M/S. SHREE TIRUPATI ASSOCIATES,BHILWARA vs. ITO, BHILWARA

PER: RATHOD KAMLESH JAYANTBHAI, AM

This appeal is filed by assessee and is arising out of the order of

the Commissioner of Income-Tax (Appeals), Ajmer dated 05.11.2015

[here in after (CIT(A))] for assessment year 2011-12 which in turn

arise from the order dated 29.01.2014 passed under section 143(3) of

the Income Tax Act, by the ITO, Ward-02, Bhilwara.

2 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates 2. The assessee has marched this appeal on the following

grounds:-

“During the assessment year 2011-12 assessee has purchased two properties/ Lands & paid Rs. 451000/- to Smt. Huma Husain & Rs. 200000/- to Sanchi Buildtek Pvt. Ltd. in cash as part payment against total cost of purchase of Rs.1,11,51,000/- and Rs.32,00,000/- respectively for Lands forming the part of stock in trade. The cash payment was must due to business expediency to honor the deal without which it was not possible to materialize.

The assessee had followed prevailing market practices in property trade matters which is evident from affidavits submitted by above parties & same is narrated in assessment order at page No. 2 & 3 by the A.O. The A.O. ignored the facts & relevant factors including the object behind introduction of provision of Section 40A (3).

Also A.O. without cross examining the above persons to judge reality of transaction & treated Affidavit as a story which is not correct as the transactions are at DLC rate, full details of payments available on Conveyance Deed itself and total payment is reflected in books of accounts examined by the A.O. along with sources of such payments leaving no room of any doubt so made by A.O. about genuineity of transaction where nothing has been hide and seek by Assessee so that total transaction is transparent and covered under provision of Rule 6 DD (j).

The A.O.in his order insisted that, when bank facility was available than why payment is not made by Cheque instead of cash and made additions accordingly which is not correct as no undisclosed amount deployed in the transaction. The purpose of said section is to restrict black money involvement in any business deal which is not in the case of assessee.

Assessee has followed the prevailing practice which is an essential condition dually supported by contents of the provisions of section 40A(3) which provides where on account of exception allow ability of cash payment looking to the consideration of business expediency and the relevant factor as substituted wide Finance Act 2008 effective from 01/04/2009.

3 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates 3. The A.O. has not considered following relevant case laws including Rajasthan High court, Jodhpur wherein looking to the business expediency payment in cash exceeding Rs. 20000/- allowed even if not falling under exceptional cases of Rule 6DD where the identity of payees & genuineness of transaction is proved. 1. CIT V/S Hardware Exchange (1991) 190 ITR 0061(Gau-HC). 2. Smt. Harshila Chordia V/S ITO (2008) 298 ITR 0349(Raj-HC). 3. ACIT V/S Shree Krishna Salt Industries (1998) 060 TTJ 0125. 4. Associated Engineering Enterprises V/S CIT (1995) 216 ITR 0366 (Gau-HC). 5. P.M. Abdul Razack V/S ITO (1997) 063 ITD 0398 (Coch-Trib). 6. Giridharilal Goenka V/S CIT (1989) 179 ITR 0122 (Cal. HC). 7. CIT V/s Meghdoot Sales (1993) 200 ITR 490 (Delhi). 8. CIT V/s Hynoup Food and Oil Industries Pvt. Ltd. (2005) 199 CTR GUJ 350. 9. 9. Avtar Singh guru mukh V/S ITO (1991) 97 CTR (SC) 251.

Where in payment made for purchase in cash of stock in trade doesn't amount to expenditure under Compelling/Exceptional circumstance to execute deal and same is allowed. (Copy Enclosed)

a. The purchase was new to the seller.

4 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates b. Seller is refusing to accept whole payment by seller by account payee cheque and the purchaser business interest would suffer due to non availability of goods otherwise than from these particular sellers. The covered place in the deal is very unique for future trading of land due to its location and utility point of view which compelled assessee to purchase the subject matter land.

The assessee is satisfying the requirement of rule 6DD (j) by producing the affidavits in form of books transaction and covered by CBDT circular 220 dated 31/5/1997.

The appeal may be allowed & justice rendered.“

ground vide application filed on 11.07.2023 along with the paper book.

The application so thus for the precise and one issue raised is thus as

under :-

“Sub. : Request for revised/summarized Grounds in the appeal.

