THE INCOME TAX OFFICER, AMRITSAR. vs. SH. SHIV RAJ SINGH BAWA, AMRITSAR.

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. No. 407/Asr/2016 Assessment Year: 2012-13

vs. Shiv Raj Singh Bawa, Income Tax Officer, c/o Bawa Steel, Ward-4(5), Amritsar G.T. Road, Amritsar [PAN: AGLPB 1944K] (Appellant) (Respondent)

Cross Objection No. 11/Asr/2017 (arising out of ITA No. 407/Asr/2016) Assessment Year: 2012-13

Shiv Raj Singh Bawa, vs. Income Tax Officer, c/o Bawa Steel, G.T. Road, Ward-4(5), Amritsar Amritsar [PAN: AGLPB 1944K] (Cross Objector) (Respondent)

Appellant by : Sh. Charan Dass (D.R.) Respondent by: Sh. Tarun Bansal (Adv.) Date of Hearing: 03.12.2018 Date of Pronouncement: 30.01.2019 ORDER Per Sanjay Arora, AM: This is an Appeal by the Revenue and Cross Objection (CO) by the assessee, directed against the Order by the Commissioner of Income Tax (Appeals)-2, Amritsar (‘CIT(A)’ for short) dated 29.04.2016, allowing the assessee’s appeal

2 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa contesting his assessment under section 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 10.03.2015 for Assessment Year (A.Y.) 2012-13.

3 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa of immovably property, in the form of agricultural land and, in any case, had not claimed any part of the expenditure, including the impugned sum of Rs.83.602 lacs, as a deduction in computing business income, a fact lost sight by the AO, for him to have disallowed the cash component of the purchase transaction, for which reliance was placed by him on CIT v. Motilal Khatri [2008] 218 CTR 602 (Raj). Without prejudice, even if it was considered that the assessee along with others had entered into a joint venture, the violation of section 40A(3) and, thus, disallowance there-under, could only be effected in the hands of the Association of Persons (AOP) consisting of the assessee and the other purchasers (owners) of the subject land. Relying upon ITO v. Ch. Attchaiah [1996] 218 ITR 239 (SC), it was stated that the law does not give the assessing authority the option to tax either the members of an AOP individually or as an AOP. If, in law, it is the AOP which is to be taxed, its’ members cannot be taxed on the income of the AOP. As such, he opined that assuming, though not admitting, it was a joint venture, it could be disallowed u/s. 40A(3) only in the hands of the said AOP. Aggrieved, the Revenue is in appeal, while the assessee has filed a CO which is largely supportive.

4 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa with which it was; the claim of financial difficulty being faced by the co-owners, resulting in non-implementation of the project and the decision to dispose the land, which is to an non-agriculturalist, with the same rights of development and, who in fact proceeds to develop a residential colony thereat, makes it abundantly clear that the land was, firstly, not purchased as an agricultural land (refer: Sarifabibi Mohmed Ibrahim & Ors. v. CIT [1993] 204 ITR 631 (SC)) and, two, was with a clear view and intent to exploit it commercially. The marked increase in the sale rate, i.e., over 33%, within a matter of days, itself is a pointer to the perceived commercial value/potential of the said land. The same was, accordingly, sold for being developed and plotted. As it appears, on account of financial difficulties (refer written submissions by the assessee before the ld. CIT(A), referred to at pg. 5 of his order), sold to another developer. In fact, the payment, the cash component of which is listed at pg. 4 of the assessment order, continues up to 28.03.2012 (March-end), i.e., long after the ‘sale’ of the subject land. That is, the decision to sale – which is essentially of rights in land, was taken and implemented within the days of the purchase without even the latter transaction being closed, which in fact continued for months thereafter. No wonder, the original owner was also made a confirming party to the agreement. There is, accordingly, no question of the same having been purchased by the assessee, a non-agriculturist, as a personal investment, for use by himself or his family. The same cannot be regarded as a capital asset in his hands, but only as stock-in-trade of his business (of development of/trading in land). That the assessee, a businessman with varied interests, has apparently no business experience of land development, would not preclude him for venturing into it along with others, who may, for all we know, have the relevant business experience. Trading in land is something any person with commercial experience, as the assessee, as also other co-owners with

