ITO, JAIPUR vs. SHYAM APPARELS PVT. LTD., JAIPUR

1.1 That, the Ld. CIT(A) has further erred in ignoring the binding order of Hon’ble Jurisdictional Bench of ITAT, Jaipur in the case of ACIT Vs. Girdharilal Bargoti ITA No. 757/JP/2012 which was binding upon the Ld. AO as well as Ld. CIT(A), particularly when the ITAT has after taking into consideration all the relevant and contradictory judgments rendered by various High Courts, has decided to follow the judgment of Hon’ble Allahabad High Court in the case of CIT Vs. Vector Shipping Services (P) Ltd. [357 ITR 642] (affirmed by Supreme Court) by following the Hon’ble Supreme Court’s direction rendered in CIT Vs. Vegetable Products Ltd. reported in 88 ITR 192 to the effect that when two views are possible on an issue, then the one favouring assessee has to be preferred. Thus, the action of

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Ld. CIT(A) deserves to be hold bad in law and the addition so sustained deserves to be deleted.

1.2 That, the Ld. CIT(A) has further erred in ignoring the fact that the assessee has not been treated as assessee in default u/s 201 of the I.T. Act, 1961 and therefore, as per second proviso to section 40(a)(ia), no disallowance there under could be made, particularly when the recipients banking companies had included these payments in their respective incomes, therefore, the disallowance so made deserves to be deleted.

1.3 That, the Ld. AO has further erred in not appreciating the fact that the second proviso to section 40(a)(ia) is merely clarificatory / declaratory in nature and therefore it is to be applied retrospectively specially in reference to the judgments of / Hon’ble Supreme Court in the case of CIT Vs. Vatika Township Ltd. reported in 267 ITR 466.

2.1 That, the Ld. CIT(A) further erred in not properly appreciating the provision of section 40A(3) of the Act which by its very nature is not absolute; and genuine / bona fide transactions do not call for disallowance under the said provision, particularly when it has neither been doubted by the Ld. AO nor the Ld. CIT(A). Thus the addition sustained by the Ld. CIT(A) deserves to be deleted.”

disposed off by this common order. There was a delay of 17 days in filing

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the assessee’s appeal, for which the assessee has filed an application

seeking condonation of delay.

After hearing both the sides on the issue of condonation of delay,

we condone the delay and heard the appeal on merits.

total income at Rs. NIL was filed by the assessee on 29/09/2012 (after

claiming set off of brought forwarded losses of Rs. 18,41,151/-). The

assessee is a Private Limited Company, engaged in the business of real

estate, selling plots of land for residential as well as farm house purposes

and also providing common facilities like club house, swimming pool, road

etc. The assessment was completed u/s 143(3) of the Income Tax Act,

1961 (in short the Act) at a total income of Rs. 2,65,62,990/- by making

certain additions / disallowances. The ld. CIT(A) partly allowed the appeal

of the assessee. Now the revenue and the assessee are in appeals before

the ITAT

the same stands dismissed as not pressed.

upholding the disallowance of Rs. 28,84,313/- made by the Assessing

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Officer U/s 40(a)(ia) of the Act. The ld. CIT(A) has sustained the addition

by holding as under:

(i) I have duly considered the submissions of the appellant, assessment order and the material placed on record. During the year under consideration, the appellant paid interest of Rs. 28,84,313/- to the NBFCs without deduction of tax at source as per following details: Name of the Party Amount TDS Deducted Kotak Mahindra Prime Ltd. 1,98,282/- Nil Tata Capital Limited 4,33,221/- Nil Religares Finvest Ltd. 22,52,810/- Nil TOTAL 28,84,313/-

The AO invoked the provisions of section 40a (ia) of the Act and made addition of Rs. 28,84,313/- to the income of the appellant company.

