NEERAJ SUWALKA,JAIPUR vs. DCIT, JAIPUR

Firstly we take up the appeal of the assessee in ITA No. 158/JP/2017 for A.Y. 2007-08. At the outset it is noted that the appeal

The ld. AR also submitted that the assessee has moved a prayer for admission of additional ground of appeal which reads as under:- “3. On the facts and in the circumstances of the case the Ld. Assessing Officer has grossly erred in completing the assessment u/s 143(3) rws 153A of the Income Tax Act, 1961 even when no incriminating paper whatsoever was found as a result of search pertaining to the year under appeal, and the addition has been made by Ld. AO without referring to any single material found during search thus the consequent order passed deserves to be quashed. 3.1 That the Ld. AO has further erred in making additions u/s 143(3) rws 153A to the returned income of assessee in the absence of incriminating documents, particularly when no assessment proceedings were pending before the Ld. AO as on the date of search, therefore, the order of Ld. AO deserves to be held bad in law and the consequent additions deserve to be deleted.”

The ld. AR has submitted that the additional ground is purely a legal ground and it goes to the root of the matter, the same should be admitted in the interest of justice. In support, reliance was placed on the decision of Hon’ble Supreme Court in case of National Thermal Power Corporation Ltd. Vs. CIT 229 ITR 383. After hearing both the

In addition to the above, the assessee has taken the following

During the course of hearing, the ld. AR submitted that a search and seizure operation U/s 132 of the Act was carried out on 19.12.2012 in case of Suwalka group to which the assessee belongs. Subsequently notice U/s 153A of the Act was issued to the assessee on 22.10.2013 requiring him to furnish the return of income. In response, the assessee filed his return of income declaring total income of Rs. 1,17,96,460/- and the assessment was completed U/s 143(3) r.w.s. 153A of the Act wherein the AO made a disallowance of Rs. 11,25,800/- invoking the provisions of Section 40A(3) of the Act. It was submitted that assessment in this case was originally completed U/s 143(3) of the Act vide order dated 30.05.2009 and therefore, at the time of search, the assessment was not pending and therefore, in the absence of any

Per contra, the ld. CIT DR submitted that in this case, the documentary evidence pertaining to cash payment have been found and seized from the assessee during the course of search proceeding and the same are clearly incriminating documents found during the course of search in the case of the assessee. It was submitted that on the basis of sale deeds found and seized during the course of search reflecting consideration discharged in cash, the addition was rightly made by the Assessing Officer invoking the provisions of Section 40A(3)

We have heard the rival contentions and perused the material available on record. In this case, the assessee has originally filed his return of income on 30.11.2007. A survey operation was carried out on 09.11.2006 and pursuant to that, the assessee made a disclosure on Rs. 2.50 crores which includes Rs. 50,00,000/- for A.Y. 2007-08 and an application was moved before the Hon’ble Settlement Commissioner who vide its order passed U/s 245D(4) dated 6.11.2008 has accepted the assessee’s application. The scrutiny proceedings which were originally initiated by issuance of notice U/s 143(2) were therefore, dropped vide order dated 13.05.2009 passed by the Assessing Officer Circle, Kota stating since the assessee case for A.Y. 2007-08 has been decided by the Hon’ble Settlement Commission U/s 245D(4) of the Act proceeding are hereby dropped. Thereafter, on 19.12.2012 a search and seizure action U/s 132 of the Act was carried out in case of Suwalka Group, Kota to which the assessee belongs. In response to the notice U/s 153A of the Act, the assessee filed his return of income on 23.12.2013 declaring total income of Rs. 1,17,96,460/- which includes the additional income of Rs. 50,00,000/- which was offered earlier before the Hon’ble Settlement Commission and which was accepted

The other grounds on merits thus become academic and even not pressed by the ld AR during the course of hearing and hence, the same are dismissed. In the result, the appeal of the assessee is allowed.

