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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH & SHRI MANJUNATHA.G
आदेश आदेश /O R D E R आदेश आदेश
PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by the Revenue is arising out of the order of the Commissioner of Income Tax (Appeals)-1, Chennai in dated 18.05.2018. The assessment was framed by the DCIT, Circle 1, Trichy for the assessment year 2011-12 u/s.143(3) r.w.s. 263 of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order of dated 26.12.2016.
The only issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the addition made by the A.O on disallowance of expenses of Rs.2,51,23,031/- by invoking the provisions of Section 40A(3) of the Act for cash payment in excess of Rs. 20,000/-. For this, the Revenue has raised the following effective grounds:
“(i) The CIT(A) erred in deleting the addition of RS.25123031/- towards the claim of exemption under Rule 6DD(k) r.w.s 40A(3) without observing the fact thàt the assessee took different stands in respect of brokers. Initially, at the time of assessment u/s143(3), the assessee submitted that Sri. K.G. Muralidharan, Director would act as Agent. During the course of assessment proceedings u/s.143(3) r.w.s 263 Sri. J. Ravichandran was introduced as Broker. Moreover, the broker replied in his sworn statement that at the time of registration all the persons (sellers) who sold lands through the broker Mr. J. Ravichandran received the cash through Sri. Sundararajan and stated that all received cash before his eyes. It showed the payment was not made through the Agent as stipulated under Rule 6DD(k) (ii) The CIT(A) erred in deleting the addition, following the decision of the Madras High Court in the case of Hotel Nagas Pvt Ltd vs. CIT and Hon'ble Supreme Court in the case of Attar Sing Gurmukh vs. ITO, wherein the decisions are not applicable in the present case.”
The brief facts of the case are that the assessee-company is engaged in the business of developing lands and industrial projects.
The A.O noted that the assessee while acquiring lands from various parties made cash payment and by cheque also. The cash payment made is in contravention to the provisions of Section 40A(3) of the Act. The A.O noted that the cash payment made to the tune of Rs. 2,51,23,031/- is in violation of the provisions of Section 40A(3) of the Act, which reads as under:
Land No. Amount LA-Cash Bank 1118 Rs. 17,86,791/- Rs. 17,86,791/ -- .. 1119 Rs. 91,77,940/- Rs. 91,77,940/ 1120 Rs. 37,27.,900/- Rs. 34,22,000/ Rs. 3,05,900/ 1121 Rs.13,95,340/- Rs. 12,81,540/ Rs. 1,13,800/ 1122 Rs. 30,90,450/- Rs. 28,36,000/ Rs. 2,54,450/ 21,80,140/ -- 1123 Rs. 21,80,140/- Rs. 1124 Rs.2,07,83,825/- Rs. 25,68,050,/ Rs.1,82,15,775/- -- 1125 Rs. 13,29,900/- Rs. 13,29,900/ 1126 Rs. 19,62,270 /- Rs. 5,40,670/- Rs. 14,21,600/ Total Rs. 4,54,34,556/- Rs.2,51,23,031/- Rs.2,03,11,525/-
The A.O required the assessee to explain as to why the provisions of Section 40A(3) of the Act be not applied to the above payment of Rs.2,51,23,031/-, which is paid in violation of provisions of Section 40A(3) of the Act in excess of Rs. 20,000/-. The assessee has explained that the lands have been acquired from a number of persons and the documents have executed by the legal heirs of the some owners and in such circumstances there are more than seven executants for a single piece of land, however, small the holding may be. It was explained that a group of persons would assemble at the Registrar’s office and they received their respective share of the consideration and then singed the documents before the Registrar
and for this reasons, the company could not pay the amount by cheque. Accordingly, assessee’s broker i.e., property agent, who is resident of the same village, claimed to have acted as a broker for procuring the lands from the villagers for earning commission was examined and sworn statement was recorded u/s. 131 of the Act.
He stated that besides sale of agriculture land, he acted as a broker for procuring the lands to various customers on commission basis and in turn, the Manager of the assessee-company, Shri Sundararajan, who acted as a power agent, approached him for acquiring land for the company. This way he was instrumental in the sale of 200 to 250 acres of land to the company. For that, he received 1% commission for the sale, which he shared with 10 other brokers. The commission was paid in cash and not by cheque.
There is no mention that the agent acted as agent for payment of cash to the land owners and hence, the A.O noted that since Reddimangudi Village was serviced by Indian Overseas Bank Branch located in Siruganur, which is situated at 3.5 KMs from Reddimangudi Village, almost all the residents of Reddimangudi Village maintains account with this Indian Overseas Bank Branch and this has been affirmed by broker himself. Even, the cash payments have been made on working day when bank remains open. Hence, the A.O invoking the provisions of Section 40A(3) of the Act and disallowed cash payment to the tune of Rs.2,51,23,031/-. Aggrieved, the assessee preferred appeal before the CIT(A).
The CIT(A) after theoretically considering the issue and also considering various case laws finally deleted the disallowance simplicitor by observing in para 8 as under:
“8. Section 40(A)(3) nowhere says that genuine cash expenses made from known source and given to identifiable persons is not allowed. In this case, payments have been made to petty agriculturist in front of sub registrar of stamp duty and keeping in view the overall scheme as to taxation of agricultural income and transfer of agricultural land. Following respectfully the judgment of Madras High Court in the case of Hotel Nagas Private Ltd. and Hon'ble Supreme Court and host of other judgments on the issue, it appears the payment made by the assessee is to be allowed. Hence, appeal of assessee is ALLOWED.”
Aggrieved, now the Revenue is in appeal before the Tribunal.
Before us, the Ld. Sr. D.R relied on the assessment order and narrated the facts as noted in the assessment order. He also argued that the CIT(A) has not touched upon any of the issue and the issue adjudicated by the CIT(A) is totally different, because he has not dealt with whether there is a reasonable cause for making cash payment in terms of Rule 6DD of the Income Tax Rules, 1962 (hereinafter “the Rules”). The Ld. Sr. D.R took us through Rule 6DD(k) of the Rules and stated that there is no question of any agent having paid and even these parties i.e., the sellers are having
saving bank account as is evident from payment made by the assessee as noted in above chart at para 3.
On the other hand, the Ld. counsel for the assessee, Shri S.
Sridhar, Advocate, relied on the order of CIT(A) and argued that the commercial expediency is a reason for making cash payment. The Ld. counsel for the assessee stated that even the payment is made through agent, Shri Ravichandran, and hence, no disallowance is required u/s. 40A(3) of the Act as it falls within the exceptions made out in Rule 6DD of the Rules.
We have heard the rival contentions, and gone through the facts and circumstances of the case. We noted that the CIT(A) has not at all adjudicated these issues that what is the reasonable cause for making payment in excess of Rs. 20,000/- in violation of the provisions of Section 40A(3) of the Act. Admittedly, there are cash payments in violation of the provisions of Section 40A(3) of the Act.
The CIT(A) should have examined the issue of exception if any, it falls in Rule 6DD of the Rules. Since, the CIT(A) has not adjudicated the issue properly, we set aside the order of CIT(A) and remand this issue back to the file of CIT(A) for fresh adjudication. In term of the above, appeal of Revenue is allowed for statistical purposes.
In the result, the appeal filed by the Revenue is allowed for statistical purposes.
Order pronounced on 13th September, 2023 at Chennai.