5 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa apparently like experience, could do. Further, considering that the land was not developed and plotted, but sold as such within days, even impending payment of the purchase price, the same in any case would qualify to be a venture in the nature of trade, i.e., a trade in the said land. The law in the matter is well settled, and we may in this regard, for the sake of completeness of our order, refer to some celebrated decisions by the Apex Court settling the law in the matter, viz. G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594 (SC); Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC); Khan Bahadur Ahmed Alladin & Sons v. CIT [1968] 68 ITR 573 (SC); CIT v. Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC). The reference by the ld. Departmental Representative (DR), Sh. Charan Dass, to decisions in Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC) and S.G. Mercantile Corporation (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC) in this regard is also apposite. The facts of all these cases are pertinent. In Karanpura Development Co. Ltd. (supra), for instance, the appellant company acquiring coal mining leases, developing them as coal fields and then sub-leasing them to collieries and other companies, acquired leases for a term of 999 years. The same were sub-let for the balance of the term of the respective leases minus two days. The company never worked the coal fields with a view to raising coal, nor did it acquire and sell the coal raised by the sub-lessees. As against a salami of Rs.40 per bigha paid by the assessee to the lessors, it realized Rs.400 per bigha as salami from the sub-lessees. The transactions of acquiring leases and granting sub- leases were held to be in the nature of trading activity and not enjoyment of property as a land owner. There was no sale of its’ fixed capital by the company, as contended by it. The amounts received by way of salami were the trading receipts of the business of acquiring leases and granting sub-leases, and the profit therefrom liable to tax as business income.

6 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa 3.2 The next issue confronting us is if the disallowance u/s. 40A(3) could be effected without the assessee having returned any business income (for the relevant year) claiming a deduction for the impugned expenditure. The non-returning of any business income, by itself, cannot be determinative of the matter as there is no estoppel against law, so that if the assessee is liable to be assessed for business income, the same has to be asessed in accordance with law, allowing deduction in accordance with the provisions of the Act, i.e., sections 30 to 43D (sec. 29). In fact, the Hon’ble Courts have, as in the case of CIT v. Hynoup Food and Oil Industries Pvt. Ltd. [2007] 290 ITR 702 (Guj), held that section 40A(3) shall apply even in respect of undisclosed income. Now, without doubt, the assessee is assessable to tax in respect of income, if any, of his business, which can be said to have commenced with the purchase or acquisition of the land for being sold, either as such or as developed land; that from a business venture being only business income assessable u/s. 28. Though the assessee has sold his rights in land, acquired through agreement to sell (ATS) dated 21.04.2011, vide ATS dated 18.05.2011, i.e., at a neat margin of Rs.35 lacs per acre, no business income has been regarded as accrued, both by the assessee or the Revenue. This perhaps is on account of the dispute arising on the sale, stated to be subject to the litigation between the assessee (& others) and the buyer, with the former having, as stated, assumed the possession of the land. No light has been thrown on the status (or in fact even the nature) of the said dispute, or of the money received on sale, even as the possession of his share is stated to be with the assessee. There is, accordingly, no question of any income, positive or negative, arising to the assessee, which could only be on the sale of land or rights therein, including the certainty of the receipt, with the possession itself in dispute. Reference in this regard may be made to the decisions, inter alia, in E.D. Sasoon & Co. Ltd. v. CIT [1954] 26 ITR 27 (SC); CIT v. Shoorji