(ii) During appellate proceedings, it was the contention of the appellant that the entire interest was paid during the year and no interest was payable at the year end and thus provisions of section 40a(ia) are not applicable and it placed reliance on the case of Vector Shipping Services P Ltd (2013) 357 ITR 642 (All), Merilyn Shipping & Transport Vs ACIT 136 ITD 23.

(iii) The AR also relied on the decision of Hon’ble ITAT, Jaipur in the case of Girdhari Lai Bargoti dated 10.04.2015. I have gone through the above decision of Hon’ble ITAT and observed that the Hon’ble ITAT has not decided the issue on merits and observed that different courts have different views on the issue, therefore, in view of decision of Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., the case was decided in favour of the appellant. It is to be noted that in a recent decision dated 29.04.2015 which is subsequent to the order of Hon’ble ITAT, Jaipur in the case of Girdhari Lai Bargoti, the Hon’ble P & H High court in the case of P.M.S. Diesels Vs CIT (2015) 93 CCH 110 PHHC / (2015) 277 CTR 0491 (P&H) after considering the cases of CIT vs. M/s

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Vector Shipping Services (P) Ltd., (2013) 262 CTR (All) 545, V.M. Salgaocar & Bros. (P) Ltd., etc. vs. CIT, etc. (2000) 243 ITR 383 (SC), ACIT vs. Merilyn Shipping & Transporters 136 ITD 23 (SB) (Vishakhapatnam), Tube Investments of India Ltd. and another vs. ACIT, (TDS) and others, (2010) 325 ITR 610 (Mad)held that:

“The provisions of section 40(a) (ia) of the Income Tax Act 1961, are applicable not only to the amount which is shown as payable on the date of balance sheet but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of revenue and against the assessee.’’ (iv) The same view was taken by the Hon’ble Calcutta High Court in the case of CIT vs. Crescent Export Syndicate, (2013) 216 Taxman 258 (Calcutta) wherein it was held that: “It is noticeable that Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term 'payable' legislature included the entire accrued liability. If assessee was following mercantile system of accounting, then the moment amount was credited to the account of payee on accrual of liability, TDS was required to be made but if assessee was following cash system of accounting, then on making payment TDS was to be made as the liability was discharged by making payment. The TDS provisions are applicable both in the situation of actual payment as well of the credit of the amount. It becomes very clear from the fact that the phrase, 'on which tax is deductible at source under Chapter XVIIB', was not there in the Bill but incorporated in the Act. This was not without any purpose.’’

(v) The Hon'ble High Court of Himachal Pradesh in the case of Palam Gas Service Vs CIT, (2014) 89 CCH 0123 HPHC / (2015) 370 ITR 0740 (HP) held that:

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“Lastly, insofar as the plea taken by the appellant that no disallowance can be made under Section 40 (a) (ia) as the freight charges had been paid and were not payable. Suffice it to state that the provisions of Section 40 (a) (ia) of the Act were applicable not only to the amount which were shown as outstanding on the closing of the relevant previous year, but to the entire expenditure which became liable for payment at any point of time during the year under consideration and which was also paid before the closing of the year as rightly held by the authorities below." The Hon’ble ITAT, Lucknow Bench in the case of DCIT Vs Ama Medical & (vi) Diagnostic Centre (2014) 40 CCH 0581 Lucknow Trib / (2014) 63 SOT 0136 (Lucknow) ((URO)) held that:

“ITAT are of the view that the Hon'ble Jurisdictional High Court has not examined the impugned issue i.e. whether disallowance u/s 40(a) (ia) of the Act could be made only in respect of such amount which are payable as on 31st March of every year under consideration whereas the Hon'ble Gujarat High Court and Hon'ble Calcutta High Court have dealt with the issue in detail in the light of various judicial pronouncement and have categorically held that section 40(a) (ia) would cover not only to the amount which are payable as on 31st March of a particular year but also which are payable at any time during the year. (Para7.5)

