GIRISH KUSHALCHANDRA PODDAR,NASHIK vs. INCOME-TAX OFFICER, WARD - 2 (2), NASHIK

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by assessee is emanating out of the order of 1. Commissioner of Income Tax (Appeals) – 1, Nashik dated 01.01.2019 for A.Y. 2010-11.

Assessee is an individual stated to be dealing in land/plots and land development. In this case, originally assessment was framed u/s 143(3) of the Act vide order dated 15.02.2013 and the total income was determined at Rs.4,21,410/-. Subsequently, Ld.CIT vide order passed u/s 263 of the

Act held the order of AO to be prejudicial and erroneous to the interest of

Revenue and accordingly set aside the order and directed the AO to

complete the assessment afresh as per the directions contained therein.

Consequent to the order of Ld.CIT passed u/s 263 of the Act, assessment

was framed u/s 143(3) r.w.s. 263 of the Act vide order dated 28.03.2016

and the total income was determined at Rs.14,09,585/- inter-alia by

disallowing expenditure u/s 40A(3) of the Act of Rs.9,88,175/-. Aggrieved

by the order of AO, assessee carried the matter before Ld.CIT(A), who vide

order dated 01.01.2019 (in appeal No.Nsk/CIT(A)-1/180/2017-18)

dismissed the appeal of the assessee. Aggrieved by the order of Ld.CIT(A),

assessee is now in appeal and has raised the following grounds :

“The learned CIT(A) erred in confirming the addition of Rs.9,88,175/- u/s 40A(3) in respect of the cash payments made for purchase of land. 2. The learned CIT(A) failed to appreciate that the appellant had genuine reasons for making cash payments and therefore, the disallowance u/s 40A(3) was not warranted. 3. The learned CIT(A) was not justified in confirming the disallowance u/s 40A(3) when during the year, the appellant had not claimed the cost of the land in respect of which cash payments were made as a deduction from the business income. 3.1 The learned CIT(A) failed to appreciate that the land for which cash payments were made continued with the appellant as a closing stock at the end of the year and therefore, the disallowance u/s 40A(3) was not warranted during the year.”

had purchased land, (the details of which are given in page 2 of the

assessment order) amounting to Rs.35,04,926/- and out of which

Rs.11,67,710/- was paid in cash. The assessee was asked to explain as to

why the payment for purchase of land made in cash aggregating to

Rs.11,67,710/- not be disallowed u/s 40A(3) of the Act, to which assessee

inter-alia submitted that assessee had purchased the land from various

sellers and the sale deed was registered with the Sub-Registrar. It was

submitted that some of the sellers were not ready to come to the Sub-

Registrar’s office and sign the documents until they received the full

payments and some of them were asking for cash payment stating that

they did not have the bank accounts. In such a situation, the cash was

withdrawn by the assessee from the bank account, a day prior to the

proposed date of registration, and the payment was made in cash. It was

further submitted that the transaction is genuine and well supported by

documentary evidence in the form of bank statements, registered sale

deeds etc., and therefore no disallowance be made u/s 40A(3) of the Act.

The submissions of the assessee were not found acceptable to the AO. AO

noted that summons u/s 131 of the Act were issued to all the nine parties.

Out of which two parties responded to the summons issued and attended.

In the statement, those parties submitted that they wanted cash payment

to meet some religious / marriage and agricultural purposes. AO noted

that apart from making submission for asking for cash payment, no

supporting documentary proof was furnished by them to substantiate

their submissions. AO therefore concluded that there was no situation

that compelled the assessee to make cash payment to the sellers of the

land and that assessee had violated the provisions of Sec.40A(3) of the Act

by making cash payment exceeding Rs.20,000/- in a day to a single party

towards purchase. He therefore computed the payments exceeding

Rs.20,000/- in cash amounting to Rs.9,88,175/- out of the total cash

payment of Rs.11,67,700/- and disallowed the same. Aggrieved by the

order of AO, assessee carried the matter before Ld.CIT(A), who upheld the

order of AO by observing as under :

“5.1 On perusal of the assessment order, the submissions of the appellant and the facts of the case, it is seen that, the appellant has violated the provisions to section 40A(3) of the Act. In this regard, the plea taken by the appellant in appellate proceedings is not acceptable on the ground that a) During 263 proceedings, the AR of the appellant has not explained with documentary evidences before the Ld.Pr.CIT-2, Nashik, and also failed to submit the details as follows – i) Name and addresses of the persons, who do not have bank account and to whom installments towards the purchase have been made in cash, as mentioned in appellant's submission dated 24.02.2015. ii) Break-up between the cash payment and cheque payment, name wise and amount wise. b) Even, in the assessment proceedings, the appellant has failed to submit the complete details of the break-up of cash and cheque payments to parties/persons in order to ascertain the correct transaction. In Para 4 of the assessment order, the assessing officer has elaborately discussed, the reasons for disallowance u/s 40A(3) of the Act. Therefore, in view of the above stated facts, the addition made by the assessing officer is sustained.”