Hon’ble Members,

5 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates In the above referred case the applicant is requesting before your honor to revised/summarized the ground so taken in the appeal Memo.

Your honor will appreciate the fact that in from No 36 the ground of appeal so taken was very lengthy and spread in to total 1 to 9 grounds for only one issue, it is therefore for the sake of conveyance we would like to revise or summarized the grounds of appeal.

In respect to the ground No. (1) Set out above it may be mentioned that this ground is summarized of all the grounds taken in original grounds of appeal filled form No 36 while filling the appeal this ground cover all the ground so taken and no new facts are required to be brought on record in respect of this ground of appeal.

It is therefore humbly prayed that the appellant may be allowed to argue on above mentioned revised/summarized ground in the appeal by allowing the present application.”

firm dealing with the property. The year under consideration is the first

year of the business of the firm. In the year under consideration

assessee had declared an income of Rs. 32,506/-. The case of the

assessee selected for scrutiny under CASS. During the year under

consideration assessee has purchased two property & paid Rs.

6 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates 4,51,000/- to Smt. Huma Hussain & Rs. 2,00,000/- to Sanchet

Buildtek Private Limited in cash for purchase of land forming part of

stock in trade which the assessee contended that was must for

business expediency to honor the deal without which it was not

possible to materialized the purchase of the said property. In support

the assessee filed affidavits which is forming part of the assessment

order at page 2 & 3. The ld. AO contended that the assessee has

made the payment at Bhilwara where the bank facilities are there

even then the assessee paid cash and therefore, he disallowed a sum

of Rs. 6,50,000/- u/s. 40A(3) of the Act. Thus, the assessment has

been completed u/s 143(3) by ITO Ward-2, Bhilwara & assessed at

Rs. 682506/-.

preferred an appeal before the ld. CIT(A)/NFAC. A propose to the

grounds so raised the relevant finding of the ld. CIT(A)/NFAC is

reiterated here in below:

“4.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen that the appellant has mainly relied on Rule 6DD(j) arguing that the cash of the appellant falls under the exception provided under Rule 6DD(j) of the I.T. Rule. I have considered all the facts carefully and I am of the considered view that the exemption provided in Rule 6DD(j) is not applicable in the case of the appellant. The decisions relied upon by the appellant have been given on different set of facts and are not

7 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates applicable in the case under consideration. Hence, taking into account all the facts of the case, I am of the considered view that the AO was fully justified in making disallowance of Rs. 6,50,000/- u/s 40A(3). Accordingly, disallowance made by the AO is hereby confirmed. 5.0 In the result, the appeal is dismissed.”

written submission which is extracted in below;

“The assessee firm started business of purchases, sale and development of property. The return has been filed declaring total income of Rs. 32506.00. The case was selected under security and accordingly notice U/s 143 (2) has been issued. The AO has completed the assessment u/s 143 (3) on 29.01.2014 and assessed at Rs. 6,82,506.00 by making addition of Rs. 6,50,000.00 u/s 40 A(3) on account of cash payment for purchases of two land as stock in trade. The appellant preferred appeal before the CIT (A). The hon’ble CIT (A), Ajmer without appreciating the fact and circumstances of the case sustained the addition. Now, the appellant is aggrieved by the said order, and preferred present appeal before your honour, raising following grounds of appeal:- . Revised Ground No. 1 That on the facts and in the circumstances of the case the ld CIT (A) erred in sustaining the addition of Rs. 6,51,000.00 u/s 40 A (3) on account of cash payment for purchases of two land as stock in trade.

