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TMI Blog2024 (12) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... assesses explained that the payment is made to a villager, whose village has no bank - HELD THAT:- We are of the considered opinion that the applicability of section 40A(3) would only exclude the cases which are exclusively covered under Rule 6DD. Under such circumstances, we cannot concur with the contentions of the Ld. AR based on the contention that the genuineness of the parties or payments which though was not doubted by the Ld. AO, thus provisions of section 40A(3) cannot be invoked. Adhoc disallowance of 10% from various expenses such as travelling, business promotions lodging and boarding, pooja expenses, confirmed by Ld. CIT(A) at 5% - HELD THAT:- Since the nature of expenses incurred by the appellant and as the same were supported with self-made vouchers the element of personal claimed was not ruled out. As there was no further explanation by the assessee regarding the self-made vouchers which are not supported with proper bills, we do not find any infirmity in the order of Ld. CIT(A), therefore, the decision of LD. CIT(A) to sustain the addition to the extent of 5%, merits substance and acceptable, we, therefore, uphold the same. Consequently, Ground of the present appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings, Ld. AO observed that the assessee has carried out a Specified Domestic Transactions (SDT) during the relevant year to the extent of Rs. 8.18 Crore. Accordingly, a reference u/s 92CA(1) of the Income Tax Act has been made to Transfer Pricing Officer (TPO) at Ahmedabad on 13.12.2016, for the purpose of computation of Arm s Length Price (ALP) in relation to SDT recorded in form 3CEB. Accordingly, the Deputy Commissioner of Income Tax (TPO)-1, Ahmedabad has issued a notice u/s 92CA(2) of the Act along with questionnaire to the assessee on 20.02.2017. In response to the notice, the assessee through its counsel attended the hearing before the Ld. TPO and filed the details. Going through the details and records of the assessee, it was observed by the Ld. TPO, that the assessee had entered into the following SDT, details of which are extracted from Form 3CEB in the assessment order, as under: Sr. No. Name of the Related Party Nature of Transaction Transaction Value (Rs) MAM as per the assessee 1 Pratik Saraogi Remuneration 1200000 CUP 2 Rajesh Saraogi Remuneration 2400000 Other method 3 Rakesh Saraogi Remuneration 2400000 Other method 4 Rajesh Saraogi and sons Rent 3919 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is benchmarked @15% and adjustment is worked out as under. Interest paid @18% Interest benchmarked @15% Adjustment proposed. 1/4/13 to 30/6/2013 11198375 9331979.17 1866395.83 1/7/2013 to 30/09/2013 11829452 9857876.67 1971575.33 1/10/2013 to 31/12/2013 12366099 10305082.50 2061016.50 1/1/2014 to 31/3/2013 12646067 10538389.17 2107677.83 Accordingly, in view of the facts of the case, an adjustment of Rs. 80,06,666/- is proposed to be made to the total income of the assessee in order that the SDT undertaken by the assessee company are at arm's length. The total income of the assessee company is thus revised upwards by Rs. 80,06,666/- consequent to such upward adjustment. It is hereby clarified that the discussions and findings in this order are applicable only for reference in relation to AY 2014-15 and not to any subsequent AYs. 5. The recommendations / directions by the TPO vide order dated 31.10.2017 u/s 92CA(3) of the Act are taken into consideration by the Ld. AO and as proposed the addition of Rs. 80,06,666/- has been made to the income of the assessee. The relevant observations in the assessment order qua the adjustment on account of SDT are as under: 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmity with the Arm s Length Price determined by the TPO, Ahmedabad, as discussed above, an addition of Rs. 80,06,666/- in order that the SDT undertaken by the assessee company are at arm's length is hereby made to the total income of the assessee. A copy of order passed by TPO is enclosed as part of this order as Annex- A . Penalty proceedings u/s 271(1)(c) of the I. T. Act are initiated separately on this issue for furnishing inaccurate particulars of income. 6. Apart from aforesaid addition, Ld. AO had also made certain additions on account of violation of provisions of section 40A(3) for Rs. 8,00,000/-, and estimated disallowance for Rs. 6,14,622/-, thus, the total income of the assessee has been determined after the aforesaid additions at Rs. 4,72,68,708/-. 