DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-29, KOLKATA, KOLKATA vs. SONAKSHI REAL ESTATE, KOLKATA

IN THE INCOMETAXAPPELLATE TRIBUNAL “D” BENCH AT KOLKATA Before Shri Rajesh Kumar, AccountantMember and Shri Pradip Kumar Choubey, JudicialMember ITA No.2799 & 2733/Kol/2025 Assessment Year: 2018-19& 2020-21 Deputy Commissioner of Income Tax Circle,.……………………….……….……Appellant D.C.I.T., Circle-29, Kolkata, Aayakar Bhawan, Dakshin, 2, Gariahat Road(S), Kolkata- 700068 [PAN: ACMFS2983A] vs. Sonakshi Real Estate………….…………………….....……...…..…..Respondent 82, Joka Mondal Para, Hanspukur, Joka, West Bengal- 700104 Appearances by: Shri Siddharth Parakh, AR,appeared on behalf of the Appellant. Shri S.B. Chakraborthy, Addl. CIT, Sr. DR, appeared on behalf of the respondent Date of concluding the hearing : May 20, 2026 Date of pronouncing the order :May 29 . , 2026 ORDER PerPradip Kumar Choubey, Judicial Member: This appeal filed by the revenue is directed against the order dated 25.09.2025 of the National Faceless Appeal Centre (NFAC) passed under Section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). Since, the issues are common both the appeal hence taken up together for disposal by taking ITA No. 2799/25 as a lead case.

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 complete scrutiny assessment under the E-assessment Scheme, 2019, on the issue of business expenses. During the assessment proceedings, the Assessing Officer (AO) issued notices under Section 143(2) and Section 142(1) on various dates, seeking details to substantiate the claimed expenses. The AO, upon reviewing the submissions, determined that the appellant had not provided sufficient evidence to support its claims, leading to certain disallowances and additions. The AO made following additions while completing the assessment in the case of the appellant.

(1). Disallowance on account of excess commission paid – Rs. 2,85,73,177/-

(2). Disallowance u/s. 40A(3) – Rs. 2,36,97,749/-

Aggrieved by the said order, assessee preferred appeal before the CIT(A) wherein appeal of the assessee has been allowed by observing thus: -

The AO's disallowance is primarily predicated on the assumption that the market rate for real estate commission in the Kolkata Metropolitan Region (KMR) is a uniform 2%. This assumption is flawed in several - respects. The AO's own material, the appellant's submissions, and general market knowledge indicate that commission rates are not monolithic. The appellant's commission detail table shows payments at a wide range, from 1% to 25%, which suggests a variable, negotiated market rather than a fixed rate. An AO cannot, based on a general and unverified "market rate," dismiss the commercial judgment of the assessee without proving that the expenses were fictitious.

The AO's reliance on the CCI case to establish the "traditional rate" is also misplaced. The CCI's function is to regulate competition and prevent anti-

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 competitive practices, not to certify brokerage rates for tax purposes. The statement in that case about a "traditional brokerage fee of 2%" was part of a specific legal argument and cannot be treated as a binding, universal market standard, as the appellant correctly contended. The AO's use of this isolated data point to build the entire disallowance is an exercise in substituting commercial judgment, which is beyond the scope of their authority under Section 37(1).

The appellant has provided a substantial body of evidence in its support. It consistently highlighted that payments were made through banking channels, and TDS was deducted. The provided TDS details for various quarters and individual ledgers, such as those for Chandan Das and Shri Vinayak Realtors, corroborate this claim. While the AO cited precedents like CIT vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal) to argue that payments by cheque are not "sacrosanct," this legal principle must be understood in context. The precedents establish that while bank payments alone are not absolute proof, they do create a strong prima facie case for the genuineness of a transaction. The onus then shifts to the AO to conduct further investigations, not merely dismiss the claim based on suspicion. The AO's order does not indicate any such deeper investigation beyond a general dissatisfaction with the lack of detailed narration in the ledgers. The AO has not proven that the recipients of the commission were non-existent, or that the transactions were not genuine, which would have been necessary to justify the disallowance.