ITAT considered opinion that the view expressed or the ratio laid down by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports has been overruled. Therefore, it cannot be said that since the Hon'ble Jurisdictional High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports, the same has to be followed by the Tribunal situated within the jurisdiction of Hon'ble Allahabad High Court. The Hon'ble Jurisdictional High Court has not examined the impugned issue at all and simple passing reference was made with regard to the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports and the relief was

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granted to the Assessee on merit. Therefore, the ratio laid down in the case of Merilyn Shipping &Transports, which has been suspended by Hon'ble Andhra Pradesh High Court, has not been approved by the Hon'ble Allahabad High Court. Therefore, subordinate judicial forum are not required to follow the ratio order laid down in the case of Merilyn Shipping & Transports (supra), as it was overruled by the other High Court. (Para8)" It was another contention of the appellant that 2nd proviso to section (vii) 40(a) (ia) though inserted on the statute w.e.f. 01.04.2013, the same being curative is to be treated as applicable from 01.04.2005. The above contention deserves to be rejected because if the intention of the legislature was to make the said proviso applicable from 01.04.2005, it could said so while inserting the second proviso. Further, even if it is presumed for the time being that it was retrospective in nature, still no benefit can be given to the appellant as it failed to produce the required certificate from the chartered accountant as stipulated in 1st proviso to section 201 of the Act. Here it may be mentioned that as per the proviso to section 201 inserted w.e.f. 01.07.2012, the appellant would not be treated as assessee in default if the concerned NBFC

(i) has furnished its return of income u/s 139;

(ii) has taken into account such sums for computing income in such return of income; and

(iii) has paid the tax due on the income declared by it in such return of income and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed (Form N. 26A)

(viii) It is pertinent to mention that the appellant has not filed any certificate from the concerned NBFCs in Form No. 26A duly issued by a chartered

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accountant and thus, no benefit could be allowed to the appellant on the basis of the above section. It may be mentioned that vide circular no. 10 of 2013 dated 16.12.2013, it has been stated by the CBDT that:

“4. After careful examination of the issue, the Board is of the considered view that the provision of section 40(a)(ia) of the Act would cover not only the amounts which are payable as on 31st March of a previous year but also amounts which are payable at any time during the year. The statutory provisions are amply clear and in the context of section 40(a)(ia) of the Act the term "payable" would include "amounts which are paid during the previous year. (ix) In view of the above discussion and the judicial pronouncements, it is held that:

(i) the provisions of section 40(a) (ia) are applicable whether the payments were paid during the year or payable at the year end and

(ii) the AO was justified in making addition of Rs. 28,84,313/- u/s 40a(ia) of the Act and thus the same is sustained.”

assessee has submitted as under:

It is submitted that during the year under consideration assessee has debited a sum of Rs. 28,84,313/- under the head interest paid to various NBFCs and TDS was not made on such payments under the bonafide belief that payments made to NBFCs was not liable for any TDS being part of the banking companies. Further total amount paid to Religare Finvest Ltd. at Rs. 22,52,810/- includes a sum of Rs. 2,10,765/- as pre EMI amount thus the same could not be disallowed being paid towards the principal and a deduction of the same should have been made out of total disallowance

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made. This is also verifiable from the copy of letter from Religare Finvest Ltd. (APB 22). With regard to the balance disallowance, it is submitted that in first proviso to subsection 1 of section 201 assessee has never been treated as “assessee in default” and therefore in view of the second proviso to section 40(a)(ia) inserted w.e.f. 01.04.2013 no disallowance could be made in the hands of assessee. Though the amendment in section 40(a)(ia) inserting the second proviso has taken place w.e.f. 01.04.2013 i.e. from AY 2013-14 however, it is a beneficial provision and insertion of the same in the statute clearly shows the intention of the legislature to give relief in the case where the payee has paid due taxes, further disallowance in the hands of the payer caused to the serious hardship. The intention behind the insertion of provision of section 40(a)(ia) was to brought those persons in the tax net in whose case no TDS is deducted though they are enjoying the taxable income, thus where the payee has already paid the due taxes on the payments on which no TDS is deducted by payer, there remained no reason to make disallowance in the hands of the payer. The Hon’ble Apex court in the case of CIT (Central-1) Delhi Vs. Vatika Township Pvt. Ltd. reported in 367 ITR 466 (relevant para 30-37) (APB 161-192) has held that the beneficial amendment which effect the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given retrospective effect. Recently, the Hon’ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. reported in 377 ITR 635 (APB 193-197) has held that the Second proviso to section 40(a)(ia) is declaratory and curative and it has retrospective effect from 01.04.2005.

