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Facts
The assessee, engaged in the business of land purchase and sale, faced additions by the Assessing Officer (AO) for Assessment Year (A.Y.) 2015-16 under Section 40A(3) for cash payments exceeding ₹20,000 made for land purchases, registration, and business promotion. For A.Y. 2017-18, additions were made under Section 40A(ia) and Section 69A for cash payments and deposits during the demonetization period, claimed by the assessee as advances for land purchases. The Ld. CIT(A) upheld these additions in both years.
Held
For A.Y. 2015-16, the Tribunal held that cash payments were necessitated by business expediency and insistence from sellers in rural areas, and the identity of payees and genuineness of transactions were not disputed. Citing various judicial precedents, the Tribunal concluded that these payments fell within the exceptions of Rule 6DD and did not violate the intent of Section 40A(3). For A.Y. 2017-18, applying similar reasoning, the Tribunal directed the deletion of the Section 40A(ia) addition and also deleted the Section 69A addition, finding the cash deposits duly accounted for as advances against land purchases, with proven genuineness.
Key Issues
1. Whether cash payments exceeding the prescribed limits for business expenses and land purchases are disallowable under Section 40A(3) of the Income Tax Act, despite proven business expediency and genuineness of transactions, and if exceptions under Rule 6DD apply. 2. Whether cash payments and deposits made during the demonetization period, identified as advances for land purchases, are liable for additions under Section 40A(ia) and Section 69A of the Income Tax Act.
Sections Cited
40A(3), 143(1), 131, 143(3), 69A, 40A(ia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM
These are appeals preferred by the assessee against the orders of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”]even dated 24.07.2023 for A.Ys. 2015-16 & 2017- 18.
At the outset, we note that there is a delay of 53 days in filing these appeals by the assessee for which the assessee has filed a petitions for condonation of delay in which the assessee stated that the taxation matters could not be handled and attended due to certain unavoidable circumstances which were beyond the control of the assessee, which has resulted delay in filing the appeal of 53 days.
ITA No. 1217/KOL/2023 for A.Y. 2015-16
The only issue raised and pressed at the time of hearing is against the order of ld. CIT (A) upholding the assessment order, wherein the ld. AO has made the addition of ₹3,14,43,700/- by invoking the provisions of Section 40A(3) of the Act.
The facts in brief are that the assessee filed the return of income on 30.09.2015, declaring total income at ₹10,81,150/-, which was processed u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee along with questionaire. Pertinent to state that assessee was engaged in the business of purchase and sale of lands/ plots which were duly recorded in the books of accounts maintained and audited by the auditors of the assessee. The land purchased by the assessee was held as stock-in- trade for which the payments were made in cash as well as by cheques. The ld. AO perused from the tax audit report in form no.3CEB filed by the assessee that payments toward purchase of land/plots/expenses made/incurred which are covered u/s 40A(3) of the Act. Accordingly, the assessee was asked to produce the copies of deeds of conveyance which were executed during the relevant financial year and the assessee accordingly, furnished the same before the ld. Assessing Officer. The ld. AO on perusal of the deeds for purchase of land/plots noted that assessee has made payments in
In the appellate proceedings, the ld. CIT (A) simply confirmed the order of the ld. AO. The ld. CIT (A) in the appellate proceedings dismissed the appeal of the assessee by giving a cryptic finding in Para no.6.10 of the appellate order that there is no infirmity in the actions of the AO in disallowing the payments in excess of Rs. 20,000/- aggregating to ₹3,14,43,700/- under the provisions of Section 40A(3) of the Act.