Therefore, given the principle of commercial expediency and the failure of the AO to displace the appellant's claim with more robust evidence or investigation, the disallowance cannot be sustained. The ground of appeal is therefore allowed.

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 i. Factual Matrix of the Dispute

The AO has disallowed a total of Rs.2,36,97,749/ under Section 40A(3) of the Act. This amount comprises three distinct categories of payments:

Rs.47,00,960/- for Labour Charges, Rs.68.21,400/- for Land Development Expenses, and Rs.1.21.75.389/- for payments to landowners for Dag and Kahatian haan records.١٠ DE

The AO's disallowance is based on the following key points:

 The payments were made in cash, and individual payments or an aggregate of payments to a person in a day exceeded the prescribed limit of Rs. 10,000/-.  The appellant, despite being requested, did not provide supporting documentation such as bills, vouchers, or the names and addresses of all parties to prove the genuineness of the transactions.  The AO's order presents a tabular summary of numerous cash payments that were subject to the disallowance. It also notes a significant withdrawal of Rs. 3.40 crores in cash from the appellant's bank accounts, which was presumably used for these payments.

The appellant, in its submissions, provided the following explanation for these cash payments:

 The business involves acquiring lands from "farmers who are mostly very much poor" and "have no bank accounts".  Payments were made to these landowners part by part, in cash, as they "insisted on cash payments"  The appellant's rationale extends to payments for land development and labour charges, where the payees similarly insisted on cash. The appellant referred to this as "ground reality" which necessitates these cash transactions.

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 ii. Legal Framework and Analysis under Section 40A(3)

Section 40A(3) and Rule 6DD are a set of anti-avoidance provisions designed to discourage cash transactions in business and profession. The section mandates a disallowance of expenditure if a payment or aggregate of payments to a person in a single day exceeds Rs. 10,000/-and is made in any mode other than an account payee cheque, bank draft, or electronic clearing system. The primary objective is to promote financial transparency and curb unaccounted transactions.

However, the rigidity of this rule is tempered by Rule 6DD, which provides specific exceptions where disallowance will not be triggered. The appellant's claims directly implicate two key exceptions under this Rule:

 Rule 6DD(e): This clause exempts payments made for the purchase of "agricultural or forest produce," "the produce of animal husbandry... or dairy or poultry farming," or "the products of horticulture or apiculture" when made to the "cultivator, grower or producer" of such items. This is highly relevant to the appellant's payments to farmers for their land, which is often considered agricultural produce in a broad sense, and to the Dag and Kahatian payments which are records of such land.  Rule 6DD(g): This clause provides an exemption for payments made person who resides or carries on business in such a place. This exception directly addresses the appellant's claim that payments were made in "remote areas" to individuals who lacked bank accounts.

iii. Deliberation and Conclusion

The AO's blanket disallowance of all cash payments under Section 40A(3) without a proper and detailed examination of the applicability of Rule 6DD

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 is procedurally flawed. While the AO correctly tabulated specific instances of cash payments exceeding the Rs. 10,000/-threshold, the dismissal of the appellant's submissions as mere "assertions" overlooks the detailed context provided.

For payments to landowners for Dag and Kahatian, the appellant's claim that these were made to poor farmers who insisted on cash is plausible and consistent with the nature of the transactions. Payments for land and land records from farmers could potentially fall under the exception of Rule 6DD(e), provided the AO verifies that the payments were indeed to cultivators or producers of agricultural produce. The AO's observation that the business is in the Kolkata Metropolitan Region (KMR) does not automatically negate the possibility of transactions in remote, unbanked areas within that large geographical region. The AO's dismissal of this argument without a specific, on-the-ground inquiry into the location of each transaction is insufficient to justify a full disallowance. The lack of detailed bills and invoices is a legitimate concern raised by the AO, but the absence of such formal documentation is often the very reason for the existence of Rule 6DD exceptions in the first place.