Or

Original Ground No 1 to 9

ALLIGATION OF AO

(Page No 3 - 4 of the Assessment Order) djnkrk ds vf/kd`r izfrfuf/k ds tokc ij fopkj foe’kZ fd;k x;k A ;g tokc ekuus ;ksX; ugh gSa A lEifr;ksa ds foØsrkvksa ds ‘kiFk&i=ksa esa ,slh dksbZ vfuok;Z ifjfLFkfr ugh crkbZ gSa ftlds dkj.k udn Hkqxrku djuk vko’;d Fkk ugh ,slh dksbZ ifjfLFkfr ;k dkj.k fn;k gSa tks /kkjk 40 ,¼3½ ds vioknksa esa vkrk gSa A vr% blls ,slk izrhr gksrk gSa fd djnkrk QeZ us /kkjk 40 ,¼3½ ds mYya?ku ls cpkus o vihy esa jkgr ikus dh vk’kk esa ;g dgkuh x<h gSa A vr% djnkrk ds vf/kd`r izfrfuf/k }kjk nkf[ky tokc o U;kf;d fu.kZ; o ‘kiFk i= ij fopkj ds mijkUr ;g fu”d”kZ fudyrk gSa fd djnkrk QeZ }kjk udn Hkqxrku HkhyokM+k esa fd;k x;k gSa tgk¡ ij cSadks dh izpqj lqfo/kk gSa vr% vk;dj vf/kfu;e 1961 dh /kkjk 40 ,¼3½ ds rgr djnkrk }kjk fn;s x;s udn Hkqxrku dh jkf’k 6]50]000 : ds O;kikfjd [kpsZ dks vLohd`r dj djnkrk QeZ dh dqy vk; esa tksM+k tkrk gSa bl izdkj djnkrk us xyr rF; izLrqr dj viuh vk; fNikbZ gSa vr% blds fy, /kkjk 271¼1½¼lh½ ds vUrxZr ‘kkfLr uksfVl i`Fkd ls tkjh fd;k tk jgk gSa A fopkj foe’kZ ds mijkUr djnkrk dh vk; dh x.kuk fuEu izdkj dh tkrh gS %&

8 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates

O;kikj ls vk; 32506 tksMks vfHko`f) mijksDrkuqlkj 650000 dqy vk; 682506 :0 6]82]506@& ij dj fu/kkZj.k fd;k x;k A vko’;d izi= tkjh fd;s tk;s rFkk iwoZ iznRr dj ;fn dksbZ gks rks mudk lek;kstu fd;k tk;s ,oa fu;ekuqlkj C;kt pktZ fd;k tk;s A vk;dj vf/kfu;e 1961 dh /kkjk 271 ¼1½¼lh½ ds rgr ‘kkfLr dk;Zokgh lEcU/kh uksfVl i`Fkd ls tkjh fd;k tk;s A

FINDING OF CIT

(Page No 7 of the Appeal order)

4.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen, that the appellant has mainly relied on Rule 6DD (j) arguing that the cash of the appellant falls under the exception provided under Rule 6DD (j) of the I.T. Rule. I have considered all the facts carefully and I am of the considered view that the exemption provided in Rule 6DDi) is not applicable in the case of the appellant. The decisions relied upon by the appellant have been given on different set of facts and are not applicable in the case under consideration. Hence, taking into account all the facts of the case, I am of the considered view that the AO was fully justified in making disallowance of Rs.6,50,000/- u/s 40A(3). Accordingly, disallowance made by the AO is hereby confirmed.

In the result, the appeal is dismissed.

ARGUMENTS

The appellant humbly contends that the ld. AO as well as the CIT (A) has erred in law as well as on facts while making or sustaining of arbitrary addition of Rs. 650000/- u/s 40A(3) on account of cash payment for purchases of two land as stock in trade. The addition made is illegal, contrary to the facts and not in conformity with the law, the CIT (A) has also dismiss our appeal without appreciating of the facts and circumstances of the case. The addition is liable to be deleted on the following grounds :-

9 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates unidentifiable transaction estimation with A0 as all the relevant document produced during the course of hearing. The transaction is legal one. 2. Appellant has submitted copy of conveyance deed, conformations & further affidavits from seller and established the identify genuineness of the seller and also proved cash availability with it through cash book & cash flow statement. The condition laid down in rule 6DD (j) read with provision of section 40 A(3) in the case of appellant was. 3. There is no dispute that the case of the appellant fall within the exception provided in rule 6DD of the IT Rules,1962, read with The Board circular no 220, dated 31/05/1977. The Board circular no 220, dated 31/05/1977 put more light on the provision of sec 40A(3) contained in rule 6DD of IT Rules, 1962. The circular No 220 is responded hereunder for ready reference

10 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates a. the purchaser is new to the seller, or b. the transactions are made at a place where either the purchaser or the seller does not have a bank account; or c. the transactions and payments are made on a bank holiday; or d. the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser’s business interest would suffer due to non-availability of goods otherwise than from this particular seller; or e. the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or f. specific discount is given by the seller for payment to be made by way of cash. 5. 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). 6. It is further clarified that the above circumstances are not exhaustive but illustrative. There could be cases other than those falling within the above categories which would also meet the requirements of rule 6DD(j ). Circular : No. 220 [F. No. 206/17/76-IT (A-II)], dated 31-5-1977.

