9911796707
TMI Blog2023 (9) TMI 1620X X X X Extracts X X X X X X X X Extracts X X X X ..... ents and to lock the deals, the assessee had to make part- payment in cash. Before CIT(A), the assessee has submitted a detailed chart in a tabular format giving explanation of circumstance/commercial expediency of all six transactions. The assessee s claim is such that apart from seller, there were 4 other persons interested in the land (joint owner and other relatives/family persons) and the assessee had to make cash payment so that the joint owner and relatives/family persons could give their consent, as each one had interest in land. They demanded cash payment to settle and clear their family consent. There is a clear contradiction in the submission of assessee. While the assessee claims that the sellers insisted for cash payment in order to make payment for clearing consent from joint owner/family members; the joint owner/family members have mentioned a recital in the registered-deed that they have signed as consenting party without charging any money. This is certainly a contradiction as claimed by Ld. DR. Being so, we do not find credence in assessee s explanation of commercial expediency with respect to this particular transaction involving cash-payment of Rs. 1,14,55,500/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s Cross- Objection. Revenue s Appeal: 4. The Revenue has raised following ground: Whether in the facts and circumstances of the case and also in law, the Ld. CIT(A) is justified in deleting the addition amounting to Rs. 2,63,60,750/- on account of disallowance u/s 40A(3) without appreciating that assessee failed to prove exceptional or unavoidable circumstances necessitating payment in cash. 5. Ld. DR carried us to Para No. 4.1 of assessment-order and submitted that the AO found that the assessee purchased lands under six (6) registered-deeds and made partly cheque-payments and partly cash- payments to the sellers. The AO has given the details of these six transactions in a tabular format with separate columns of cheque-payments and cash-payments which shows that a total cash payment of Rs. 2,63,60,750/- was made to sellers. The AO confronted assessee for violation of section 40A(3) and considered reply of assessee. In reply, the assessee s submissions were like this : (i) the genuineness of payments is not in question because all cash-payments were clearly mentioned in registered- deeds executed before the office of sub-registrar; (ii) major portion of payments to sellers was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale deeds it can be easily observed that a large part of the sale consideration has been paid in the form of cheques bearing dates later than registration date. This clearly shows that the sellers were well known to the assessee and had full belief in it. Therefore, reasons stated by the assessee for payment in cash is without any merit. The assessee it its reply has relied on the decision of Hon'ble ITAT, Amritsar dated 20.05.2016 in the case of Shri Gurdas Garg, Bathinda. In this regard, it is stated that facts of the case of the assessee are different from that quoted by it. The assessee has failed to make out a case of business expediency. In view of above discussion, cash payments of Rs. 2,63,60,750/- made by the assessee to purchase land is disallowed u/s 40A(3) of I.T. Act, 1961 and added to its total income. As the assessee has furnished inaccurate particulars of income, penalty proceeding u/s 271(1)(c) of I.T. Act, 1961 is initiated. 6. Ld. DR then carried us to the order of CIT(A) who has deleted the addition made by AO. The order of CIT(A) is extracted below: 4.1. Ground No.1 : Through this ground of appeal, the appellant has challenged the addition of Rs. 2,63,60, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vill Shivnagar, Patwari Halka No. 27, Tehsil Mhow, Dist. Indore 03.08.2014 1,01,00,000/- 40,00,000/- on 28.02.2014 30,00,000/- on dt.10.03.2014 44.55.500 on dt. 25.03.2014 1,14,55,500/ Total Payment Rs. 10.17.44,750/- Rs. 2,63,60,750/- From the above. it is clear that the assessee paid sum of Rs. 2,63,60,750/- for purchases of lands to the sellers in cash on above said dates. The appellant is engaged in the business of development and sale of plots. The lands purchased are, in the form of stock-in-trade for the appellant. 