7. Aggrieved with the aforesaid order, assessee preferred an appeal before the Ld. CIT(A), however, the contention of the assessee before the First Appellate Authority are considered to be partly acceptable, therefore, the appeal has been disposed of as partly allowed. The relevant observations of Ld. CIT(A) while deciding the appeal of assessee pertaining to each ground of appeal are extracted hereunder for the sake of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. As per the loan agreement dated 1st July, 2011, loan amount of Rs. 29 Crores was availed by the appellant @ 18 %. As per the repayment terms of the aforesaid loan, the loan amount is payable on demand or before the expiry of 9 months from the date of disbursement or extended period as mutually agreed upon. Therefore, if the duration of the loan amount would not have been extended, beyond 9 months then the period would have expired on 31st March, 2012. There is no evidence furnished by the appellant with regard to the extension of the loan of Rs. 29 Crores for the relevant financial year i.e. 2013-14. It is also not in dispute that the appellant was able to obtain loan from same party i.e. Urban Infrastructure Venture Capital Funds during F.Y. 2013-14 @ 15%, then there is no justification to extend or continue the old loan @ 18% from Urban Infrastructure Venture Capital Funds during F.Y. 2013-14. The appellant has not been able to adduce any evidence with regard to differential rate of payment of interest to the associated concern. Further, the appellant also availed loan from LIC Housing Finance @ 15% which further proves that the ALP @ 15% interest is correctly determined by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made to agriculturist is covered Under rule 6DD of the l. T. Rules. The appellant's contention and submission is considered-carefully and not found acceptable as the purpose of section 40A(3) of the Act is to discourage transaction in cash and genuineness of transactions is not a ground to grant relief to the appellant. The provisions of section 40A(3) is in the nature of penal provision which is applicable, even if the transaction is genuine and the identity of payee is known. The appellant is unable to prove under which clause of rule 6DD is applicable in its case which exempt disallowance of expenses made in cash u/s 40A(3) of the Act. The appellant has relied on various case laws and the same has been perused and not found applicable in the appellant's case. The Hon'ble Gujarat High Court in the case of Rajmoti Industries v. Assistant Commissioner of Income-tax, 45 taxmann.com 72 after considering the many decisions which are relied by the appellant confirmed the disallowance made u/s 40A(3) of the Act. The relevant portion of findings is as under Section 40A(3) of the Income-tax Act, 1961 - Business disallowance - Cash payments exceeding prescribed limits (Cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of Ld. CIT(A) in terms of the grounds of appeal raised in the present case. 9. At the outset, Shri R. B. Doshi, CA, Authorized Representative of the Assessee (in short Ld. AR ), have argued the matter and submitted a written synopsis summarizing the arguments, the same is extracted hereunder: Goldbricks Infrastructure P. Ltd. AY 2014-15 IT (TP) A No. l/RPR/2024 (Assessee) Ground no. 2 (Legal ground- sec. 92BA amended) Submission of assessee l. Adjustment of Rs. 80,06,666/- made on account of interest paid to Urban Infrastructure Venture Capital Fund. Interest paid @ 18%, AO has benchmarked interest rate at 15%. 2. Sec. 92BA amended w.e.f. 01.04.2017 Clause (i) of sec. 92BA omitted without saving clause. Since this clause has been omitted from the provision, therefore, it would be construed as if this clause never existed in law. On account of omission, transaction undertaken by appellant with related parties would not fall within the definition of specified domestic transaction as per sec. 92BA and therefore no adjustment can be made under said section. Order u/s 92CA(3) was passed on 31.10.2017. Order u/s 143(3) r.w.s. 144C(3) was passed on 29.12.2017. Both are without jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered. Merely because payments made in excess of limit provided o u/s 40A(3), no disallowance can be made. AO has not raised any doubt about genuineness of expenditure. Sec. 40A(3) not attracted. Reliance on :- o Daga Royal Arts vs ITO (2018) 196 TTJ 541 (Jp.), PN 185 to 208 of PB, relevant findings in PN 200 201 of PB. DCIT vs Amisha-in-Sky Creations in ITA no. 351 to 354/RPR/2014 order dt. 16.04.2018, PN 209 to 228 of PB. Relevant observations at para no. 20 21 of order, PN 219 of PB. M/s M.K. Agrotech Private Ltd. vs. Addl. CIT (2019) 412 ITR 351 (Karn), PN 181 to 184 of PB. S.D. Minerals Pvt. Ltd. vs JCIT in ITA no. 554/SRT/2019 vide order 03.02.2020. Attar Singh Gumukh Singh vs ITO (1991) 191 ITR 667 (SC) CIT vs M/S Sitaram Anilkumar in Income Tax reference no. 102 of 1999, order dt. 23.()8.201 1 of Chhattisgarh High Court. Relevant observations in para no. 3 para no. 6 to 8 of judgement. Geo Connent Ltd. vs DCIT (2022) 65 CCH 589 (Del.). Anupam Tele Services vs ITO (2014) 366 ITR 122 (Guj.). Ground no. 4 (Adhoc disallowance - Rs. 3,07,311/-) Submission of the assessee 1. Books produced before AO (para 7, PN 5 of assessment order). All supporting bills verified by AO. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her illiterate villagers or new to the buyer and the assessee had no option but to purchase the land on the terms and conditions of the seller; there was business compulsion; the sellers appeared before Sub- Registrar who satisfied himself about the identity of the seller. Hon'ble Tribunal, considering the decision in Gurdas Garg vs CIT (2015 (8) TMI 569 (P H) and Rakesh Kumar vs ACIT (2016) 46 CCH 270 (Asr.), upheld deletion of disallowance. This decision has also been confirmed by Hon'ble Chhattisgarh High Court in Tax case no. 154 of 2017 order dt. 08.02.2018 of Hon'ble Chhattisgarh High Court. 4. CIT v M/s Sitaram Anilkumar in Income Tax reference no. 102 of 1999, order dt. 23.08.2011 of Chhattisgarh High Court Disallowance u/s 40A(3) was made by the AO. Hon'ble High Court noted vide para no. 6 of its order that in CIT vs Achal Alloys Pvt. Ltd. (1996) 218 1TR 46 (MP), it was held that no question of law arises where the genuineness of payment has not been doubted. It also referred to similar proposition laid down by it in CIT vs Vijay Kumar Goyal in ITA 24 of 2001 dt. 22.04.2010 and CIT vs M/S Bukhari Enterprises in ITA 11 of 2004 dt. 11.08.2011 and held that si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Attar Singh Gurmukh Singh and the provisions of section 40A(3) as exist now and relevant for the impugned assessment year i.e. AY 2013-14 (para 25 of order). ii) Vide para 27, it considered the question whether the legal proposition so laid down by the Hon'ble Supreme Court regarding consideration of business expediency and other relevant factors has been diluted by way of delegated legislation in form of Income Tax Rules when the parent legislation in form of section 40A(3) to which such delegated legislation is subservient has been retained in its entirety. iii) It held vide para no. 27 that 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. iv) Vide para no. 28, it was held that the intention of legislature is to curb the chances to use or create black money and to ascertain whether payment was genuine and it was out of disclosed sources. It further held that business expediency and other relevant factors continue to be relevant which needs to be considered while determining the exception. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of Raipur bench. 12. Vijayeta Buildcon (P.) Ltd. vs ACIT (2021) 186 ITD 493 (Jp.) Genuineness of transaction having been proved source of payment also proved to be out of explained money, sec. 40A(3) not attracted. 13. ITO vs Dhanshree Ispat (2017) 50 CCH 86 (Pune Trib.) It was held by Hon 'ble ITAT, following the decision in Attar Singh Gumukh Singh vs ITO in (1991) 191 ITR 667 (SC) that the object behind introduction of 40A(3) is to curb circulation of unaccounted money and to stop its use. 14. Minerals Pvt. Ltd. vs JCIT in ITA No. 554/SRT/2019 dt. 03.02.2020 11. Backed by the aforesaid submissions, it was the prayer by Ld. AR that the additions made by the Ld. AO and to the extent sustained by the Ld. CIT(A) are liable to be deleted being illegal, arbitrary and unjustified. 12. Per contra, Shri S. L. Anuragi, Ld. CIT-DR, representing the revenue, have placed his reliance on the order of Revenue Authorities and have requested to uphold the same. 13. We have considered the rival submissions, perused the material available on record and case laws relied upon. After a thoughtful consideration to the facts, circumstances and the mandate of law applicable in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial Acts may modify the position. Thus the operation of repeal or deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision. 6. In fact, Coordinate Bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 10B of the Act w.e.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment by omitting sub-section (9) of Section 10B. In the matter of GENERAL FINANCE CO. vs. ACIT, which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of Section 92BA(i) of the Act. Thus, when clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.04.2017 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, therefore, an addition u/s 40A(3) of the Act was made. 15.2 When the matter was carried before the Ld. CIT(A) and the issue of addition u/s 40A(3) was raised by the assessee pleading that the Ld. AO has not pointed out any defect in the said transaction and neither doubted the genuineness of transaction nor he has doubted the identity of payee. It was also the submission by the assessee that the land purchased is agricultural land and the sellers are agriculturist covered under Rule 6DD of the IT Rules. Such contentions of the appellant could not convince the Ld. CIT(A), therefore, the addition was confirmed. 