From the above it is undisputed fact that our case if fall within the Para No 4 and 5 of the above circular. a. We are new in the business as well to the seller b. In the present case the seller is insisted to pay such amount in cash the affidavits of the seller has been submitted before the AO. c. If the said payment was not made in case it defiantly our business interest will be adversely suffered. d. The identity of the seller is not doubted, as the registry of the land purchases was done for which the seller is required to be present before the registry department. e. The genuineness of the transaction is beyond doubt as the amount so paid was mentioned in the sale deed and the seller has accepted it in the affidavit. The AO has not doubted about the genuineness of the transaction. The addition was made on the technical reasons only i.e. violation of the provisions of section 40A (3). 4. In the instant case the seller has insisted to make payment in cash, we have submitted the affidavits of the seller, the content of the affidavits has been re

11 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates produced the body of assessment order itself, which has not been corrobated by the AO. The purchaser is new in the business and to the seller as well which require special efforts for winning their confidence to materialized any deal successfully.The seller has duly admitted in their affidavits, that they have instead to pay the said amount in cash as they are under urgent need of cash. If we have not accepted and paid in cash to the seller our business interest would suffer due to non-availability of plots of land otherwise than from this particular seller. In support of above assesse has submitted affidavits of seller wherein stipulated conditions of cash payments of Rs. 451000/- and Rs. 200000/- are mentioned which are also narrated in AO order. The parties to transaction were not cross examined by the AO and not disputed. Plots were purchased under compelling circumstances to pay part amount in cash to meet transferor urgent need otherwise the transaction would have not materialized. An exceptional and unavoidable circumstances posing genuine difficulty was there.

Above circular has been explained in - The above said circular was commented upon Girdhari lal Goenka v. CIT [1989] 179 ITR 122 (Cal.) with the following observations:

“The circular of the Board is not exhaustive but only illustrative. The Income-tax Officer has to take a pragmatic view of the matter. The Income-tax Officer should take a practical approach to problems and strike a balance between the direction of law and hardship to the assessee. He should not enmesh himself in technicalities. After all, the object is not to deprive the assessee of the deduction which he is otherwise entitled to claim. Where the amount was paid in cash or received in cash, the Assessing Officer has to find out whether the transaction is genuine or not and if he finds that the transaction is genuine, he should allow the deduction. The circular of the Board is not exhaustive; it is only illustrative and the Assessing Officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee. There may be an oral agreement between the assessee and the seller for payment in cash. A seller may not be willing to accept cheques; cash payment may be made at the request of the payee who is also an assessee and a certificate to that effect filed; absence of banking facilities in places where cash payments are made. All such cases would come within the purview of exceptional or unavoidable circumstances.” (p. 128)

Further in case of CIT v. Trinity Traders [1987] 163 ITR 381 (Guj.), the above circular was referred to with the following observations:

12 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates “The circular makes it clear that these are merely illustrative instances of cases in which rule 6DD(j) would be applicable.

The above circular was explained in Paul Bros. v. CIT [1990] 186 ITR 356 (Gauhati), with the following observations : “Pursuant to the provision in sub-section (3) of section 40A, rule 6DD was promulgated and Circular No. 220 was issued by the Central Board of Direct Taxes on May 31, 1977. Section 40A, rule 6DD and the Circular No. 220 recite that after March 31, 1969, any payments on account of expenditure of more than Rs. 2,500 will have to be made by a crossed cheque or by a crossed bank draft unless exempted by the revenue authorities. . . . The Indian Parliament incorporated the above provisions to check evasion of taxes. Even in genuine cases where payments are shown to have been made in cash, the assessee is put to the necessity to prove that in the area of business, banking facilities are not adequate. Therefore, impelled by genuine difficulty, the assessee had to make payment in cash. The same idea is writ large in the Rules. The assessee will have to show that there was no way left for the assessee except to pay in cash. In the nature of things whether in the statute, rules or circulars, all the contingencies cannot be enumerated exhaustively. Parliament referred to the inadequacy of facilities in section 40A. The rule-making authorities illustrated some of the circumstances in the Rules. The Revenue supplemented the further circumstances when exemption can be claimed and allowed. (pp. 357-358)