4.1.2 The appellant submitted that he had purchased the agriculture land from Agriculturist. The seller of land insisted for cash payment. The seller refused to accept the payment by cheque, therefore, the appellant has to make the payment in cash. It has been held in the case of Gurdas Garg v/s The commissioner of Income Tax Appeals, the high court of Punjab and Haryana held that ... The Identity of the payees i.e.; the vendors in respect of the land purchased by the applicant was established... each of these agreement was certified by the stamp registration Authority...the transaction were genuine and bar against the grant of deduction under section 40A(3) was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1, Indore 7. With this background, Ld. DR raised following contentions: (i) That, the CIT(A) has given relief to assessee on the basis that the sellers of land insisted on cash payment and refused to accept payments in cash but this stand of assessee, accepted by CIT(A), is very much contradictory to the facts of case. Ld. DR submitted that the assessee has made both cheque-payments as well as cash-payments to sellers which itself shows that the sellers not only had bank accounts but also they must be ready to accept cheque-payments. (ii) That, another reason accepted by CIT(A) for giving relief to assessee is such that the genuineness of payment has not been doubted by AO. Ld. DR submitted that the section 40A(3) prescribes statutory disallowance for cash-payment beyond a specified limit and the consideration of genuineness is not at all relevant for making or not making disallowance under that section. He raised a question If genuineness would be the consideration, why the section would disallow only cash-payment and not cheque- payment? He referred to a decision of Hon ble Madras High Court in Vaduganathan Talkies Vs. ITO, Chennai (2020) 120 Taxmann.com 25 where it was held thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, it appears that genuineness may be one of the factors to be taken note of, in our view, while considering as to whether the case would fall within any one of the circumstances set out in Rule 6DD of the Rules and not otherwise. We have seen the chart showing the payments effected by the assessees to various parties. The payments effected through the year under consideration is substantial. 15. It is the submission of the learned Senior Counsel for the appellants that only 25% of the payments effected by the assessees were by cash and the remaining 75% was through banking channels, that is, through cheque or demand draft. These factors will work against the assessees because the assessees are fully aware of the legal position that over and above Rs. 20,000/-, the assessees would not be entitled to effect payment in cash in a day. Thus, merely because the assessees were able to identify the payees, who were more than 20 in number, would not be a mitigating factor to grant relief to the assessees under the first proviso to Section 40A(3) of the Act. He also referred to the decision of Hon ble Bombay High Court in Madhav Govind Dhulshete Vs. ITO (2018) 99 Taxmann.com 56 holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by him that the transaction took place at the place where there were no banking facilities. The aforesaid finding has been affirmed by the Income Tax Appellate Tribunal. Therefore, the contention of the appellant that it had taken a defence before the authorities that the parties were identifiable and the transactions were genuine cannot be accepted, as the aforesaid contention is being raised for the first time in this appeal, which even otherwise is contrary to the material on record, which has already been referred to supra. The aforesaid findings are findings of fact and this court as a general rule would not interfere except in cases where the parties have ignored material evidence or have acted on no evidence, or have drawn wrong inference from proved facts by applying the law erroneously. The assessee has not been able to show that its case falls in any of the aforesaid categories. In view of preceding analysis, the substantial question of law framed by bench of this court vide order dated 10.07.2013 is answered in the negative and against the assessee. (iii) Lastly, Ld. DR also relied upon a recent decision of ITAT, Indore (one of us, namely Accountant Member, was party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the decision 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 details and record for the purpose of proper identification to enable the ITO to satisfy himself about the genuineness of the transactions then the disallowance u/ s 40A(3) is not justified. The ld. AR relied upon the judgment of Hon ble jurisdictional High Court in case of CIT vs. Achal Alloys (P) Ltd. 218 ITR 46 and submitted that the Hon ble High Court has held that where the payments in cash were duly signed by the payee and the instance on making cash payments was founded on fulcrum that payees did not have any bank account. Further the genuineness of the payments was not exposed to any doubt then the disallowance u/s 40A(3) is not justified. Thus, Ld. AR has pleaded that when the transaction is genuine and identity of the payee is not in dispute then the disallowance is not justified. He has also relied upon the order of this tribunal date 11.04.2019 in assesse s own case ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- has been explained with full