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

In ITA No. 159/JP/2017 for the A.Y. 2008-09, the ld. CIT(A) has returned a finding that since the transactions/ registry before the Stamp Duty Authority were completed during F.Y. 2006-07 relevant to assessment year 2007-08, the addition made by the AO on account of disallowance made U/s 40A(3) of the Act on the cash payment of Rs. 28,00,000/- should be made in AY 2007-08 instead of AY 2008-09 and the AO was directed to consider the addition U/s 40A(3) of the Act in A.Y. 2007-08.

During the course of hearing, both the parties fairly admitted the transactions of purchase of land pertains to A.Y. 2007-08 and not A. Y 2008-09 hence, we not see any infirmity in the said direction of the ld. CIT(A) and the grounds of appeal taken by the assessee are dismissed. In the result, the appeal of the assessee is dismissed.

In ITA No. 160/JP/2017 for the A.Y. 2012-13, the assessee has taken the following grounds of appeal:- “1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming addition of Rs. 16,50,000/- made by Ld. AO u/s 40A(3) of the Income Tax Act, arbitrarily therefore, the addition so made deserved to be deleted. 1.1 That the Ld. CIT(A) has further erred in confirming the addition made by Ld. AO ignoring the submission of the assessee that none of the payment was made in the contravention of Section 40A(3) and further assessee was compelled to made cash payments on account of peculiar situations in insistence upon by the sellers, thus appellant prays addition so made may please be deleted.”

Briefly the facts of the case are that the assessee had purchased land from his wife for Rs. 16.50 lacs and since payment was made in cash, the AO had made disallowance U/s 40A(3) of the Act which was confirmed by the ld. CIT(A) against which the assessee is in appeal before us.

The ld. AR submitted that undoubtedly, provisions of section 40A(3) call for a disallowance whenever there is any cash payment exceeding Rs. 20,000/- is made in respect of any expense otherwise allowable while computing business income. However, each and every provision in the Act is inserted with some purpose, which is described in the legislative intention explained while introducing the same. Therefore, before making any disallowance, such purpose has to be kept in mind and provisions of the Act cannot be applied straightway, as it may result in undue hardship to assessees. Similar is the case of section 40A(3), the intention of the Legislature in enacting section 40A(3) particularly was to ensure that payments exceeding the sum specified are made by a crossed cheque drawn on a bank or by a crossed bank draft so that it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was made out of income from disclosed sources. It is pertinent to note here that in the instant case, the AO neither established that there was any malafide intention of the assessee in paying amount in cash nor he brought on record any material to prove that transaction was with the intention to evade tax. In this regard, attention was invited to provisions of section 271D and 271E, which provide for penalty in respect of violation of provisions of

It was accordingly submitted that in the present case, it is undisputed fact that the payment was made to the wife of the assessee Smt. Sunita Suwalka in whose case also search was executed and the assessment have been completed u/s 153A by the same Assessing officer thus neither there was any question of non disclosure of transaction nor there was any attempt by the assessee to evade any tax from the transaction of sale to the assessee. Under these circumstances as has been held in the aforesaid decisions, the disallowance made by assessee in respect of payment made to wife in cash deserves to be deleted.

Per contra, the ld CIT DR submitted that the payment has been made by the assessee to his wife in cash and what was the business expediency to make the payment in cash has not been explained by the assessee and in any case, the matter doesn’t fall in any the exclusions so specified in Rule 8DD. He accordingly supported the findings of the lower authorities.

We have heard the rival contentions and pursued the material available on record. The Hon'ble Supreme Court in case of Attar Singh Gurmukh Singh vs. ITO referring to the intent behind introduction of provisions of section 40A(3) has held that: "The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The 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 Assessing Officer the circumstances under which the payment in the manner prescribed in section 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."

In the instant case, no doubt the payment has been made by the assessee to his wife and thus the identity of the payee has been established and genuineness and bonafide of the transaction are not disputed. However, the assessee has failed to furnished any reasonable explanation as to the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty and hardship more so being a related party transaction between husband and wife. The test of business expediency has thus not been satisfied in the instant case and therefore, in absence of any satisfactory explanation, the disallowance so made by the Assessing officer invoking provisions of section 40A(3) is hereby upheld.

In the result, the appeal of the assessee in ITA No. 158/JP/17 is allowed and appeal in ITA No. 159/JP/17 and 160/JP/17 are dismissed.