7 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa Vallabh Das & Co. [1962] 46 ITR 44 (SC); Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC); CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC). There is, however, no dispute qua the purchase or acquisition of the land by the assessee along with others. We have already held that the same was so with a view to be sold as such or upon development/plotting, i.e., forms part of the stock-in- trade of the said business venture. The question therefore is if the purchase cost is claimed as deduction only on the disposal (sale) of the relevant goods (stock) or services, or on its’ purchase. The same has been considered be the Hon’ble Apex Court in Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 (SC), wherein a similar argument, i.e., of the relevant good having not been sold during the year of purchase, so that no claim for expenditure could be regarded as having been made in the year of purchase, being held in stock, for section 40A(3), where the payment for purchase is made in violation of the said section, to apply. It was explained thus: (at pages 673-674): ‘As to the second question it may be stated that the word "expenditure" has not been defined in the Act. It is a word of wide import. Sec. 40A(3) refers to the expenditure incurred by the assessee in respect of which payment is made. It means that all outgoings are brought under the word "expenditure" for the purpose of the section. The expenditure for purchasing stock- in-trade is one of such outgoings. The value of the stock-in-trade has to be taken into account while determining the gross profits under s. 28 on principles of commercial accounting. The payments made for purchases would also be covered by the word "expenditure" and such payments can be disallowed if they are made in cash in the sums exceeding the amount specified under s. 40A(3). We have earlier observed that r. 6DD has to be read along with s. 40A(3). The rule also contemplates payments made for stock-in-trade and raw materials. This rule is in accordance with the terms of s. 40A(3). The rule provides that an assessee can be exempted from the requirement of payment by crossed cheque or a crossed bank draft where purchases are made of certain agricultural or horticultural commodities or from a village where there is no banking facility. Sec. 40A(3) is, therefore, attracted to payments made for acquiring stock-in-trade and other materials. This is also the view taken by several High Courts. [See: (1) Sajowanlal Jaiswal vs. CIT 1976 CTR (Ori) 204 : (1976) 103 ITR 706 (Ori) : TC18R.477; (2) U.P. Hardware Store vs. CIT (1976) 104 ITR 664 (All) : (3) Ratan Udyog vs. ITO 1977 CTR (All) 134 : (1977) 109 ITR 1 (All) : (4) P.R. Textiles vs. CIT (1980) 121 ITR 237 (Ker) : (5) CIT vs. Kishan Chand Maheswari Dass (1980) 14 CTR (P&H) 90 : (1980) 121 ITR 232 (P&H) : (6) Kanti Lal Purshottam & Co. vs. CIT (1986) 53

8 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa CTR (Raj) 19 : (1985) 155 ITR 519 (Raj) : (7) CIT vs. New Light Tin Manufacturing. Co. (1980) 14 CTR (P&H) 143 : (1980) 121 ITR 229 (P&H); (8) Fakri Automobiles vs. CIT (1986) 52 CTR (Raj) 59 : (1986) 160 ITR 504 (Raj); (9) Venkata Satyanarayana Timber Depot vs. CIT (1987) 60 CTR (AP) 157 : (1987) 165 ITR 253 (AP); (10) Akash Films vs. CIT (1991) 95 CTR (Kar) 56 : (1991) 190 ITR 32 (Kar). The decisions of the High Courts of Andhra Pradesh, Orissa, Allahabad, Kerala, Karnataka, Punjab and Haryana, Rajasthan and Patna are to the effect that the payments made for purchasing stock-in-trade or raw materials should also be regarded as expenditure for the purpose of s. 40A(3). The only discordant note struck on this aspect is by the Gauhati High Court in CIT vs. Hardware Exchange (1991) 95 CTR (Gau) 183 : (1991) 190 ITR 61 (Gau). The Gauhati High Court has observed that s. 40A(3) applies only to payments made on account of "expenditure incurred" and that the payment made for purchase of stock-in-trade cannot be termed as "expenditure incurred" since money does not go out irretrievably in such cases. We are unable to agree with the view taken by the Gauhati High Court.’ [emphasis, ours] Similar view had been, apart from its’ decisions cited above, taken by the Hon’ble jurisdictional High Court also in Harichand Virender Paul [1983] 140 ITR 148 (P&H); CIT v. Kishan Chand Maheshwari Dass [1980] 121 ITR 232 (P&H) and CIT v. Grewal Group of Inds. [1997] 110 ITR 278 (P&H). The matter, as would be apparent, is well settled. The same has a strong basis, both in law and in accountancy, to the latter which also reference stands made by the Apex Court. It is only because the purchase is an expenditure that it goes to form part of the value of the stock-in- trade, sold or unsold at the year-end, in which latter case it would stand to be taken into account at cost (or net realizable value, whichever is lower). To say, therefore, that no expenditure has been claimed as there has been no disposal/sale of the stock-in-trade during the relevant year is not correct. It would, accordingly, be not correct to assail the invocation of section 40A(3), as does the assessee, and which has found favour with the ld. CIT(A), on the basis that no business income has been disclosed, where the relevant expenditure stands incurred on purchase of goods held as stock-in-trade. The decision in Motilal Khatri (supra) is without reference to the decision in Attar Singh Gurmukh Singh (supra) as well as in fact the earlier decisions by the said court, besides being