details including these payments of Rs. 25000/- each to these co-owners. Similarly a sum of Rs. 1 lac was paid by the assessee to one Shri Sevaram and subsequently the sale deed dated 27.03.2014 was executed between the assessee and said Shri Sevaram wherein the total consideration of Rs. 79,10,000/- has been shown including a sum of Rs. 1 lac paid in cash. Therefore, the explanation of the assessee that these cash payments were made as token money at the time of initial negotiation of deal with land owners and thereafter the land were purchased by the assessee through registered sale deed. These facts as evident from the registered sale deed clearly shows that the payments made at the time of initial negotiation are due to business expediency of the assessee. It is relevant to refer the first proviso to section 40A(3) and (3A) which reads as under: 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) and this sub-section 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions and to prevent the use of unaccounted money or reduce the chances to use black-money for business transactions. See: Mudiam Oil Company v. ITO, [1973] 92 ITR 519 A.P. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the Court cannot be oblivious of the proliferation of black-money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black-money should not be regarded as curtailing the freedom of trade or business. 11. Thus, the Hon ble Supreme Court has observed that section 40A(3) must not read in isolation or to the exclusion of Rule 6DD and co-joint reading of this section and rule 6DD makes it clear that the provisions are not intended to restrict the business activities. Further the payments by crossed Cheque or bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or it was out of income from disclosed sources. Thus, the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 identity of the payee are the first and foremost requirements to invoke the exceptions carved out in r. 6DD(g) of the IT Rules, 1962. 22. In the present case, neither the genuineness of the payment nor the identity of the payee were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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- a. due to exceptional or unavoidable circumstances; or b. because payment in the manner aforesaid was not practicable, or would have caused genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 aforesaid circular. 19. This clarification, in our opinion, is in conformity with the principle enunciated by the Supreme Court in CTO v. Swastik Roadwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1982, Sweden reduced its marginal rate of personal income-tax from 85 to 50 per cent. In this country, the Government purports 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 genuineness of dealing and proper assessment of taxable income. Even this provision has a proviso to mitigate the hardships. 11. 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 further found that the genuineness of the payment was not exposed to any doubt. Payments in cash were duly signed by the payees 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 cash. 12. The Tribunal was this satisfied that no disallowance ought to be made in view of the facts and features fully covered by the provision to the aforesaid section. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment 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 purchase deal. 10. Therefore looking to the given facts and circumstances of the case the alleged cash payment of Rs. 5,40,000/- comes under the exceptions provided in Rule 6DD of the IT Rules and thus both the lower authorities were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty. (iii) Rule 6DD prescribes the circumstances for the purpose of aforesaid 2nd proviso to section 40A(3). In Smt. Harshila Chordia vs. ITO (2008) 298 ITR 349 (Raj HC) and in Anupam Tele Services vs. ITO (2014) 366 ITR 122 (Guj HC), it is observed that the exceptions contained in rule 6DD are not exhaustive and that the said rule must be interpreted liberally. (iv) In CIT vs. Achal Alloys (P) Ltd. 218 ITR 46, the jurisdictional High Court of M.P. has held that if the genuineness of the payment was not exposed to any doubt and cash payments were made on the fulcrum that the payees insisted for cash payment, the disallowance is not attracted. (v) Even if Ld. DR has relied upon the judgment of Hon ble Madras High court as well as Hon ble Karnataka High court in revenue s favour, the decision of Hon ble jurisdictional High Court of M.P. in Achal Alloys (supra) is binding on the ITAT functioning at Indore. (vi) The ultimate conclusion is such that if the assessee is able to explain the genuineness of payment as well as the commercial expediency for making cash-payment, there ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkar S/o Laxminarayan Rural Agriculture Land situated at