The above circular was relied on in CIT v. Meghdoot Sales [1993] 200 ITR 490 (Delhi), with the following observations :

“In our opinion, the answer to the said question which has been referred is self-evident. The Income-tax Tribunal has found as a fact that cash payments were made only under exceptional and unavoidable circumstances. This conclusion has been arrived at by the Tribunal after examining the entire material which was placed before it. It has further observed that the genuineness of the transaction was not in dispute. This being so, on the facts found by the Tribunal, the case not only fell within the provisions of rule 6DD(j), but the assessee was also entitled to claim the benefit of Circular No. 220, dated May 31, 1997, issued by the Central Board of Direct Taxes. In the said circular, it is, inter alia, stated that, if a seller refuses to accept payment by way of crossed cheque or crossed draft and the purchaser’s business interest would suffer due to non-availability of goods otherwise than from the particular seller, then even if the payment is made by cash, the same would be allowable as a deduction.” (pp. 492-493)

13 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates In case of Janambhumi v. CIT [1998] 99 Taxman 451/225 ITR 517 (Gau.) with the following observations:

“The circular itself indicates that these are not the only circumstances which can be said to be exceptional and unavoidable. There may be some other exceptional and unavoidable circumstances which may not be put in writing. The Commissioner (Appeals) upheld the order of the ITO on the ground that the assessee failed to establish exceptional and unavoidable circumstances under which payment had to be made in cash exceeding Rs. 2,500. While considering the exceptional circumstances the business exigencies, convenience and security should also be looked into.”

In case of Shri Mahabir Industries v. CIT [1996] 220 ITR 459 (Gau.) with the following observations

“Circular No. 220, dated May 31, 1977, specifies some of the circumstances in which rule 6DD(j) of the Income-tax Rules, 1962, would apply. The circular itself indicates that these are not the only circumstances which can be said to be exceptional and unavoidable. Exceptional and unavoidable circumstances may vary depending on the facts of each case. Merely because the parties have bank accounts and there is a long gap between submission of the bill and making payment, the conclusion cannot be arrived at that the assessee failed to show exceptional and unavoidable circumstances. Before coming to a decision regarding failure to establish exceptional and unavoidable circumstances, the authority must give reasons why it came to such conclusions.”

COMMISSIONER OF INCOME –TAX V. RAJA PAL AUTOMOBILES (2010) 320 ITR 185 (ALL) PRAKASH KRISHNA & RITU RAJ AWASTHI J J (DECIDED ON 30-06-2009) Income-tax Act, 1961 – section 40A(3) read with rule 6DD of the Income-tax Rules, 1962 – business expenditure – disallowance – payments made otherwise than by crossed cheques or bank drafts – nature of business and evidence in form of bills and cash memos – exceptional circumstances explained by the assessee – whether cash payments to be allowed – held, yes. 5. The purpose of provision of section 40A (3) to regulate business transaction and to prevent the unaccounted money or reduce the chances to use black money for business transaction which is not the case in instant appeal as geniuses of transitions is not doubted and identification of transferor is duly proved and full transaction is during the recorded in the books which is verified by AO during the assessment proceeding itself.

14 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates 6. The word "expenditure" has not defined in the act. It is a word of wide import. Weather expenditure include all type of payments which was resolved by Gauhati High Court in the case of CIT /s Hardware exchange.(1991)190 TMR 61(GAU) where was held that "payments made for purchase of stock in trade cannot be considered as an expenditure”. In the present case this is undisputed fact that the said land was purchased and has been remain as stock in trade at the end of the year, the lands where not sold in the year under consideration. Money does not go irretrievably in such cases. What is enquired by such payments, namely, stock-in-trade, forms part of the business assets of the assesse. Such assets are sold in due course and the money paid ordinarily recovered with some profits. Stock-in-trade which remains unsold at the end of year as reflected as assets in the balance sheet. It is, therefore difficult to hold payments made on account of purchase of stock-in-trade as expenditure. The sec. 40A(3) makes it clear that the said section applies only to payments made 'on account of "Expenditure incurred". This is the expenditure which is claimed as deduction in computing the profit of gains of business of assessee. The result of disallowances under this section is that the fact of incurring the particular expenditure itself is disregarded.That cannot be so in case of purchase of assets like stock in trade. If such payment is disregard, than it difficult to visualize what will be happen' to the sale price of the goods incurred though such' payments if such goods are sold during the year or to the stock of such goods if they remain unsold at the end of the year, whether the factum of sale of such goods can be ignored, whether the profit earned can be disregarded and whether the unsold stock in trade can be omitted in computing the value of the business of assessee. The answer is definitely in the negative. Such situation will not arise if a natural meaning is given to the expression expenditure incurred" its applications is confined and it is not given an artificial meaning so as to extent its applications to payments made for acquisitions of assets like stock in trade.