9 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa inconsistent with that by the Apex Court as well as the jurisdictional High Court cited supra. The decision in CIT v. Santosh Jain [2008] 296 ITR 324 (P&H), rendered following CIT v. Banwari Lal Bansidhar [1998] 229 ITR 229 (All), also relied upon, is on a different footing. The income having been estimated on rejection of accounts, there was no specific deduction qua the impugned expenditure for section 40A(3) to apply. The same has no application to the instant case.

3.3 The assessee has taken an alternate argument as well, i.e., even granting application of section 40A(3), the same could not be disallowed thereunder where the expenditure is genuine, incurred bona fide for the purpose of business, and toward which he cites the decision in ITO v. Dhanshree Ispat [2017] 50 CCH 86 (Pune). The Tribunal has opined that where the payments are genuine and the payee/s identifiable, keeping in view the object of the provision, section 40A(3) would not hold. The said decision, carefully perused, would not apply both on facts in law. The decision in Attar Singh Gurmukh Singh (supra), relied upon by the tribunal in this case, is on a different aspect; the Apex Court upholding the constitutionality of the provision in view of the gateway of rule 6DD, in conjunction with which the provision is to be read. The decision in Gurdas Garg v. CIT, 63 taxmann.com. 289 (P&H), the other binding decision cited in the said decision, has since been recalled by the Hon’ble jurisdictional High Court, and for precisely this reason, i.e., the non-exclusion of the payment under reference under the extant rule 6DD; the rule 6DD cited before the Hon’ble Court at the time of hearing being different from that on the statute book for the relevant year; the said rule having witnessed several changes from time to time keeping in view the change in circumstances. In fact, as a reading of each of the decisions by the Hon’ble jurisdictional High Court cited supra would show, the genuineness of the

10 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa purchase of goods was not doubted. Rather, if the impugned expenditure is considered as non-genuine, how could the same be allowed under the regular provisions of the Act, as section 37(1) for the purchase of goods, for section 40A, the various sub-sections of which provide for circumstances under which expenditure, otherwise allowable, shall not be deductible, as laid out in sub-section (1) thereof, which reads as under, to apply: ‘Expenses or payments not deductible in certain circumstances. 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head “Profit and gains or business or profession.”’ Further, it is well settled that a taxing statute is to be strictly construed (CIT v. Calcutta Knitwears [2014] 362 ITR 673 (SC); Ajmera Housing Corporation v. CIT [2010] 326 ITR 642 (SC)). Section 40A(3) reads as under: ‘Expenses or payments not deductible in certain circumstances. 40A. (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. (3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheques drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors:

11 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa Provide further that in the case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-sections (3) and (3A) shall have effect as if for the words “twenty thousand rupees,” the words “thirty-five thousand rupees” had been substituted.’ (emphasis, ours)

There is therefore no ambiguity in the provision, so that excepting prescribed circumstances, an expenditure incurred for business purposes and otherwise allowable in computing business income, is not deductible where paid for otherwise than the permitted modes of payment. As would be apparent from a reading of the provision, it is the mode of payment in discharging the liability arising out incurring the expenditure, which forms the basis of the disallowance of the relevant expenditure. Could, one may ask, a non-genuine expenditure lead to a genuine liability for the mode of its’ discharge to become relevant? We have already noted that the excluding clauses of rule 6DD, which have to be read along with, are not applicable in the instant case. The section, accordingly, shall squarely apply. In fact, it may be relevant here to reproduce from the decision in State of Tamil Nadu v. Kanadaswami [1975] 36 STC 191, referred to and relied upon by the Hon’ble Court in Grewal Group of Industries (supra): (at pg. 280)

"Its main object is to plug leakage and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile. The view taken by the High Court is repugnant to this cardinal canon of interpretation."