15.3 Before us, it was the submission by Ld. AR that the land purchased by the assessee was part of work in progress (closing stock), the same was not debited to P L A/c, since no expenditure was explained no disallowance u/s 40A(3) could have been made, reliance is placed on following judgments: PCIT VS Prosperous Buildcon Pvt. Ltd. (2024) 463 ITR 132 (Del.) 12. It is this order of the PCIT which, as noticed above, has been reversed by the Tribunal. What is not in dispute is that the respondent/assessee had not claimed any expenditure with regard to the cash that was with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fall under any of the exception provided therein. The CIT(A) also affirmed the view of the AO that though non-claiming of deduction the assessee debited the said expenditure involving cash payments exceeding Rs. 20,000/- to the profit and loss account, which, in our opinion, the provisions under section could be invoked. Another aspect as raised by the Id. AR is that the said expenditure were incurred for the business exigency though the expenditure debited to profit and loss account which is neutralized by showing the purchase of lands as stock in trade as on 31-03-2012 on credit side. According to him the provisions u/s. 40A(3) is not applicable. 15.4 Based on aforesaid submissions, it was the prayer that the addition u/s 40A(3) was uncalled for as the assessee has not claimed the payment made in cash for Rs. 8,00,000/- for purchase of land in its P L A/c as an expenditure. To substantiate this fact, Ld. AR drew our attention to page no. 99 to 102 of the APB showing ledger account of land, Basant Bharti (advance for purchase of land), Naresh Bharti (advance for purchase of land) and calculation or work in progress for FY 2013-14. On perusal of all such evidence, it is eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... os, the contention that genuine payments are outside the ambit of section 40A(3), we may herein observe that as per the legislative intent applicability of section 40A(3) would not have its application only in the cases covered by exceptions as carved out under Rule 6DD of the Income Tax Rules, 1962. This issue has been dealt with at length by the SMC Bench of ITAT, Raipur in the case of Shubh Karan Mahnot vs. ITO in ITA 155/RPR/2023 vide order dated 29.11.2023, wherein the observations of the Bench are as under: 11. Apropos the claim of the Ld. AR that no disallowance of the assessee s claim was called for with respect to the aforesaid expenses, viz., (i) godown rent; and (ii) electricity charges, for the reason that the A.O. has not doubted the genuineness of the expenses incurred by the assessee, I am unable to persuade myself to subscribe to the same. As the specific instance where the applicability of Section 40A(3) of the Act would stand suspended, has specifically been carved out by the legislature in all its wisdom in Rule 6DD of the Income Tax Appellate Tribunal Rules, 1962, therefore, the claim of the Ld. AR that in case the genuineness of the expenditure has not been dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 15 of its judgment, it had categorically observed that while arriving at the aforesaid conclusion, it had wrongly referred to the pre-amended Rule 6DD. Accordingly, the Hon ble High Court had observed that Rule 6DD had, thereafter, been amended vide Notification dated 10.10.2018 by the Ministry of Finance (Department of Revenue), CBDT. Backed by the aforesaid facts, the Hon ble High Court observed that as it had pronounced the judgment in the open court, it was not open for it to examine the Effect of the amendment to Rule 6DD. As the Hon ble High Court in the aforesaid case, had admittedly observed that while disposing off the appeal for A.Y. 2009-10, it had by mistake referred to the earlier pre-amended provision, i.e., that appliable up to 10.10.2008, therefore, the said judicial pronouncement would by no means assist the case of the assessee before me. In fact, the aforesaid judgment of the hon ble High Court in the case of Gurdas Garg Vs. Commissioner of Income Tax (supra) supports my aforesaid conviction that Section 40A(3) of the Act would only not be applicable in a case/situation as has been explicitly carved out in Rule 6DD and not otherwise. 15. Thus, in terms of my a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in. The nature of these expenses are such where involvement of personal an non business expenses cannot be ruled out, most of these expenses are through self-made vouchers which are not supported by proper bills hence the veracity of such expenses are not verifiable/ascertainable in-toto. Accordingly, an amount of Rs. 6,14,622/- being 10% of Rs. 61,46,226/- is hereby disallowed and the same is added to the total income of the assessee for the relevant year. 16.2 The issue is assailed before the First Appellate Authority, wherein the disallowance is reduced to 5% with the following observations: 6. The third ground of appeal relates to disallowance of 10% expenses amounting to Rs. 6,14,622/-. The AO during the assessment proceedings found that the appellant has incurred various expenses of Rs. 61,46,226/- through self-made vouchers and hence the veracity of such expenses cannot be ascertained. Therefore, the AO was of the view that some personal expenses must have been incurred which is not in the nature of expenses wholly and exclusively incurred for the purposes of business and accordingly, disallowed 10% of such expenses. During the appellate proceedings, the appellant submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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