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Further the Hon’ble Agra bench of ITAT in the case of Rajeev Kumar Agarwal Vs. addl. CIT reported in 149 ITD 363 held as under [APB 198- 205]: Second proviso – Assessment year 2006-07 – Whether insertion of second proviso to section 40(a)(ia) with effect from 01.04.2013 is declaratory and curative in nature and it has retrospective effect from 01.04.2005, being date from which sub-clause (ia) of section 40(a) was inserted by Finance (No. 2) Act, 2004 – Held, yes. Since, the second proviso inserted in section 40(a)(ia) w.e.f. 01.04.2013 is curative and remedial in nature and further that it goes with the spirit of the law that no double tax should be charged on same income and hence the same is applicable retrospectively i.e. w.e.f. Asstt. Year 2005-06 when the sub section (ia) was inserted in section 40(a) of the Income tax Act, 1961. Such view has been upheld by the Hon`ble Supreme Court in the cases of Goodyear India Ltd. v/s State of Haryana and Anr. (188 ITR 402), Allied Motors Pvt. Ltd. v/s CIT (224 ITR 677) and R.B. Jodhamla Kuthiala v/s CIT (82 ITR 570). Recently, Hon’ble ITAT, Jaipur Bench (SMC) in the case of Bhupendra Pal Singh [ITA No. 757/JP/16] also concurred with this view (APB 206-209). The Ld. CIT(A) disregarded this plea of the assessee, on the ground that, no certificate as prescribed under proviso to section 201(1) r.w. rule 31ACB, certifying that the taxes in respect of interest income were duly paid by the NBFCs was filed by the assessee. In support of claim, assessee is now furnishing certificates from CA (APB 15-22) in accordance with proviso to section 201(1) r.w. rule 31ACB, certifying that the taxes in respect of interest income were duly paid by the respective NBFCs, (with separate application, praying for admitting the same as additional evidence).

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Since the assessee has furnished proof that the recipients have paid tax on the interest paid by the assessee as additional evidence, it is humbly prayed that the disallowance to such extent deserves to be deleted.

authorities below.

observation that no certificate as prescribed under proviso to Section

201(1) r.w. Rule 31ACB of the Rules certifying that the taxes in respect of

interest income were duly paid by NBFCs was filed. The record shows that

the assessee has submitted certificate from a Chartered Accountant

namely M/s Dua Manral & Associates placed at page No. 20 to 21 of the

paper book, as per the proviso to Section 201(1) r.w. Rule 31ACB of the

Rules certifying that the taxes in respect of interest income of Rs.

20,42,045 were duly paid by NBFCs Religare Finvest Ltd. The Hon’ble

Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd.

has held as under:

Section 40(a)(ia) of the Income-tax Act, 1961, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The insertion of the second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from April 1, 2005, being the date from which sub-clause (ia) of section 40(a)

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was inserted by the Finance (No. 2) Act, 2004. The first proviso to section 201(1) of the Act has been inserted to benefit the assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident, such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under section 139. What is common to both provisos to sections 40(a)(ia) and 201(1) of the Act is that as long as the payee or resident has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the assessee would not be treated as a person in default.