Aggrieved by the order of Ld.CIT(A), assessee is now in appeal.

Ld.CIT(A) and further pointed to the submissions made before AO with

respect to the compulsion for making the payment in cash. He further

submitted that the cash amounts withdrawn from the bank were duly

reflected in the bank statements and the sale deeds were also registered

before the Sub-Registrar. He therefore submitted that the transactions are

genuine and are being supported with documentary evidence. With

respect to the observation of the AO that the purchase deed was registered

on 21.08.2009, he submitted that the observation is incorrect as the deed

was got ready on 21.08.2009 but was registered on 24.08.2009 and the

copies of the deed were also presented before the AO but the same was

disregarded by him. He further submitted that Ld.CIT(A) while deciding

the issue has only considered the fact about not submitting the

documentary evidences in 263 proceedings but has not controverted the

submissions made by assessee before Ld.CIT(A). He further submitted

that since the purchase price has been paid before the Sub-Registrar and

the transaction is genuine, then no disallowance u/s 40A(3) of the Act is

called for and in support of this proposition, he relied on the decision in

the case of Pune Tribunal in the case of Shri Madanlal Bastimal Chordiya

Vs. ACIT in ITA No.2944/PUN/2016 order dated 27.06.2019. He also

placed on record the copy of the aforesaid decision. With respect to his

contention that when the transactions are genuine and there was

reasonable explanation for making payments in cash, no disallowance u/s

40A(3) of the Act is called for, he relied on the decision in this case of Pune

Tribunal in the case of Shri Shoukat Ahamed Makhubhai Vs. ACIT in ITA

No.508/PUN/2015 order dated 18.01.2018. He also placed on record the

copy of the aforesaid decision and further submitted that the Co-ordinate

Bench of the Tribunal while holding that when the transactions are

genuine and there was reasonable explanation for payment of cash, no

disallowance u/s 40A(3) of the Act is called for, had relied on the decision

of Hon’ble Gujarat High Court in the case of Anupam Teleservices Vs. ITO

reported in (2014) 366 ITR 122 and the decision of Hon’ble Apex Court in

the case of Attar Singh Gurumukh Singh Vs. ITO reported in 191 ITR 667

(SC). He therefore submitted that the addition made by the AO and

confirmed by Ld.CIT(A) be deleted. Ld. D.R. on the other hand supported

the order of AO and submitted that out of nine parties to whom the

summons were issued only two parties attended and thus, the

genuineness of the transaction has not been proved by the assessee. He

thus supported the order of lower authorities.

record. The issue in the present ground is with respect to the disallowance

u/s 40A(3) of the Act. It is an undisputed fact that assessee is in the

business of buying of land/plots, had purchased land amounting to

Rs.35,04,926/- and out of which an amount of Rs.10,51,700/- was paid

in cash. It is the contention of the assessee that the buyers of the land

had insisted for cash payments and therefore, assessee had made the cash

payment as there is no other option but to make the cash payment so as

to complete the deal. It is also the submission of the Ld.A.R. that the cash

withdrawn by the assessee for making the payments is duly reflected in

the books of accounts and the registration of document was done before

the Sub-Registrar. The aforesaid contention of the Ld.A.R. has not been

controverted by the Revenue. I further find that AO has noted about two

out of nine parties appearing before him in response to summons issued

u/s 131 of the Act had stated about the need for cash payment to meet

religious expenses, marriage expenses and for agricultural purpose. The

contentions of those parties have not been found to be false or untrue. I

find that Hon’ble Apex Court in the case of Attar Singh Gurumukh Singh

(supra) has held that the genuine and bonafide transactions are not to be

disallowed u/s 40A(3) of the Act. I further find that Hon’ble Gujarat High

Court in the case of Anupam Teleservices (supra) after relying on the

decision of Hon’ble Apex Court in the case of Attar Singh Gurumukh Singh

(supra) held that when the transactions are genuine and there was

reasonable explanation of payment of cash, no disallowance u/s 40A(3) of

the Act is called for. I further find that in the case of Shri Madanlal

Bastimal Chordiya (supra), the Co-ordinate Bench of the Tribunal has held

that when the purchase price has been paid by the assessee before the

Sub-Registrar and the transaction is genuine, no disallowance u/s 40A(3)

of the Act is called for. Before me, no material has been placed by

Revenue to demonstrate that the transaction of land purchase made by the assessee was not a genuine transaction. In such a situation, considering the totality of the aforesaid facts and relying on the aforesaid decisions, I am of the view that no disallowance u/s 40A(3) of the Act is called for in the present case. I therefore direct the deletion of addition made by the AO. Thus, the grounds of the assessee are allowed.

Order pronounced on 30th day of October, 2019.

Sd/- (ANIL CHATURVEDI) लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 30th October, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-1, Nashik. 4. Pr. CIT-2, Nashik. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक सद�य” / DR, ITAT, “SMC” Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.