In fact, the argument stands considered by the Special Bench of the tribunal in ITO v. Kenaram Saha and Subhash Saha [2008] 116 ITD 1 (Kol)(SB), paras 13.5 and 15 of which, containing the gist of the decision, are reproduced as under: ‘From the plain reading of s. 40A(3) itself it is evident that it would be applicable where the assessee incurs any expenditure exceeding Rs. 20,000 otherwise than by a crossed cheque or by a crossed bank draft. In such circumstances, 20 per cent of such expenditure shall be disallowed. There is no ambiguity in the language of s. 40A(3) and, therefore, the section is

12 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa to be interpreted by giving literal meaning to the language used in the section itself. In view of the above, the purpose behind the enactment of s. 40A(3) is not relevant. What is relevant is the enactment itself, i.e. s. 40A(3). The IT authorities have to give effect to the section as enacted by the Parliament. Contention that the second proviso to s. 40A(3) is a substantive provision of the law, full effect to which should be given and therefore, even if the facts of the case of an assessee are not squarely covered by any of the clauses of r. 6DD, still the exemption from the rigor of s. 40A(3) can be allowed in view of the provisions of second proviso to s. 40A(3), is not sustainable. It is not possible to agree with the contention of the counsel. The mandate of the second proviso is to exempt the payment in violation of provisions of s. 40A(3) in such cases and under such circumstances as may be prescribed. The last sentence of the proviso, i.e., "having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors", is the guideline for the authority who has to prescribe the cases and circumstances under which the disallowance under s. 40A(3) will not be made despite the payment exceeding Rs. 20,000 other than by crossed cheque/bank draft. In pursuance to this proviso, r. 6DD has been brought into the statute. This rule has been amended from time to time. The assessee will get the exemption from the rigors of s. 40A(3) if he is able to establish that his case falls within any of the cls. (a) to (m) of r. 6DD. Burden would be upon the assessee to establish under which particular clause his case falls.—CIT vs. Tara Agencies [2007] 292 ITR 444 (SC) and CIT vs. Anjum M.H. Ghaswala & Ors. [2001] 252 ITR 1 (SC) relied on. (emphasis by us)

Continuing further, on facts, the tribunal in Dhanshree Ispat (supra) found that the freight expenditure had indeed been incurred, noting the fact that the truck drivers, as per the trade practice, did not accept payments other than in cash. In the present case, the payments have been made in cash for no apparent reason. In fact, the payments through the banking channel have also been made to the buyer, i.e., along with the cash payments. The said decision may thus be regards as rendered in the peculiar facts of the case. We may though hasten to add that the said decision stands rendered by the tribunal without reference to the decision by its’ larger bench, binding on the division bench. The clarifications issued by the Board to the amendments to sec. 40A(3), which has witnessed many from time to time with a view to strengthen the deterrence potential of the provision, as vide Circular No. 03/2008, dated 12.03.2008 (299 ITR (St.) 8) (para 25) and 01/2009 dated 27.03.2009 (310 ITR (St.) 42) (para 13), have also been considered by us. Similar view, following the afore-referred decisions, has been taken by the Amritsar Bench

13 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa of the tribunal, as in Gurdas Garg v. Asst. CIT (in ITA No. 456/Asr/2013, dated 28/2/2014); Asst. CIT v. Darshan Mahajan [2018] 52 CCH 352 (Asr); ITO v. Rehmat Traders (in ITA No. 454/Asr/2016, dated 01/6/2018), discussing the matter in considerable detail, and to which reference may profitably be made. The assessee’s plea is, in view of the fore-going, not acceptable.

