M/S PYRAMID DEVELOPERS,NAGPUR vs. JOINT CIT RANGE 1, NAGPUR

PER G. MANJUNATHA, A.M.

These two appeals have been filed by the different assessees

challenging separate but identical orders dated 14th July 2015 and 15th

October 2015, passed by the learned Commissioner (Appeals)–I,

Nagpur, for the assessment year 2011–12.

identical set of facts and circumstances, therefore, as a matter of

convenience, these appeals were heard together and are being

disposed off by way of this consolidated order.

ITA no.291/Nag./2015 Assessee’s Appeal – A.Y. 2011–12

“1) That, on facts, law and circumstances of the present case, the learned CIT (A)-I, Nagpur erred in confirming the business disallowance of ` 43,00,000/- under section 40A(3) of the Income Tax Act, 1961, made by the learned DCIT, Circle-1, Nagpur, whereas the impugned payment (Advance) amounting to ` 43,00,000/- (Cash) has not been made by the appellant company during the year under consideration, the same corresponds to F.Y 2009-10 relevant to A.Y 2010-11, i.e preceding the year under appeal.

2) The learned CIT (A)-I, Nagpur has also erred in not Considering the evidences submitted before him, the merit and factual position of the case resulting in confirmation of arbitrary disallowance of the sum as mentioned in Ground No.- 1 Supra, the action and view taken by the learned CIT (A)-I, Nagpur as well as learned A.O is palpably bad and not tenable in law hence the Order passed by the learned A.O and confirmed by the learned CIT(A)-I, Nagpur, must be quashed.”

3 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

business of land development & construction and sale of flats. A

survey action under section 133A of the Income Tax Act, 1961 (for

short “the Act”) was carried out at the premises of the assessee on 19th January 2011. A survey action resulted into detection of

incriminating documents impounded as per Annex. B–1 and B–2. Shri

Gunwant Sudamrao Deopare, Director of M/s. Pyramid Arcades Pvt.

Ltd., in the course of his statement recorded on oath under section 131 of the Act on 19th January 2011, in response to Questions no.12 to

16, had admitted the additional unaccounted income of ` 2,09,37,500.

The additional unaccounted income was declared on account of on–

money received from sale of flats which has not been accounted for in

the books of account. The assessee has filed its return of income for assessment year 2011–12 on 29th September 2011, declaring total

income at ` 1,70,13,782, as against the declared income of `

2,09,37,500.

Officer noticed that although the assessee had admitted additional

income of ` 2,09,37,500, only declared an income of ` 1,70,13,782,

therefore, issued a show cause notice asking the assessee as to why

the sum of ` 39,23,718, should not be added to his total income. In

4 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

response to the show cause notice, the learned Authorised

Representative for the assessee has filed his submissions and

contended that in survey what has been agreed is the total receipt

during the previous year and whole of the receipts are not income. The

Assessing Officer, after considering the relevant submissions of the

assessee and also taking into account the declaration given during the

course of survey observed that the assessee has offered additional

income made on account of on–money towards sale of flats, therefore,

the plea of the assessee is not tenable. Accordingly, he made addition

of ` 39,23,718.

debited an amount of ` 2,58,86,000, to purchase account. In order to

ascertain the correctness of purchases, the Assessing Officer called

upon the assessee to file necessary evidences. In response, the

assessee has filed copy of sale deeds of land. The Assessing Officer, on

analysis of sale deeds, noticed that the assessee has made cash

payment exceeding ` 20,000 on various dates for purchase of land in

contravention of provisions of section 40A(3) of the Act. The total of

such payments comes to ` 43 lakh. Therefore, the Assessing Officer

issued show cause notice and asked the assessee as to why cash

payment of ` 43 lakh shall not be disallowed as per the provisions of

section 40A(3) of the Act. In response, the assessee has submitted

5 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

that there is a business exigencies in making cash payment and also

the identity and genuineness of transportation are beyond doubt. The

assessee dealt with the seller for the first time and the seller insisted

for cash payment, therefore, its case falls within the ambit of rule

6DD(j) and covered by Circular no.220 of 1997, issued by the CBDT,

where it was explained the business exigencies. The Assessing Officer

after considering the submissions of the assessee and also on analysis

of provisions of section 40A(3) of the Act and rule–6DD(j), held that as

per the provisions of section 40A(3) of the Act, if any payment is made

otherwise by way of account payee cheque / demand draft in excess of

` 20,000, then the whole amount shall be disallowed under section

40A(3) of the Act. The Assessing Officer further observed that though

the assessee claimed to have covered within the provisions of rule

6DD(j) and CBDT Circular no.220 of 1997, but fact remains that the

provisions of rule–6DD(j) has been omitted from statue and

accordingly the circular issued by CBDT explaining the provisions of rule 6DD(j) is also omitted from the statute w.e.f. 25th July 1995.