Hon’ble apex Court in the case of Attar Singh Gurmukh Singh vs. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC) while considering the constitutional validity of s. 40A(3) has also explained the reasons behind introduction of this provision.

Various High Courts in the following cases have also taken the view that where the payment is genuine, there cannot be denial of deduction of genuine and bona fide business expenditure merely because the assessee could not make the payment as provided in s. 40A(3) : (a) CIT vs. Rhydburg Pharmaceuticals Ltd. (2004) 187 CTR (Del) 485 : (2004) 269 ITR 561 (Del); (b) Girdharilal Goenka vs. CIT (1989) 80 CTR (Cal) 140 : (1989) 179 ITR 122 (Cal); (c) CIT vs. Chaudhary & Co. (1995) 129 CTR (All) 101 : (1996) 217 ITR 431 (All);

15 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates (d) Shri Mahabir Industries vs. CIT (1996) 136 CTR (Gau) 107 : (1996) 220 ITR 459 (Gau); (e) CIT vs. Chrome Leather Co. (P) Ltd. (1999) 235 ITR 708 (Mad); (f) CIT vs. Mrinalini V. Sarabhai (2003) 184 CTR (Guj) 122 : (2004) 265 ITR 64 (Guj); (g) Walford Transport (Eastern India) Ltd. vs. CIT (1999) 240 ITR 902 (Gau).

In property business till a token amount is not given no transactions are confirmed by the seller which is generally in cash. The assessee has paid for land at Arjia, Road, Bhilwara Rs. 30,00, 000/-by account payee cheque and RS. 2,00, 000/- in cash to party as forcefully insisted by seller to incurred expenses by assessee on his behalf/ at his cost to pay cash by way of Stamp paper purchase and registry charges in sub registrar office. This is a compelling circumstances for purchase of land without which deal cannot be materialized. Therefore the motive envisages in Sec.40A(3) was not contravened and purchases made from the parties are not cover by Sec 40A(3). Similarly, the appellant has paid for the land at Shastri Nagar, Bhilwara Rs. 4,50,000/- by cash to the seller as forcefully insisted by seller in support of which we have submitted the affidavit conforming the facts.

16 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates transaction has been established as evidenced by the registered sale deeds and lastly, the test of business expediency has been met in the instant case. Further, as held by the Hon'ble Rajasthan High Court in case of Harshila Chordia (supra), 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. The intent and the purpose for which ITA No. 1065/JP/2016 M/s A Daga Royal Arts, Jaipur Vs ITO, Jaipur section 40A(3) has been brought on the statute books has been clearly satisfied in the instant case. Therefore, being a case of genuine business transaction, no disallowance is called for by invoking the provisions of section 40A(3) of the Act.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 15/05/2018.

17 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates 13. The above part payment for business dealing is also covers by H'ble Supreme Court decision in case of Avtar Singh guru mukh singh vs ITO. (1991) 97 CTR (SC)251 also 14. Therefore we request your good self-looking to the nature of business, circumstances and facts where in the transactions are genuine and seller is identifiable and with due respect to various decision held by H'ble ITAT and High Court in the matter please do not disallowed cash payment of Rs. 6.50 lacs for govt. payment etc. not attracting the provision of sec 40A (3) of income tax act 1961 as submitted above and considering its business expediency and oblige. On the strength of the above submission and legal precedents as cited supra, the appellant very humbly requests that the addition so made by the AO and sustained by CIT (A) is liable to be deleted and rest we leave up to your wisdom and judgment.”

authorities where in the ld. CIT(A) has categorically held that the case

of the assessee is not covered under the exception under rule 6DD(j)

and therefore, he supported the orders of the lower authority.

placed on record. We note from the order of the lower authority that

the assessee has payment made for purchase of two property where

in assessee paid Rs. 4,51,000/- to Smt. Huma Hussain & Rs.