3.4 Finally, we may advert to the without prejudice argument by the ld. CIT(A), stating that even assuming applicability of section 40A(3), the same would only be in the hands of the AOP. The said argument, with respect, could be taken by the ld. CIT(A) where in his opinion the subject land was acquired not by the several individual persons jointly but by an AOP consisting of the assessee and other co- owners – an opinion which he clearly disowns and discredits. We say so as, under the given circumstances, it is nobody’s case that the payment is by the AOP. That being the case, the argument has no legs to stand on. In fact, the same was not argued by the ld. counsel for the assessee, Sh. Bansal, while the ld. Departmental Representative (DR) would submit that where the ld. CIT(A) was of the view that the expenditure under reference stands incurred by the AOP, he ought to have issued a direction u/s. 150 to the AO to frame the assessment in the hands of the AOP. We agree. But such a finding from him would ensue only where he is, as afore-stated, of the view that the expenditure stands incurred by the AOP. Be that as it may be, the assessment proceedings under a taxing (fiscal) statute are, strictly speaking, not judicial proceedings; are not adversarial in nature or in the nature of a lis (S.S. Gadgil v. Lal & Co. [1964] 53 ITR 231 (SC); Deepak Agro Foods v. State of Rajasthan, in CA Nos. 4327-29 of 2008, dated 11/7/2008; CIT v. Indian Express (Madurai) Pvt. Ltd. [1983] 140 ITR 705 (Mad)). Further, the power of the tribunal is not confined to the grounds raised in appeal before it (Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963), even as rules 11 and 27 of the said

14 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa Rules, as clarified in Hukumchand Mills. Ltd. v. CIT [1969] 63 ITR 232 (SC), are not exhaustive of the powers of the tribunal. In CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC), it was held that the tribunal had ample power to set aside the assessment made on an ‘Association of Persons’ and to direct the ITO to assess the members individually, or to direct the amendment of the assessment already made on the members. That is, there is no bar for directing an assessment in a different status. We, therefore, consider the without prejudice argument; the income being liable to be assessed only in the hands of the ‘right person’, as explained in Ch. Attchaiah (supra). In our view the subject land was acquired and sold, though jointly, by the co-owners individually, with defined shares therein. It is a common intent, including capacity and opportunity, that may have prompted the buyers, four in number, to have come together for acquiring the land in defined shares (1/4 each), paying for their share. The time period for payment and registration, originally set at 31.10.2011, was subsequently revised to 30.06.2012. No further capital was introduced, or has been shown to be so, for land development; indeed no activity toward the same undertaken. Both the purchase and sale agreement were signed individually by all the co-owners. As it appears to us, the buyers, though acutely conscious of and intending to realize the commercial value of land, did not have adequate resources and experience, extending even the time period for the payment of the purchase price. The search for the buyer intending to develop the said land, clearly, started immediately after the purchase agreement. For all we know, the negotiations with the buyer/s may well have been on at the time of purchase itself. We say so as the intent to develop the subject land is apparent in both the agreements. It is otherwise difficult to explain the price rise of 1/3 within a matter of days. The sale proceeds, beginning Rs. 200 lacs on 30/5/2011, were again paid

15 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa separately to each buyer per an agreement, duly witnessed by the original buyer, also a confirming party in the agreement. The transactions of purchase and sale, though executed in cohesion, thus, are in their individual capacities of the co- buyers. The assessee is stated to have subsequently (from April, 2014 to July, 2016) got his share in the land registered in his name, which position continues to date (29.11.2018). The position about the other co-owners, or the dates on which they got their respective shares registered in their names, if so, is not clear, as also as to whether the possession of their respective shares is with them or with Sh. Jain. The subsequent registration by the assessee in his name, however, shall not detract from; rather, dovetails with our finding of the land having been acquired in personal capacity. The enterprise of purchase by payments (by the buyers) direct to the owner in the ratio of their respective shares, and sale, realizing monies in their individual names, so that it is with the consent of all, is an act for personal gain, undertaken together. If the sale fell in dispute, and the matter is sub judice, that would not in any manner alter the assessee’s intent and object in acquiring the land, which in fact gets evident from its’ subsequent sale soon after. Why, the land could subsequently even be regarded as a capital asset, though, given the dispute which, as given to understand, is sub judice, it is difficult to issue any finding in the matter. What the assessee does with the land later, stated by Sh. Bansal as agriculture, is a matter subsequent and of little consequence. In fact, the assessee himself does not say so, i.e., of the land being put to agricultural use (i.e., in his affidavit dated 29.11.2018/PB pg. 61), and even Mr. Bansal, on being asked as to if the assessee is therefore disclosing agricultural income, could not furnish any satisfactory answer. In fact, considering that the land stood plotted and a residential colony set up thereon, which is subject to contra claims, the claim of agricultural

16 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa use, largely irrelevant for our purpose, does not though appear to be convincing in the least.