Accordingly, he made addition of ` 43 lakh under section 40A(3) of the

Act. The Assessing Officer also made addition of penalty expenses of `

1,19,230, rent of ` 1,98,450 under section 40(a)(ia) of the Act for

failure to deduct TDS under section 194I of the Act, and also

disallowed the amount of ` 2,57,530 towards advertisement expenses

6 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

for failure to deduct tax at source under section 194C of the Act.

Aggrieved by the assessment order passed by the Assessing Officer,

the assessee preferred appeal before the first appellate authority.

reiterated the submissions made before the Assessing Officer in

respect of all additions. The learned Commissioner (Appeals), for the

detailed reasons recorded in his order, dismissed the appeal filed by

the assessee and confirmed the additions made by the Assessing

Officer towards difference in income admitted during the course of

survey, disallowance of cash payment under section 40A(3) of the Act,

disallowance of penalty expenses, disallowance of rent and

disallowance of advertisement expenses. Aggrieved by the order

passed by the learned Commissioner (Appeals) the assessee is in

further appeal before us.

of cash payments of ` 43 lakh under section 40A(3) of the Act. The

learned Counsel for assessee submitted that the learned Commissioner

(Appeals) erred in not appreciating the fact in right perspective even

though the assessee has filed necessary evidences to prove necessity

of making cash payment for purchase of lands and also the business

exigencies. The learned Counsel for assessee further submitted that

7 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

the assessee has made cash payment on Sunday being holiday,

therefore, there is no option for the assessee to make payment by

account payee cheque or demand draft, as the said payment has been

made at the instance of buyer who insisted for cash payment. The

learned Counsel for assessee further submitted that there is a business

exigencies and the proviso to section 40A(3) of the Act gives exception

in the cases where the business exigencies required to make payment

otherwise by way of account payee cheque or demand draft and such

payments are are outside the purview of section 40A(3) of the Act.

The learned Counsel for assessee further submitted that the impugned

payments are made in the financial year different than the financial

year under appeal for which necessary evidences have been placed

before the learned Commissioner (Appeals). The learned

Commissioner (Appeals) ignored all these evidences and confirmed the

additions made by the Assessing Officer merely for the reason that no

evidences have been filed. Therefore, one more opportunity may be

given to the assessee to file necessary evidences before the Assessing

Officer and accordingly requested for restoring the issue to the file of

the Assessing Officer.

strongly supported the order of the learned Commissioner (Appeals).

The learned Departmental Representative further submitted that the

8 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

assessee although claimed to have made payment on Sunday failed to

file any evidence justifying its claim, therefore, the learned

Commissioner (Appeals) was right in rejecting the claim. The learned

Departmental Representative further submitted that the assessee has

taken different argument before the learned Commissioner (Appeals)

to contend that the impugned payments are made in the financial year

different from the financial year under appeal, but failed to file any

corroborative evidence, therefore th learned Commissioner (Appeals)

rightly rejected the claim of the assessee and his order should be

upheld.

available on record. It is undisputed fact that the assessee has made

cash payment in excess of ` 20,000 in contravention of provisions of

section 40A(3) of the Act. The assessee claimed that its case comes

within the purview of proviso to section 40A(3) of the Act, where it

was clarified that no difference shall be made and no payment shall be

deemed to be the profit and gain of business or profession under sub–

section (3) where a payment made to a person in a day otherwise than

by account payee cheque drawn on a bank or account payee bank

draft in such cases and under such circumstances as may prescribed,

having regard to the nature of banking facilities available,

consideration of business expediency and other relevant factors. The

9 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

assessee claimed that it has made cash payments, as the buyer are

dealing with us for the first time and are insisting for cash payment.

Therefore, there is a business expediency and accordingly cash

payment outside the purview of provisions of section 40A(3) of the

Act.

claims to have made the payment on the insistence of the buyer failed

to file any corroborative evidences to justify its stand, therefore, we

are of the considered view that the assessee failed to make out a case

of business expediency. Insofar as the payment made on Sunday is

concerned, although the assessee claims that the payments are made

on Sunday, failed to file any evidences, therefore, we are of the

considered view that the assessee failed to make out even a case of

non–availability of banking facility at the place of payment and on the

date of payment. Hence, we are of the considered view that the

Assessing Officer was right in making additions towards cash payment

under section 40A(3) of the Act. Coming back to the second argument

of the assessee, the learned Authorised Representative for the

assessee has taken an argument for the first time before the learned

Commissioner (Appeals) that the impugned payments are made in

financial year different from financial year under consideration,

therefore, no additions can be made under section 40A(3) of the Act,

10 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

in respect of payments made in a year different from the assessment

year under consideration, in this regard, he filed necessary details

including copy of sale deeds.