2,00,000/- to Sanchet Buildtek Private Limited in cash for purchase of

land. The said land is forming part of stock in trade. The assessee

contended in the assessment proceeding that the payment of cash

18 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates was required and insisted upon by the buyers. The identity of the

payment was established as the parties have recorded their presence

while executing the deed of purchase. In addition to that the assessee

submitted copy of conveyance deed, conformations & further affidavits

from seller and established the identify genuineness of the seller and

also proved cash availability with it through cash book & cash flow

statement. This primary evidences submitted by the assessee neither

verified so as to controvert their correctness nor the parties were

examined so as to found the fault in their averments made before the

lower authorities. We have gone through the provisions of section

40A(3) and the relevant rule 6DD(j). Thus, we are of the considered

view that the case of the appellant fall within the exception provided in

rule 6DD of the IT Rules,1962, read with the Board circular no 220,

dated 31/05/1977. The Board circular no 220, dated 31/05/1977 put

more light on the provision of sec 40A(3) contained in rule 6DD of IT

Rules, 1962. The circular No 220 is reproduced hereunder for the sake

of brevity:

19 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates a. due to exceptional or unavoidable circumstances; or b. because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee. 2. It would be seen that where payment of a sum exceeding Rs. 2,500 is made, otherwise than by a crossed cheque/draft, the assessee besides furnishing evidence as to the genuineness of the payment and the identity of the payee, is required to satisfy the Income-tax Officer that his case falls under any one of the circumstances mentioned in (a) and (b ) above, if he claims that no disallowance should be made under section 40A(3). 3. Various representations have been received by the Board regarding the difficulties that are being experienced by the taxpayers due to lack of uniformity in the interpretation of the provisions of rule 6DD(j ) by the Income- tax Officers. The Board have considered these representations and have decided to lay down certain guidelines to ensure uniformity of approach among the Income-tax Officers in this behalf. 4. All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are : a. the purchaser is new to the seller, or b. the transactions are made at a place where either the purchaser or the seller does not have a bank account; or c. the transactions and payments are made on a bank holiday; or d. the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser’s business interest would suffer due to non-availability of goods otherwise than from this particular seller; or e. the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or f. specific discount is given by the seller for payment to be made by way of cash. 5. 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). 6. It is further clarified that the above circumstances are not exhaustive but illustrative. There could be cases other than those falling within the above categories which would also meet the requirements of rule 6DD(j ). Circular : No. 220 [F. No. 206/17/76-IT (A-II)], dated 31-5-1977.

20 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates

From the above it is undisputed fact that our case if fall within the Para No 4 and 5 of the above circular. a. We are new in the business as well to the seller b. In the present case the seller is insisted to pay such amount in cash the affidavits of the seller has been submitted before the AO. c. If the said payment was not made in case it defiantly our business interest will be adversely suffered. d. The identity of the seller is not doubted, as the registry of the land purchases was done for which the seller is required to be present before the registry department. e. The genuineness of the transaction is beyond doubt as the amount so paid was mentioned in the sale deed and the seller has accepted it in the affidavit. The AO has not doubted about the genuineness of the transaction. The addition was made on the technical reasons only i.e. violation of the provisions of section 40A (3).

Based on the circular, exception provided therein and because the

assessee submitted copy of conveyance deed, confirmations of payee

supported with their affidavits. The content of these evidences is not

disputed before us and therefore, we are of the considered view that

the case of the assessee falls under the exceptions as provided under

rule 6DD(j) supported by the board circular. In the light of the

aforesaid discussion, we vacate the disallowance of Rs. 6,50,000/-

made u/s. 40A(3) of the Act.

The appeal of the assessee is allowed in terms of the above

observations.

21 ITA No. 02/Jodh/2016 M/s Shree Tirupati Associates Order pronounced under rule 34(4) of the Appellate Tribunal Rules,

1963, by placing the details on the notice board.

Sd/- Sd/- (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) Judcial Member Accountant Member

Dated : 09/08/2023 *Ganesh Kumar, PS Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR 6. Guard File

Assistant Registrar Jodhpur Bench