the assessee is not found tenable that cash was required by the sellers for immediate settlement of medical bills. 10. The next submission of the assessee is that business expediency compelled him to make cash payments. The ld. CIT(A) held that the assessee has not put forward any such evidence or instance which could prove that business exigencies or expediency warranted him to make cash payments in violation of section 40A (3). 11. Aggrieved, the assessee filed app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in cash and such cash payment is taxable in the hands of recipient, the chances of its being left out of the purview of Income Tax Act becomes very high. The provisions of the section are designed to counter evasion of tax through claims for expenditure shown to have been incurred in cash with a view *to frustrating proper investigation by the Department as to the identity of the payee and the reasonableness of the payment. Therefore, the provisions of section 40A(3) have relevance even if the transaction is genuine and the sources of payments are explained. In this regard, reliance can also be placed on the decision of the Hon ble High Court of Gauhati in the case of Walford Transport (Eattern India) Ltd. Vs. CIT (1999) 240 ITR 902 wherein the Court stressed upon the requirement of such payments to be made by crossed cheque or draft. Further, in the case of Attar Singh Gurmukh Singh vs. ITO (1991) 191 ITR 667 , the Hon ble Supreme Court held that section 40A(3) r.w. Rule 6DD are not arbitrary and do not amount to restriction on the fundamental rights to carry on business. In fact, the assessee has also relied on this case law to substantiate his position. But, in my firm view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where 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 2[account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, exceeds ten thousand rupees] in the cases and circumstances specified hereunder, namely: (a) where the payment is made to (i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949); (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (b) where the payment is made to the Government and, und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than his normal place of duty or on a ship; and (ii) does not maintain any account in any bank at such place or ship; (j) 4[ *** ] (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; (l) where the payment is made by an authorized dealer or a money changer against purchase of foreign currency or travelers cheques in the normal course of his business. Explanation. For the purposes of this clause, the expressions authorised dealer or money changer means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.] 16. Out of the four people, one person namely Sh. Arun Mourya has been produced before the AO and confirmed of receiving the money in cash. He acknowledged the fact that the assessee has purchased the land and paid in cash. The second vendor Sh. Sudarshan Singh has since expired but his son Sh. Baldev Singh furnished an affidavit with regard to the receipt of cash having in know the affairs of his father. Thus, both the parties confirmed the receipt of the consideration in cash and contingen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that rule 6DD(k) provides an exception in respect of cash payments which are made on a day on which the banks, were dosed. This is exception proves that the object of the legislature is to provide an exception in res pert of such payment which is required to be made in cash for absence of banking facilities. Therefore, we hold that in the present case, the assessee made cash payment to the agricultural land seller villagers which are covered under second proviso to section 40A(3) of Rule 6DD(h) of the Rules. 18. The above decision has been given in the context of clause (h) of Rule 6DD of the Income Tax Rules, 1962 and may kindly be considered in the same ratio for clause (g) of Rule 6DD of the Income Tax Rules, 1962 in the instant case. 19. The intention of the legislature as laid down in the case of Attar Singh Gurmukh Singh vs. ISO [1991] 191 ITR 667/59 Taxman 11 (SC) wherein the Hon'ble Supreme Court has held as under: 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 6-DD. The section must be read along with the rule, if read together, it will be dear that the provisions are not intended to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in cash and relief was graciously granted by the predecessor of the ld. CIT(A) where it was held, As seen from above discussion the circumstances in the present case are similar, the AO has only alleged that the deals were made in urban area of Rudrapur etc, based only on the place of registration of sale deed, but he has not disproved that the sellers were residing in village area which did not have banking facilities. The Appellant has demonstrated the business expediency as mentioned in the proviso to Section 40A(3) read with Rule 6DD, for making such payment Further Rule 6DD(g) only refers to the place where such person normal reside or carry out their vocation, therefore his objection on above the contentions of the Appellant are found to be acceptable and it is held that these payments are covered under the exception provided under Rule 6DD(g) and accordingly not disallowable under Section 40A(3), the disallowance is accordingly deleted. 21. There cannot be discrimination between the assessee who are similarly place and Department cannot take a different stand for different assessee. Reliance is also placed on the following case laws: Damodar J. Malpani vs. CCE [2002 (146) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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