M/S SHAGUN DEVELOPERS,INDORE vs. ITO 4(3), INDORE

PER MANISH BORAD, AM.

The above captioned appeal is filed at the instance of assessee

pertaining to Assessment Year 2007-08 and is directed against the

orders of Ld. Commissioner of Income Tax (Appeals)-II (in short

‘Ld.CIT(A)’], Indore dated 20.06.2017 which is arising out of the

order u/s 148/143(3) of the Income Tax Act 1961(In short the ‘Act’)

dated 16.03.2015 framed by ITO-4(3), Indore.

Shagun Developers ITA No.588/Ind/2017 “1. That on the facts and in the circumstances of the case and law the Ld. CIT(A) erred in confirming addition of Rs.15,00,000/-made by the Ld.A.O under section 40A(3). 2. That on the facts and in the circumstances of the case and law the Ld. CIT(A) failed to appreciate the fact that the payment of Rs.15,00,000/- for purchase of agricultural land was made on account of acquisition of capital assets and in the balance sheet of the firm also it is shown and classified as investment in fixed assets, consequent thereto it is out of purview of section 40A(3). 3. That on the facts and in the circumstances of the case and law the Ld. CIT(A) failed to appreciate the fact that the appellant firm purchased agricultural land from the agriculturist which falls under specified circumstances under Rule 6DD, as such out of ambit of section u/s 40A(3).

assessee is partnership firm engaged in the business of builder and

developer. Return of income for the Assessment Year 2007-08 was

not filed. Notice u/s 148 of the Act was duly served upon the

assessee after duly recording the reasons. Assessment proceedings

u/s 143(3) r.w.s. 148 of the Act was completed after making a

disallowance u/s 40A(3) of the Act for the alleged cash payment of

Rs.15,00,000/- for purchase of property thereby violating the

provisions of Section 40A(3) of the Act for the alaleged incurring

expenditure in cash for a sum exceeding Rs.20,000/-.

Shagun Developers ITA No.588/Ind/2017 to succeed as Ld. CIT(A) confirmed the view taken by the Learned

Assessing Officer (In Short ‘Ld. A.O’) that the assessee has violated

the provisions of Section 40A(3) of the Act.

has been claimed in the Profit & Loss Account and therefore no

disallowance should have been made by Ld. A.O u/s 40A(3) of the

Act. Reliance was placed on the decision of Co-ordinate Bench,

Delhi in the case of ACIT V/s Jasmine Buildtech (P) Ltd ITA No.

1679/Del/2013 order dated 21.11.2017.

of lower authorities.

placed before us and carefully gone through the decision relied by

Ld. Counsel for the assessee. Sole grievance raised by the assessee

in Ground 1, 2 & 3 relates to disallowance of Rs.15,00,000/- made

by Ld. A.O u/s 40A(3) of the Act which has been confirmed by the

Ld. CIT(A).

Shagun Developers ITA No.588/Ind/2017 9. Provisions of Section 40A(3) of the Act are violated if the

assessee incur any expenditure in respect of which payment is

made in a sum exceeding Rs.20,000/- otherwise then by account

payee cheque drawn on a bank or by a account payee draft then in

such situation no deduction shall be allowed for such expenditure.

From perusal of the above provision 40A(3) of the Act we

understand that the first condition before making disallowance u/s

40A(3) is that an “expenditure has to be incurred” and thereafter it

is to be seen that whether such expenditure has been incurred in

cash.

the assessee firm was incorporated on 21.12.2006 and the year

under appeal is the first year of the assessee firm. On perusal of

the balance sheet placed at page-3 of the paper book, we find that

against the partners capital totaling to Rs.31,38,145/- there are

two items on the assets side namely fixed assets at Rs. 31,37,670/-

and cash in hand at Rs.475/-. No Profit & Loss Account has been

prepared for the financial year 2006-07 as there was no occasion to

prepare because there is no revenue and expenditure during the

Shagun Developers ITA No.588/Ind/2017 year. We also observe that the alleged cash payment is made for

purchasing the plot of land which has not been shown as stock in

hand rather it has been shown under the heads fixed assets.

case of ACIT V/s Jasmine Buildtech (P) Ltd (supra) adjudicating

similar issue has held that “where payments has not been claimed

as expenditure then no disallowance u/s 40A(3) of the Act shall

arise”.

and respectfully following the decision of the Co-ordinate Bench are

of the considered view that as the assessee has not incurred any

expenditure during the year in cash and the alleged cash payment

has been utilized for purchasing the fixed assets, both the lower

authorities erred in sustaining the disallowance u/s 40A(3) of the

Act at Rs.15,00,000/- We accordingly direct the Assessing Officer to

delete the addition of Rs.15,00,000/- and allow Ground No.1 & 2

raised by the assessee.

Shagun Developers ITA No.588/Ind/2017 13. As regards Ground No.3 by which assessee claimed that the

cash payment of Rs.15,00,000/- has been made to purchase an

agriculture land and the case of the assessee is covered under the

exceptions provided under rule 6DD of the I.T rules, we find no

reason to adjudicate this ground as we have already deleted the

disallowance of Rs.15,00,000/- made u/s 40A(3) of the Act and

therefore Ground No.3 is rendered to be infructuous and merely

academic in nature. In the result Ground No.3 of the assessee is

dismissed.

The order pronounced in the open Court on 19.12.2018.

Sd/- Sd/-

( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 19 December, 2018 /Dev

Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.

By Order, Asstt.Registrar, I.T.A.T., Indore