Survey No.101/1 Patwari Halka No 27, Village Joshiguradia, Simrol, Tehsil Mhow, Dist. Indore (MP) Date of Registry 08-07-2013 Value of Land (Rs in Lakhs) Rs. 42.38 Cash Amount Paid (In Rs.) Rs. 1638000/- The said land is a rural agricultural land situated in village owned by a farmer. The land is situated at a distance of 20 kms (approx) from Indore. This agricultural land is situated in Mhow Tehsil and surrounded by appellants other land It is informed that for such land other more buyers approached to the farmer for purchase other than the Company Since the such land was surrounded by the company's other land it was a necessity for the company to purchase such land for smooth development of the project development. Further in the course of bargaining the villager/farmer demanded for 50% payment in cash before the date of registration as the other purchasers agreed payment in cash further the appellant asked for the bank details from the farmer to transfer the payment but the farmer highly required for atleast 50% payment in cash licence, the assessee company to win the trust of the seller and to bring him on a consensus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay) The assessee initially gave token money of Rs. 2,00,000/- in cheque and it was agreed on PDC's for further payment, but the sellers of land changed their view and demanded for at least 70% payment to be done before registry hence to obtain the trial of seller such payments were made otherwise the registration of said land in the next your would have increased the unnecessary avoidable cost did not agreed 10 obtained the trust of the seller of land 5. SELLER Shri Nandkishore Patidar CONSENT GIVER Shri Omprakash Patidar Smt Nandibai Patidar Shri Harinarayan Patidar Shri Krishna Patidar Rural Agriculture Land situated at Village Shivnagar Survey No.233/1/ 1, 233/2/1,234/2/, Patwari Halka No. 27, Tehsil Mhow Dist. Indore (MP) Registered in the next FY.2014-15 Value of Land (Rs. In Lakhs) Rs.215.555/ Cash Amount Paid (In Rs.) Rs. 40,00,000/- Rs. 30,00,000/- Rs. 44,55,500/- It is informed and submitted that the said land is rural agricultural land situated in a village belonging to the owner/legal heir/relatives and Joint family property). It can be verified from the records, the purchased land is a distinguished case, a part from the seller of land it also involves I joint owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as possible and the registration of the said land was must to take development permissions and other land approvals from the state government authorities. Hence the payment made was under the business circumstances which were in routine and within four corners of the commercial prudence and business acumen Therefore, considerable payment was made appellant acted under a business situation. 12. On scrutiny of above chart with reference to the registered sale-deeds filed in the Paper-Book submitted by assessee, we prima facie find worth in the explanation given by assessee in last column titled Cash circumstance/Business expediency and remarks except in case of Item No. 5 Seller-Shri Nandkishore Patidar, Consent Giver-Shri Om Prakash Patidar, Smt. Nandibai Patidar, Shri Harinarayan Patidar and Shri Krishna Patidar . For this item, the assessee has made following explanation in last column of chart: It is informed and submitted that the said land is rural agricultural land situated in a village belonging to the owner/legal heir/relatives and (joint family property). It can be verified from the records, the purchased land is a distinguished case, apart from the seller of land it also i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of above discussions and for the reasons stated therein, we are inclined to uphold disallowance to the extent of Rs. 1,14,55,500/- out of total disallowance of Rs. 2,63,60,750/- made by AO. For remaining disallowance, we uphold the deletion made by CIT(A) in first-appeal. Consequently, the revenue succeeds partly in this appeal. 14. At this stage, we would also like to make a mention on the decision in ITO Vs. M/s Simran Developers, ITA No. 796/Ind/2018 order dated 18.04.2023 relied upon by Ld. DR. We have perused the concluding Para No. 18 of order and find that in that case, the assessee made a particular claim of exceptional circumstance before AO but could not establish. Thereafter, in first-appeal before CIT(A), the assessee made an altogether new and different type of exceptional claim to take the benefit of decided rulings. Further, the assessee was able to prove neither the claim made before AO nor the newer claim made before CIT(A). The CIT(A) simple recorded the newer stand of assessee in his order and granted relief based on judicial rulings. Therefore, in that peculiar situation, the ITAT reversed CIT(A) s action and upheld the disallowance made by AO. In present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
