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Facts
The assessee company, engaged in property development, made a cash payment of Rs. 30 lakhs for a property purchase. This cash payment was allegedly made at the insistence of an intermediary company, M/s. Emerald Homes Pvt. Ltd., which had initially entered into a deal for the property. The Assessing Officer disallowed this amount under Section 40A(3) of the Income Tax Act, treating the property as stock-in-trade and the cash payment as a violation.
Held
The Tribunal held that Section 40A(3) disallowance is not absolute and business exigencies are to be considered. Since the genuineness of the payment was not doubted and the cash payment was made due to the insistence of the intermediary company, it was considered a business exigency. Therefore, the disallowance was not sustainable.
Key Issues
Whether a cash payment made for property purchase, influenced by business exigencies and the insistence of an intermediary, is disallowable under Section 40A(3) of the Income Tax Act.
Sections Cited
40A(3), 143(3), 153A, 132
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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI C. N. PRASAD & SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in for AY 2010-11, arises out of the order of the Commissioner of Income Tax (Appeals)-39, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. 67/2013-14 dated 23.06.2016 against the order of assessment passed u/s 143(3)/153A of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 26.03.2013 by the Assessing Officer, ACIT, Central Circle-3 (Now Central Circle)-13, New Delhi (hereinafter referred to as ‘ld. AO’).
Ground Nos. 1 and 2 raised by the assessee were stated to be not pressed by the ld AR at the time of hearing. The same is reckoned as a statement made from the bar and accordingly Ground Nos. 1 and 2 are hereby dismissed as not pressed.
Ground Nos. 3 and 4 raised by the assessee are challenging the confirmation of disallowance of Rs. 30 lakhs made u/s 40A(3) of the Act.
The assessee company was engaged in the business of development/ construction of building, homes, flats etc and accordingly undertook collaboration of projects together with investments in properties. A search and seizure operation was carried out in Sanskar Group of cases u/s 132 of the Act on 07.08.2010. The assessee company was also covered. In response to the notice u/s 153A of the Act, the assessee filed a letter dated 21.06.2011 stating that the return already filed on 15.10.2010 declaring taxable income of Rs. 4,56,30,970/- be treated as a return in response to notice u/s 153A of the Act. The ld AO observed that the assessee had made certain cash payment on account of purchase of property at D-95, Anand Niketan, New Delhi wherein, a sum of Rs. 30 lakhs was alleged to be paid in cash to Smt Padmawati Mahajan which got unearthed at the time of search vide seized documents reference Annexure A-4 at pages 86 to 119. The assessee replied that it had not violated the provisions of Section 40A(3) of the Act and stated that the said property was purchased as an investment and that the provisions of Section 40A(3) of the Act would not be applicable. The ld AO however, not convinced with the same and observed that the intention of the assessee was always to hold the subject mentioned property as stock in trade and not as investment. Accordingly, he proceeded to disallow the payment made in cash for purchase of D-95, Anand Niketan, New Delhi property which was held in stock in trade in the sum of Rs. 30 lakhs u/s 40A(3) of the Act. This disallowance was upheld by the ld CIT(A).
We have heard the rival submissions and perused the material available on record. We find that the seized documents Annexure A-4, pages 86 to 119 represent agreement to sell dated 03.11.2009 entered into by the assessee with Smt Padmawati Mahajan for purchasing the property of D-95, Anand Niketan, New Delhi for Rs. 3.55 crores including Rs. 30 lakhs received from M/s. Emerald Homes Pvt. Ltd and later on before the completion of terms of deal with M/s. Emerald Homes Pvt. Ltd, the assessee company had taken over the said deal/property from Emerald Homes Pvt. Ltd and executed the agreement to sell dated 06.03.2009. Pursuant to the said agreement, the assessee company had reimbursed cash consideration of Rs. 30 lacs to M/s. Emerald Homes Pvt. Ltd in the same manner as was given by M/s. Emerald Homes Pvt. Ltd to Smt Padmawati Mahajan earlier. Accordingly, it was stated that the cash payment of Rs. 30 lacs was paid by the assessee to M/s. Emerald Homes Pvt. Ltd on account of property at D-95, Anand Niketan, New Delhi in cash at the behest and insistence of M/s. Emerald Homes Pvt. Ltd . Since, the assessee was forced to make the payment of Rs. 30 lacs to Emerald Homes Pvt Ltd in cash as per its insistence, violation of provisions of Section 40A(3) of the Act cannot be attributed to the assessee as it would fall within the exception provided for business exigencies. Originally M/s. Emerald Homes Pvt. Ltd had made payment in cash to M/s. Padmawati Mahajan. In order to opt out of the deal of purchase of property, M/s. Emerald Homes Pvt. Ltd insisted the assessee to make the payment of Rs. 30 lacs in cash which was honored by the assessee. The remaining payments were made by the assessee only by account payee cheques. This payment of Rs. 30 lacs was paid pursuant to Clause M of the agreement entered by the assessee with M/s. Emerald Homes Pvt. Ltd. It is crystal clear that the payment made in cash by the assessee had been duly acknowledged by the recipient. The genuineness of the said payment on account of purchase of property at D-95, Anand Niketan, New Delhi is not even sought to be doubted by the revenue. The details of total purchase consideration of Rs. 3.55 crores including cash payment of Rs. 30 lacs are listed as under:-