3.5 The assessee’s CO, as afore-stated, is supportive. The only additional argument taken is with reference to section 43(1), amended by Finance Act, 2017 (w.e.f. 01.04.2018) by way of insertion of second proviso thereto. Per the same, any expenditure incurred in violation of section 40A(3) would be excluded in determining the actual cost of an asset. The argument, even as observed during hearing, is misconceived. Firstly, the same is applicable only AY 2018-19 onwards, i.e., where an expenditure is disallowed for those years, and has no application for the current year. Even otherwise, how could the cost of goods be revised retrospectively? Two, we do not think that the same, impinging on the cost of an asset, would apply to valuation of stock-in-trade of a business, the valuation of which is governed by well accepted accounting principles. It is well settled that the profit and loss of an enterprise is to be determined following the accepted norms of commercial accounting (refer, inter alia, Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC), Attar Singh Gurmukh Singh (supra)). The same have in fact over the years been more sharply defined through the accounting standards, made mandatory u/s. 145(2) of the Act as well as the Companies Act. The actual cost would therefore imply the actual cost incurred by the assessee; the valuation of closing stock being not, as explained by the Apex Court in Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC), a source of profit, but only to offset the cost as debited in the accounts, i.e., to arrive at the correct profit or loss. Section 40A(3) is a legal fiction whereby an expenditure (in the present context being the cost of goods purchased for the purpose of business) stands to be disallowed to the extent the payment in its respect is made otherwise than by through the prescribed modes, i.e., account payee cheque (drawn on a bank) or

17 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa bank draft. Continuing further, even assuming application of the amendment to stock-in-trade, inasmuch as it can be regarded as a trading asset of the business, it only seeks to give a legal definition to ‘actual cost’, in consonance with the provision of section 40A(3). It cannot, however, bring the same sum to tax twice; firstly, while disallowing the expenditure, and then again while computing the income on the sale of the corresponding goods. To exemplify, goods are bought for Rs.1 lac (say), making payment of Rs.12,000 (say) in contravention of section 40A(3). The goods remain unsold as at the year-end (Yr. 1). A disallowance u/s. 40A(3) is attracted for that year. On a sale in the following year (Yr. 2), at Rs.1.10 lacs (say), it is the normal profit over cost, i.e., Rs.10,000, that only could be brought to tax. It is only where a view, as by the Hon’ble Guwahati High Court in Hardware Exchange (supra), which did not find approval by the Hon’ble Apex Court in Attar Singh Gurmukh Singh (supra), that the goods remaining in stock there is in effect no claim for expenditure for any disallowance u/s. 40A(3) to be effected, that the argument advanced assumes significance. This is as in this case section 43(1) would become applicable only on the sale of the relevant goods. The amendment is applicable w.e.f. AY 2018-19, so that it has no application for the current year, and the argument essentially sought to be canvassed with reference to the amendment to section 43(1), i.e., that section 40A(3) would apply in the year of sale and not in the year it is held as stock-in-trade, stands already answered by us with reference to the binding decisions by the Hon’ble Apex Court and the Hon’ble jurisdictional High Court.

18 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa u/s. 2(14), is of no moment. The same, in fact, considering the facts and circumstances of its’ purchase, i.e., by non-agriculturists, at a premium, with development rights, i.e., with view to develop real estate, being in the vicinity of the expanding city of Amritsar, and its’ ‘sale’ immediately after, and even as the ‘purchase’ is not complete, at an inordinate increase to another, for development, and who actually proceeds to develop it as a residential area, leaves one in no manner of any doubt that the acquisition of land was to turn it into account, and the entire exercise an adventure in the nature of trade, income from which is assessable u/s. 28. The assessee’s claim of it being a ‘capital asset’, acquired for investment, is without substance; the primary facts being not in dispute and the law in the matter well settled. The argument of section 40A(3) being not applicable as the purchase by itself does not constitute an expenditure, or that no expenditure has been claimed, is again, in view of the binding judicial precedents holding the purchase of goods held as stock-in-trade to be an expenditure within the meaning of section 37(1) r/w s. 40A(3), without merit. The alternate argument of section 40A(3) being not applicable as the expenditure has not been found ungenuine, again, stands examined with reference to the judicial precedents; the Board Circulars; and the principles of interpretation of a tax statute, to find it as without substance in law and, rather, in contradiction to the decision by the special bench of the tribunal rendered after considering a host of judicial decisions, including by the Hon’ble jurisdictional High Court, as well as the principles of interpretation of statutes as advocated by the Apex Court, also referred to by the Hon’ble jurisdictional High Court in Grewal Group of Inds. (supra), and indeed followed by this tribunal. The argument made with reference to section 43(1) is again untenable, having in fact no relevance for the current year. The argument of the assessment having not been framed in the hands of the AOP (by the AO) is neither