Therefore, considering these facts, we are of the view that the ld. CIT(A)

was not justified in sustaining the addition in respect of interest amount

paid to Religare Finvest Ltd.. Further the payment of Rs. 22,52,810/-

disallowed by the Assessing Officer paid to Religare Finvest Ltd. also

includes a sum of Rs. 2,10,765/- which was towards pre EMI payment

which is the payment towards principal amount, therefore, no tax

deduction was required. As far as the other payments of interest without

making any TDS are concerned, we hold that the assessee had not

submitted certificate as required by law, therefore we sustain the addition

to that extent. Accordingly grounds No. 1 of the assessee’s appeal is

partly allowed.

the assessee’s appeal are against deleting the disallowance of Rs.

1,82,40,000/- and sustaining the addition of Rs. 53,00,982/- respectively

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out of addition made by the A.O. U/s 40A(3) of the Act. The ld. CIT(A)

has given part relief to the assessee by holding as under:

(i) I have duly considered the submissions of the appellant, assessment order and the material placed on record. The facts of the case are that the appellant company is engaged in the business of real estate mainly dealing in purchase of land and selling the plots and farm houses of small sizes, after developing the land viz common facilities and roads etc. During the assessment proceedings, it was observed by the AO that the appellant made cash payments exceeding Rs. 20,000/- in violation of provisions of section 40A(3) of the Act as per the following details:

Name of party Total amount paid Registry/ Date of payment as Date of payment per registry as per cash book agreement 23,13,324/- 15.09.2011 15.09.2011 Ramesh Chand No mention of specific Agrawal (Thursday) date (Thursday) Hira Lal Khetan 9,62,658/- -do- -do- -do- Hira Lal Khetan 4,00,000/- -do- -do- -do- Smt. Shanta Devi 11,75,000/- -do- -do- -do- Shiv Pal Singh 4,50,000/- 20.07.2011 20.07.2009 20.07.2011 (Wednesday) (Wednesday) (Wednesday) (through the date mentioned is 20.07.2011 but that appears to be typographical error) Total 53,00,982/- Ashok Agarwal 43,60,000/- 29.03.2012 25.03.212 (Sunday) 25.03.212 (POA holder of (Thursday) (Sunday) Anshita) -do- 48,40,000/- -do- -do- -do- -do- 44,50,000/- -do- -do- -do- -do- 45 90 000/- -do- -do- -do- Total 1,82,40,000/-

(ii) It was further noted by the AO that some of the payments to the concerned parties were also paid through cheques and thus there was no business exigencies or compulsions for making the payment of Rs. 2,35,40,982/- in cash and the AO disallowed a sum of Rs. 2,35,40,982/-

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u/s 40A(3) of the Act. During appellate proceedings, it was submitted by the appellant that out of cash payments of Rs. 2,35,40,982/-, a sum of Rs. 1,82,40,000/- was paid to Shri Ashok Agarwal, Power of Attorney(POA) holder of his daughter Ms Ankita Agarwal and the remaining amount was paid to tour parties. The details of cash payments of Rs. 2,35,40,982/- is as under:

Name of the party Address Amount Paid Shri Ashok Agarwal POA 25, Dayal Nagar , Gopal; Pura By-Pass, Rs. 1,82,40,000/- holder of Ms. Anshita Agarwal Jaipur. Smt. Shanta Devi 2/189,Vidhyadhar Nagar, Jaipur. Rs. 11,75,000/- B-22 -A, Mandir Margh Subhash Nagar, Rs. 23,13,324/- Jaipur Shri Ramesh Chandra Agarwal Shri Heera Lai Khetan C-69, Ambabari, Jaipur. Rs 13,62,658/- Shri Shiv Pal Singh Rs. 4,50,000/- Total Rs. 2,35,40,982/-

