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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 14.03.2013 framed by DCIT-1(1), Bhopal.
Assessee has raised following grounds of appeal;
1. That, the Learned CIT(Appeals) has erred in law and on facts in confirming the addition of Rs. 5,40,000/- to the total income of the appellant u/s 40A(3) of the Income Tax Act, 1961.
2. That, the Learned CIT(Appeals) has erred in law and on facts in confirming the addition, ignoring the fact that the payment was made by the appellant in cash, due to exceptional circumstances, as the recipient refused to accept the cheque payment, and the genuineness of the transaction is undisputed.
That amount of Rs. 5,40,000/- paid to one of the sellers of the land, is a part of stocks in trade of the appellant, therefore disallowance, if at all, can be made, in the year in which sale of such" stock of land" takes place. 4. That the appellant reserves the right to add, alter or amend the grounds of appeal before the appeal is decided, with the permission of Honourable Bench.
3. Briefly stated facts as culled out from the records are that the assessee is a private limited company engaged in civil construction business. Income of Rs.79,65,389/- declared in e-return of income filed on 07.10.2010. Case was picked up for scrutiny followed by serving of notices u/s 143(2) and 142(1) of the Act. During the course of assessment proceedings Ld. A.O came to know that the assessee paid a cash sum of Rs.5,40,000/- to Smt. Anar Bai for purchase of land at Khajuri Khurd. Ld. A.O took a view that as the assessee is in the business of purchase and sale of land and civil construction business and the alleged payment of cash of Rs.5,40,000/- is hit by the provisions 2 Essarjee Constructions Pvt.Ltd 40A(3) of the Act, the alleged amount needs to be disallowed as the assessee could not mention any circumstances specified in Rule 6DD of the I.T. rule justifying such cash payments. Income assessed at Rs.85,05,390/-. Aggrieved assessee preferred appeal before Ld. CIT(A) but failed to succeed and the disallowance u/s 40A(3) of the Act was confirmed by Ld. CIT(A) observing as follows;
“4.4 I have considered the findings recorded by the Id. AO as per the assessment order, the submission made by the appellant, the position of the law and the facts of the case on record. The ld. AO disallowed a sum of Rs.5,40,OOO/- u/s 40A(3) of the Act being cash payment made to a seller of the land, namely Smt. Anari Bai. The appellant has contented that initially the seller had refused to accept payment by cash. However, the appellant has failed to substantiate the aforesaid contention with any documentary evidence. It is seen that not only this but payment by cheque were also made to the said seller. Hence, the argument of her refusal to accept cheque is not tenable. The Id. AR further argued that the land i~ a part of the stock in trade of the year; consequently it does not affect the net profit liable to tax during the year. This argument also is not tenable because the Provisions of section 40A(3) require disallowance of any payment made in cash above Rs. 20,000/- in a day. There is no distinction as regards the nature o he payment/expenditure. For these reasons, the decisions relied upon by the Id. AR are distinguishable both on facts and circumstances. In view of the above, I do not find any reason to interfere with the order of the Ld. AO. Accordingly, the ground nos. 1 and 2 are rejected.”
Now the assessee is in appeal before the Tribunal.
Ld. Counsel for the assessee firstly pleaded that the seller of the property refused to accept the cheque given in advance as she was not having any bank account. Subsequently she opened the bank account and remaining payment for purchase construction was received by her through account payee cheque. Genuineness of the transaction is not disputed. Secondly he pleaded that the amount paid at Rs.5,40,000/- has not been claimed as expenditure for the year under consideration as the land purchased remained as stock in hand and was carry forward to subsequent years.
Per contra Ld. Departmental Representative vehemently argued supporting the orders of lower authorities.
We have heard rival contentions and perused the records placed before us and gone through the paper book filed by the assessee. The issue raised in this appeal by the assessee revolves around the disallowance of Rs.5,40,000/- u/s 40A(3) of the Act. We observe that the assessee is into the business of purchase and sale of land and civil construction business. It purchased land from Smt. Anar Bai for a total consideration of Rs.36,00,000/-. Out of the total purchase consideration of Rs.36,00,000/- assessee paid cash of Rs.6,20,000/- (verifiable from the 4 Essarjee Constructions Pvt.Ltd Registered sale deed as well as affidavit placed in the paper book). Out of the cash payment 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.
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.
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 5 Essarjee Constructions Pvt.Ltd 40A(3) of the Act and the same deserves to be deleted. We accordingly order so and allow Ground No.1 & 2 raised by the assessee.
10. Apropos the second plea raised in Ground No.3 of the assessee’s appeal contending that the disallowance is not called for as the alleged amount was not claimed as an expenditure during the year becomes infructuous and merely academic as we have already deleted the disallowance u/s 40A(3) of the Act at Rs. 5,40,000/- while adjudicating Ground No.1 & 2 of instant appeal.
In the result appeal of the assessee is allowed.
The order pronounced in the open Court on 11.04.2019.