19 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa here nor there, i.e., in view of the first appellate authority, in whose order that by the AO merges, being himself of the view, as the AO, that acquisition of the subject land is by the purchasers individually and not as an AOP, a finding which stands endorsed by us upon examining closely the facts of the case, including the manner (and timing) of purchase and sale; an almost absence of any activity toward development of land; its’ sale as such within days of its’ purchase, yet not complete in that the full payment had not been made, etc. The clear intent of purchase (for commercial purposes) is though manifest from the ATS as well as the conduct. We may though hasten to add that a finding by us as to it being an activity attributable to AOP (consisting of the assessee and other co-owners) would make it incumbent on us to issue a direction u/s. 150 to bring the same to tax in the hands of the AOP, even as argued by Sh. Dass before us, inasmuch as income is liable to be assessed in the hands of the ‘right person’, with there being further no restrain on the power of the tribunal in this regard, clarified with reference to settled law. Reference in this regard with profit may also be made to the decision in Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC) wherein it stands explained by the Apex Court that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal, and to, if necessary, issue appropriate directions to the authority against whose decision the appeal is preferred in disposing the matter before it. We, accordingly, see no infirmity in law or on facts in the impugned disallowance. We may, before parting, clarify that we are acutely aware that the property under reference stands purchased by the assessee, along with others, who may have paid the entire consideration (in respect of their shares) by cheque/s drawn on a bank/bank draft. The property being purchased through a common agreement, at the same price, how could, one may ask, the provision be selectively applied only to those, as the assessee, who

20 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa have paid partly in cash. The provision, it may be noted, though an attempt to curb tax-evasion, does not require the AO to prove tax-evasion while applying or invoking the same. There is no explanation at any stage as to why the assessee, who also paid by cheque/s, made part payment in cash. Why, he could pay the entire consideration through the banking channel, including by issuing cheques on depositing cash in his bank account/s. That would thought raise a burden to prove satisfactorily the nature and source of the cash credit in his books u/s. 68 on the assessee. Sure, the assessee can even now be required to satisfactorily prove the source of the cash available with him, and which would, where so, have to be considered on its own merits, without necessarily linking it with the utilization of cash. The assessee though could plead for telescoping benefit where he uses the same cash attracting disallowance u/s. 40A(3). In other words, the law does not oblige the AO to enquire the source of the cash in case of a cash payment, i.e., where he seeks to invoke section 40A(3), which disallowance cannot be said to be found wanting or not properly applied on the ground of having satisfactorily explained the source of cash with the assessee. The AO, accordingly, has not made any enquiry in the matter. This, it may be noted, is in the same manner as the law does not oblige to AO to prove or show the source of the cash available with the assessee where he finds him to have not satisfactorily explained the nature and source thereof (CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC); Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC)). The provision is seemingly harsh, but that is not ground for not applying the same where it is otherwise applicable, being in fact in the nature of a statutory disallowance, so that it shall have effect where the conditions stated in the statute are met. It is the assessee who alone is responsible for the same for making the payments in cash, which he could have easily made by cheque/s, and which in fact he has to a substantial extent. That

21 ITA No. 407/Asr/2016 & CO 11/Asr/2017 (AY 2012-13) ITO v. Shiv Raj Singh Bawa there is no equity about tax is well-settled, even as the provision, as would apparent from the discussion in the matter and reference to the case law, is on the statute book for decades now. The considerations of equity, or even equality before law – the classification made being with a defined purpose/objective of serving as an effective deterrence to tax evasion, and even as the source of the cash has not been inquired into or is unverified, would not apply. The provision would thus apply, and has been rightly so by the Revenue in the present case. We decide accordingly.