(iii) During appellate proceedings, it was the contention of the appellant that all the cash payments made by it were duly reflected in its books of accounts and were out of the cash balance available in the cash book. All the cash payments were made in urgency and out of abnormal unavoidable circumstances. The sellers to whom the cash payments were made are all genuine individuals and their identity is established. Even at the time of registry of the sale agreements, the photo ID and address proof of the buyer as well as of the seller is submitted with the Registrar, hence the identity of the seller cannot be challenged. It was the contention of the appellant that the object of the provisions of section 40A(3) is to check evasion of taxes so that the payment is made from disclosed sources only or in other words, the object of enacting section 40A(3) is to ensure that payments in respect of which deductions are claimed by the taxpayers are genuinely made and accommodation payments are not allowed as deduction. In the assessment order, the AO has never questioned about the genuineness of the source of cash

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payment nor the authenticity of the transaction. The purpose of the 40A(3) is not to penalize the appellant for making cash payments of an amount exceeding the stipulated limit. The purpose is only preventive and to check evasion of tax and flow of unaccounted money or to check the transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transaction.

(iv) It was the contention of the appellant that in the case of Shri Ashok Agarwal, POA holder of his daughter Ms. Anshita Agarwal, the transaction for purchase of land was entered during the financial year 2009-10 against which the advance payment was made during that year itself and the balance payment was to be made within a year's time, but in the mean time certain issues regarding the papers / title of the land came in to knowledge of the appellant company which were required to be sorted out by the owner, to the satisfaction of the buyer i.e. the appellant company, therefore payment could be made against the said deal in next two and half year. In spite of the repetitive reminders from the seller the appellant company does not made the balance payment because the owner had not produced the desired documents. Shri Ashok Agarwal send a notice on 01/03/2012 mentioning therein that in case the balance payment is not made by the appellant company on or before 25/03/2012, they will cancel the deal and forfeit the advance amount paid to them. On receiving the said notice, the appellant company approached the owner of the land to resolve the matter relating the clear title / papers of the said land and after having 3-4 meetings the mutual understanding was made between the owner and the appellant company with the condition that as soon the owner satisfy the appellant company regarding the clear papers and title, the payment will be released immediately by the buyer. Finally on 22nd March 2012, the owner of the land produced the evidence of clear possession of land

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which were got verified by the appellant company through his lawyer, to comply with the condition of making payment immediately on getting satisfied, the payment of Rs. 1,82,40,000/- was released on 25th March 2012 by the appellant and being Sunday, that day was bank holiday and the appellant was left with no option but to make cash payment. It was further submitted that the payment pattern to Shri Ashok Agarwal, POA holder of his daughter Ms. Anshita Agarwal reveal that initial payment of advance money has been paid through account payee cheques only and also the full and final payment on the date of registry was also paid by account payee cheques only . Thus the intention of the appellant was never to make the payment in cash but the circumstances arising out of unavoidable business scenario made situation like that the appellant company was left with no option but to make the cash payment.

Regarding the balance cash payment of Rs. 53,00,982 /- to other remaining sellers, it was submitted that the cash payments to them were also made out of circumstances arising out of unavoidable business scenario.

(v) It was submitted that the terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the appellant to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee.

(vi) It was further submitted that the Rule 6DD of the Income Tax Rules, 1962, provides that an assessee can be exempt from payment by a crossed cheques or bank draft in the circumstances specified in the rule. The CBDT has issued certain guidelines giving certain circumstances and

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those circumstances are illustrative and not exhaustive and the underlying idea of the circular is that if the identity of the payee is known, it would be possible for the ITO to cross check whether the transaction had in fact taken place. In the present case of the appellant company, the AO never try to cross examine the transaction done by the company, otherwise the things would have got clear up to his satisfaction that the transaction had in fact taken place. The mitigating circumstances referred to in the second proviso to section 40A (3) are detailed in rule 6DD of the Income-Tax Rules, 1962. The object of that rule 6DD is to relax the rigours of section 40A(3) in genuine and bonafide cases to avoid hardship and harassment.