provisions of section 40A(3) of the Act, where the assessee incurs any

expenditure in respect of which a payment made to a person in a day

otherwise than by way of account payee cheque / demand draft in

excess of ` 20,000, no deduction shall be allowed in respect of such

expenses. In this case, the assessee claims that it has made payment

in previous financial year different from the year under consideration,

therefore, if at all any addition is required it can be made in a year in

which the payments are made. We do not find any merit in the

arguments advanced by the assessee for the reason that the year of

payment is irrelevant for the purpose of disallowance of section 40A(3)

of the Act and what is required is the year of claim of expenditure in

the books of account. In this case, the Assessing Officer has brought

out clearly the facts to the effect that the assessee has debited

expenditure towards purchase of land in the year under consideration

and, hence, any payment made in cash including payment made in

previous financial year are coming within the ambit of section 40A(3)

of the Act, when such payment has been treated as expenditure in

Profit & Loss account. Therefore, we are of the considered view that

11 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

the Assessing Officer was right in making addition towards cash

payment under section 40A(3) of the Act . The learned Commissioner

(Appeals) after considering the relevant submissions has rightly

confirmed the addition made by the Assessing Officer. Consequently,

we do not find any error in the order of the learned Commissioner

(Appeals) and, therefore, we are inclined to uphold the findings of the

learned Commissioner (Appeals) and dismissed the grounds raised by

the assessee.

ITA no.343/Nag./2015 Assessee’s Appeal – A.Y. 2011–12

no.1 is disallowance of cash payment of ` 53,50,000 under section

40A(3) of the Act.

preceding paragraph. The facts involved in this appeal are identical to

the facts which we have already considered in appeal being ITA

no.291/Nag./2015. The reasons given by us in preceding paragraph

shall mutatis mutandis apply to this appeal also and, therefore, for

similar reasons, we uphold the finding of the learned Commissioner

(Appeals) in confirming the disallowance of cash payment under

12 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

section 40A(3) of the Act and dismiss the ground of appeal by the

assessee.

disallowance of bad debt written–off of ` 10.50 lakh.

ground that the assessee has failed to file necessary evidences to

prove that the income pertaining to bad debt written–off in the year

under consideration has been considered in the previous financial year.

According to the Assessing Officer, the assessee has not fulfilled the

conditions prescribed under section 36(2) of the Act, therefore,

disallowed bad debt claim of ` 10.50 lakh. It is the contention of the

assessee that once bad debt is written–off in the books of account, it is

not necessary to prove that the debt has really become bad and What

is required is the debt must be written–off in its books of account and

the income has been offered in previous financial year. The assessee

further contended that even otherwise also, it is a business loss

incurred wholly and exclusively in connection of the business which

needs to be allowed under section 37 of the Act, once the assessee

proved that these are normal business advances given in the course of

business.

13 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

available on record. There is no dispute with regard to the fact that the

assessee has claimed bad debt written–off in books of account by

passing necessary journal entries by writing–off debts in the books of

account. Once the debts are written–off in the books of account, it is

sufficient compliance of provisions of section 36(1)(viia) of the Act and

the assessee is not required to prove that the debt become real bad

during the year under consideration. This legal position has been

reiterated by the Hon’ble Supreme Court in TRF Ltd. v/s CIT, 190

taxman 391 (SC), wherein the Hon’ble Supreme Court held that after 1st April 1989, it is not necessary for the assessee to establish that the

debt has become irrecoverable and it is only if the bad debt is written–

off as irrecoverable in the accounts of the assessee. In this case, there

is no doubt with regard to the fact that the assessee has written–off

the debt in the books of account. Therefore, we are of the considered

view that the Assessing Officer was erred in disallowing bad debt

under section 36(1)(viia) of the Act. The learned Commissioner

(Appeals) without appreciating the facts simply confirmed the addition

made by the Assessing Officer. Therefore, we reverse the finding of

the learned Commissioner (Appeals) on this issue and direct the

Assessing Officer to delete the addition made on account of bad and

doubtful debt.

14 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

of brokerage and commission expenses of ` 7,25,390.

The Assessing Officer disallowed brokerage expenses of ` 18.