Amount Date Mode of Drawn on (Rs.) Payment 20,00,000/- 21.11.2006 064701 HDFC Bank Ltd., Vasant Vihar, New Delhi issued by M/s Emerald Homes Pvt Ltd 5,25,000/- 07.03.2009 Cash Given by M/s Emerald Homes Pvt Ltd 4,90,000/- 21.03.2009 Cash Given by M/s Emerald Homes Pvt Ltd 4,75,000/- 05.03.2009 Cash Given by M/s Emerald Homes Pvt Ltd 4,50,000/- 12.05.2009 Cash Given by M/s Emerald Homes Pvt Ltd 5,50,000/- 14.03.2009 Cash Given by M/s Emerald Homes Pvt Ltd 5,10,000/- 19.05.2009 Cash Given by M/s. Emerald Homes Pvt Ltd 30,00,000/- 05.10.2009 033874 Union Bank of India, Vasant Vihar, New Delhi 50,00,000/- 08.10.2009 077531 HDFC Bank Ltd., Vasant Vihar, New Page | 3
Delhi 40,00,000/- 24.10.2009 The Saraswati Co-Op. Bank, Lajpat 001211 Nagar, 1,10,00,000/- 24.10.2009 Pay Order Union Bank of India, Vasant Vihar, New No. 033264 Delhi 75,00,000/- 26.10.2009 Pay Order Union Bank of India, Vasant Vihar, New No. 033266 Delhi 3,55,00,000/- 6. As stated earlier, originally Smt Padmawati Mahajan proposed to sell subject mentioned property to M/s. Emerald Homes Pvt. Ltd and later on before completion of the terms of the deal with Emerald Homes Pvt Ltd, the assessee company had taken over the said deal/ property from Emerald Homes Pvt Ltd and executed the agreement to sell to that effect. Pursuant to the said agreement, the assessee had reimbursed consideration of Rs. 50 lacs to Emerald Homes Pvt Ltd in the same manner as originally given by Emerald Homes Pvt. Ltd to Smt Padmawati Mahajan along with additional compensation of Rs. 25 lacs. The assessee had also filed confirmation of this transaction from M/s. Emerald Homes Pvt. Ltd before the ld AO. Hence, in respect of property at D-95, Shanti Niketan, New Delhi, Rs. 50 lacs was paid to M/s. Emerald Homes Pvt. Ltd by assessee which included cash payment of Rs. 30 lacs and balance consideration of Rs. 3.05 crores was paid to the owner Smt Padmawati Mahajan directly by account payee cheques and on receipt of agreed consideration, Smt Padmawati Mahajan executed sale deed in favour of assessee company on 03.11.2009. Hence, it is wrong on the part of the revenue to state that Rs. 30 lacs cash was paid by the assessee to Smt. Padmawati Mahajan without understanding the fact that it was paid to M/s. Emerald Homes Pvt. Ltd that too at the insistence of Emerald Homes Pvt. Ltd. At the cost of repetition, M/s. Emerald Homes Pvt. Ltd had duly confirmed the entire transaction of receiving money from the assessee in cash. So, the payment of Rs. 30 lacs in cash by the assessee is directly traceable to the hands of the recipient and hence there is no loss to the exchequer in the form of tax evasion/ tax avoidance by either parties. The assessee company had shown cost of purchase of property at D-95, Anand Niketan, New Delhi under the head collaboration cost/ purchase in its financial statement and since, the site was under consideration/ development till 31.03.2010, the value of the same was reflected in the value of closing work in progress in respect of the said property. Hence, the genuineness and bonafide nature of the transaction involved in the total payments made by the assessee for purchase of property including cash payment of Rs. 30 lacs cannot be doubted. The ld AO rightly placed reliance on the decision of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO reported in 191 ITR 667 (SC) wherein, it held that the provisions of Section 40A(3) are not absolute and that the consideration of the business expediency and other relevant factors are not excluded. The assessee placed reliance on the decision of the coordinate bench of Delhi Tribunal in the case of M/s Geo Connect Ltd Vs. DCIT in and 2958/Del/2018 dated 29.08.2022 for AY 2014-15 wherein, it was held that cash payment made for procurement of land to the seller at the insistence of seller cannot be held to be in violation of provisions of Section 40A(3) of the Act. We find that the Delhi Tribunal had also placed reliance on the aforesaid decision of Hon'ble Supreme Court along with the decision of Gujarat High court in the case of Anupam Tele Services reported in 362 ITR 92 (Guj). In the case before us also, the genuineness of the payment is not doubted and payment of Rs. 30 lacs in cash was made in view of the insistence of the recipient which constituted the business expediency for the assessee to make payment in cash.
In view of the aforesaid decisions and observations, we hold that this is not a fit case for effecting disallowance u/s 40A(3) of the Act in the facts and circumstances of the instant case. Accordingly, Ground Nos. 3 and 4 raised by the assessee are allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 23/07/2025.