After hearing the rival contentions and perusing the materials available on record, we find that assessee is engaged in the business of purchases and sale of land/plots. The assessee has purchase lands/plots during the instant financial year for which various sale deeds were executed. The payments were made partly in cash and partly by cheques, which were duly disclosed in the deeds of conveyance. The books of accounts of the assessee were also audited and assessee filed the audited accounts along with audited report before the ld. Assessing Officer. The ld. AO on the basis of the said audit report observed that tax auditor has reported 3 payments in the tax audit report which were not allowable in terms of Section 40A(3) of the Act; i.e. (i) cash component paid as per sale deeds as details given by the ld. AO in para no.2 which aggregating to ₹2,37,97,293/- (ii) the amount of payments made to various persons in connection with the purchase of land/plots and registration charges which aggregated to ₹73,48,109/- and (iii) the payments made on account of various expenses incurred such as business promotion and miscellaneous expenses aggregating to ₹ 2,98,298/-. We note that “18. We have heard the rival contentions and perused the material available on record. It would be relevant to refer to the provisions of section 40A(3) of the Act which reads as under:
It was submitted by the ld AR that in order to secure the deal, assessee had no other option but to make the payment in cash. Cash payments were made from the disclosed sources being the amount withdrawn from bank. It was for sheer insistence of the seller that the payments were made in cash. Had the assessee denied the cash payment looking to the provisions of sections 40A(3), the deal could not have been finalized. In such circumstances, in the business interest and to complete the deal, the assessee had chosen to make the payments in cash fortified through registered sale deed. The payment has been made out of the explained sources, through the registered document and as a disclosed transaction.
We find force in the contentions so raised by the ld AR. The transactions have been executed by the assessee within a span of one and half month and there are transactions where the payment has been made through cheque and there are transactions where the payment has been made through cash. The said contentions are supported by the fact that on the same day, there are cash and cheque payments as evidenced from the details of the transactions appearing at page 7 and 8 of the assessment order. It is therefore clear that the assessee was having sufficient bank balance and only at the insistence of the specific sellers, the assessee has withdrawn cash and made payment to them and wherever, the seller has insisted on cheque payments, the payment has been made by cheque. This makes out a case that the assessee has business expediency under which it has to make payment in cash and in
The issue raised in ground of appeal is against the confirmation of addition of ₹13,50,000/- and ₹23,65,276/- by the ld. CIT (A) as made by the ld. AO by disallowing u/s 40(a)(ia) of the Act & cash deposited respectively.
The facts in brief are that the assessee filed the return of income on 30.10.2017, declaring nil income. During the financial year, the assessee had deposited cash totaling to ₹66,53,000/- in his bank account with Federal Bank Ltd. during the period between 09.11.2016 to 31.12.2016. Accordingly, the case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS). The statutory notice u/s 143(2) of the Act was issued on 24.09.2018 and served upon the assessee but there was no compliance on the part of the assessee. Thereafter, the ld. AO issued summon u/s 131 of the Act on 02.08.2019 to the directors of the assessee company to substantiate the cash deposits during demonetization period. The Director Shri Chandrajeet Singh was appeared and his statement was recorded u/s 131 of the Act on 02.08.2019, wherein stated that ₹ 4,99,595/- and ₹5,13,960/- were returned by Shri Binder Singh & Shri Karick Sahoo in installments to whom advances were given for land purchases. These payments were received against advances already given to different parties. From the cash book it was found that between 05.04.2016 and 08.04.2016 cash payments were made of ₹7,00,000/- and ₹6,50,000/- to Shri Prosenjit Dasgupta & Shri Kartick Sahoo respectively. Thereafter, the show cause notice was given to the assessee as to why the cash deposits of ₹23,65,276/- should not be disallowed as the director has failed to substantiate the same.
The ld. CIT (A) simply confirmed the addition of ₹23,65,276/- made by the ld. AO u/s 69A of the Act on account of cash deposit, whereas disallowance of ₹13,50,000/- u/s 40(a)(ia) of the Act was confirmed on the ground that there was no infirmity in the action of the ld. AO of disallowing payment in excess of ₹20,000/- in cash.
So far as the payments of ₹13,50,000/- are concerned, we note that the same was made against the purchase of lands which were given to various sellers against the proposed purchase of plots/land. Since the issue in this appeal is similar to one as decided by us in for A.Y. 2015-16, accordingly, our decision would apply mutatis mutandis to this appeal of assessee. Consequently, the order of ld. CIT (A) is set aside on this issue and the ld. AO is directed to delete the addition.
So far as the second addition of ₹23,65,276 is concerned qua the cash deposits during the demonetization period, we find that the money was received from different persons to whom the payments were made on account of advances for land purchase/plots. We have examined the cash book of the assessee and find that assessee has duly shown these receipts against the advances already given against purchase of land/plots. Therefore, we are not in agreement with the conclusion drawn by the ld. CIT (A) on this issue and accordingly, we set aside the order of the ld. CIT (A) on this issue by directing the ld. AO to delete the addition. The appeal of the assessee is allowed.
Order pronounced in the open court on 24.02.2025.