7,25,390 on the ground that the brokerage and commission expenses

claimed by the assessee is excess and unreasonable when compared

to the gross receipt from the business. The Assessing Officer further

observed that the assessee has claimed brokerage and commission

expenses of ` 76,47,410, which is 7.9% of gross receipts. Accordingly,

he has allowed brokerage and commission to the extent of 5% of

gross receipts and balance amount has been disallowed. It is the

contention of the assessee that brokerage and commission expenses is

supported by valid evidences and also necessary TDS has been

deducted, therefore, there is no reason for the Assessing Officer to

disallow part of the brokerage expenses on the ground that it is

excessive and unreasonable without bringing on record any

comparable cases where the brokerage expenses is less than or equal

to 5%. The assessee further contended that in the absence of any

incorrectness in bills and vouchers in respect of a particular

expenditure, the books of account cannot be rejected only for

estimating a single expenditure.

15 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

record, we find that the Assessing Officer disallowed brokerage and

commission expenses by allowing ad–hoc 5% on gross receipts

without bringing on record any contrary finding in respect of books of

account and bills and vouchers maintained for such expenses. On the

other hand, the assessee has filed necessary evidences to prove that

the brokerage has been paid by cheque and necessary TDS has been

deducted on such brokerage payments. Therefore, we are of the

considered view that the Assessing Officer was erred in making ad–hoc

disallowance without bringing on record any contrary finding in respect

of books of account and bills and vouchers. The learned Commissioner

(Appeals) has accepted the fact that brokerage expenses is supported

by valid evidence, yet confirmed partial amount of ` 7,25,390 on the

ground that ` 7,25,290, pertains to advances reflected in the Balance

Sheet as liability which is pertaining to other financial years other than

the year under appeal which cannot be allowed as deduction for the

year under consideration. We also find that the finding of the fact

recorded has not been controverted by the assessee by filing any

evidence to prove that the said amount pertains to the assessment

year in question. Therefore, we are of the considered view that there is

no error in the finding of the learned Commissioner (Appeals), hence,

16 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

we are inclined to uphold the findings of the learned Commissioner

(Appeals) and reject the ground taken by the assessee.

of murum expenses, poal expenses, sand and boulder expenses of `

38,07,335.

incurred by rejecting the books of account on the ground that the

assessee has failed to file any documentary evidence in support of such expenses and also a single entry has been passed on 31st March

2011, without any description. The Assessing Officer further observed

that the said expenditure was claimed to have been incurred in cash.

The Assessing Officer further stated that the assessee could not

produce any bills and vouchers in support of expenditure. It is the

contention of the assessee that it has furnished necessary evidence in

support of murum expenses, poal expenses, sand and boulder

expenses, but the Assessing Officer ignored all the evidences filed

merely for the reason that the said evidences are Xerox copies of bills

and vouchers. The assessee further contended that it has filed

complete details of ledger account along with bills and vouchers in

support of expenses, therefore, there is no reason for the Assessing

17 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

Officer to make disallowance of expenditure merely for the reason that

one single entry has been passed in the books of account.

available on record. The assessee has filed a paper book containing

ledger account of expenditure along with bills and vouchers in support

of murum expenses, poal expenses, sand and boulder expenses. The

assessee claimed that though a single entry has been passed in the books of account as on 31st March 2011, the said expenditure is

supported by proper bills and vouchers, but the authorities below

ignored all evidences only on the reason that a single entry has been

passed at the end of the year. There is a divergent facts emerged from

the orders of the lower authorities and the arguments of the assessee.

The Assessing Officer claimed that the assessee has not filed any

evidence in support of expenditure. Though, the learned Commissioner

(Appeals) accepted the fact that the assessee has filed xerox copy of

vouchers, but went on to confirm the additions on the ground that

those vouchers were not furnished before the Assessing Officer during

the assessment proceedings. The assessee might not have furnished

evidences before the Assessing Officer, but when said evidences were

produced before the learned Commissioner (Appeals), the learned

Commissioner (Appeals) ought to have commented on the evidences

filed by the assessee himself or get them verified from the Assessing

18 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

Officer by calling for remand report before arriving at a conclusion that

the assessee has failed to give any justification for such expenditure.

Therefore, we are of the considered view that the issue needs to be

re–examined by the Assessing Officer in the light of the evidences by

the assessee, hence, we restore the issue to file of the Assessing

Officer and direct him to cause necessary verification of bills and

vouchers filed by the assessee afresh after giving a reasonable

opportunity of hearing to the assessee. Accordingly, the ground raised

by the assessee is allowed for statistical purposes.

purposes.

appeal in ITA no.343/Nag./2015, is partly allowed for statistical

purposes.

Order pronounced in the open Court on 26.10.2018

Sd/- Sd/- SANDEEP GOSAIN G. MANJUNATHA JUDICIAL MEMBER ACCOUNTANT MEMBER

NAGPUR, DATED: 26.10.2018

19 M/s. Pyramid Developers M/s. Pyramid Arcade Pvt. Ltd.

Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

(A.R./Sr. P.S./P.S.) ITAT, Nagpur