The cash payments for Labour Charges and Land Development Expenses, however, fall into a different category. These payments are not for the purchase of agricultural produce but for services. The applicability of Rule 6DD for these payments would depend entirely on whether the payments were made in a village or town not served by a bank. The assessee has the burden to prove this, and a mere statement about "ground reality" is not sufficient without evidence. The AO's order, by tabulating numerous daily payments, does suggest that the appellant was dealing with an unorganized workforce, which is a common scenario in real estate development.

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 Given this analysis, a partial allowance of this ground is the most equitable and legally sound path. The AO's blanket disallowance is not justified. The matter needs to be remitted back to the AO with specific instructions to verify the applicability of Rule 6DD, particularly for payments to landowners (Dag and Kahatian) and for labour and development charges. The AO must conduct an inquiry into whether the payments were made to actual cultivators and whether the locations of these transactions lacked proper banking facilities.

The AO is directed to delete the disallowances for payments that are found to be covered by the exemptions of Rule 6DD. The disallowances for payments that do not meet the criteria for any exception will be confirmed. Accordingly, Ground No. 3 is partly allowed in view of the aforesaid directions.

Adjudication of Ground No. 4: Initiation of Penalty Proceedings u/s 270A 7.

This ground is against the initiation of penalty u/s 270A of the Act by the AO which is premature at this stage. The validity of penalty proceedings is contingent upon the final outcome of the assessment and appellate proceedings. Since the additions forming the basis for penalty are currently being adjudicated, a decision on the penalty itself cannot be made at this juncture. Therefore, Ground No. 4 is dismissed as premature.

The appellant has appealed against the levy of interest under Sections 234B and 234C of the Act. The levy of interest under Sections 234B, and 234C is a consequential and mandatory action based on the final

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 assessed income. As the primary additions to income pare being addressed on their merits, the interest computation will automatically follow the revised total income. Therefore, Ground No. 5 is dismissed as consequential.

This is a standard protective clause in appeals. It does not require separate adjudication.

Decision: Ground No. 6 is hereby dismissed as infructuous.

3 That, on the facts and circumstances of the case, the Ld. CIT(A) had erred in accepting the contention of the assessee in respect of the excessive commission paid to real estate agents which were not supported by any cogent evidence thereby failing to prove the business expediency of such huge commission expense, as mandated in Section 37(1) of the Income Tax Act, 1961.

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 4. That, the appellant craves the leave to make any addition, alternation, modification etc. on the grounds before or in course of appellate proceedings.

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 6. Going over the order passed by the CIT(A), we find that CIT(A) found that AO has not proven that the recipient of the commission were non-existent, or that the transactions were not genuine. It is important to mention here that commission paid to approximately 80 identified parties with valid pans, all payments made through banking channel, no cash commission. We further find that dispute in relation to commission had previously well-raised in the re-assessment proceeding u/s 147 in the assessee’s own case for the Assessment Year 2016-17 and re- assessment u/s 147 was computed vide order dated 31.03.2022 without disputing the genuineness and proportion of the commission as compared to the turnover.

Keeping in view discussion as well as considering the order passed by the CIT(A) we do not find any infirmity in the impugned order.

Accordingly, the order of the CIT(A) is hereby upheld and appeal of the Revenue is here by dismissed. Since the issues are as common in ITA No. 2733. Hence, the order passed in ITA No. 2799 shall apply to ITA No. 2733 as a mutatis mutandis.

As a result, both the appeal of the Revenue is hereby dismissed.

Kolkata, the 29th May , 2026.

Sd/- Sd/- [Rajesh Kumar] [Pradip Kumar Choubey] Accountant Member Judicial Member

ITA No.2799 & 2733/Kol/2025- Assessment Year- 2018-19 & 2020-21 Dc Dated:...29.05.2026.

Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- , 5. CIT(DR),

//True copy// By order Assistant Registrar, Kolkata Benches