(vii) It was further submitted that it is clear that under rule 6DD, it is open to the appellant to explain to the assessing authority the circumstances which compelled payment in cash of an amount exceeding the stipulated limit. The genuineness of the transaction can also be explained. Such expenditure shall not be disallowed under section 40A(3). In the matter of the appellant, the source of payment in cash as well as the identity of the payee is clearly proved and in the entire assessment order, the assessing officer never questioned about the genuineness of transaction and identity of the payee, thus the disallowance of Rs. 2,35,40,982 /- made u/s 40A(3) of the I.T. Act, 1961 is not lawful and deserves to be deleted .

(viii) In support of its claim, the appellant relied upon a number of judicial pronouncements including the recent decisions of Gurdas Garg Vs. CIT (A) ITA No. 413 Of 2014 Punjab and Haryana High Court and Honey Enterprises Vs. CIT(A) , ITA 377/2004 Delhi High Court.

(ix) In a nutshell, it was the contention of the appellant that the genuine cash payments exceeding the prescribed limit cannot be disallowed and

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in the instant case under consideration, the genuineness of the transactions under consideration were never disputed by the AO and thus disallowance u/s 40A(3) made by the AO deserves to be deleted.

(x) It would be relevant to reproduce the provisions of section 40A(3) of the Act as under:

(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 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 subsection (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 cheque 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 :

(xa) The relevant extract of Rule 6DD is reproduced as under:

6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where 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 in the cases and circumstances specified hereunder, namely:— (xi) It is evident from the above that the Rule 6DD has specified the circumstances in which payments exceeding the prescribed limits can be made in cash. In is noted from the letter of Shri Ashok Agarwal dated

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01.03.2012 placed on record that in the said letter, Shri Ashok Agarwal stated that if the balance payments were not made on or before 25.03.2012, the deal would be cancelled and the advance amount would be forfeited. It was submitted by the appellant that the seller could satisfy the appellant about the clear possession of the property under consideration only on 22.03.2012 and finally the payments were made in cash on 25.03.2012 i.e. on Sunday as the bank was closed on Sundays. It was further submitted that the genuineness of the transaction was not denied by the AO and the cash payments are duly recorded in its books of accounts. It is noted from the above discussion that the cash payments of Rs. 1,82,40,000/- made to Shri Ashok Agarwal is covered under clause (j) of Rule 6DD according to which where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike, no disallowance is to be made u/s 40A(3) of the Act. Further, the genuineness of the cash payments were not doubted by the AO and even the sales deeds were executed before the Sub Registrar in which the date of payments were also mentioned, it may be mentioned that the stamp papers for execution of Sale deeds were purchased on 22.03.2012 and the sale deeds were executed before the Sub-Registrar on 30.03.2012.

(xia) It may be mentioned that in the case of Hi Tech Land Developers & Builders Vs Addl. CIT [2015] 59 taxmann.com 67 (Chandigarh Tribunal), it was held that:

"9. We have considered the rival submissions carefully and find force in the submissions of learned counsel for the assessee. It is not doubted that in the agreement to sell it was agreed that sale deed would be executed, i.e., registered on or before March 28, 2010 and the assessee was required to make full payment before that date. Later on, it was found that March 28, 2010 fell on Sunday, naturally nobody would like to leave the land deal, therefore, the assessee paid cash on that date.

ITA 497 & 549/JP/2016_ 21 ITO Vs. Shyam Apparels

We are not impressed by the contention that the assessee should have made the payment before that date. When a particular agreement provides for a payment on or before a particular date, it is not necessary that just to meet the technical requirement of income- tax provisions, payment should be made earlier. Payment has been mode on March 28, 2010 which foils on a Sunday and is squarely covered by the exception provided under rule 6DD(j) which has been extracted by the Assessing Officer above. Further, the sale deed was also executed on March 30, 2010. Therefore, in our opinion, the cash payment would covered by the exception under rule 6DD(j) and accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete this addition.” (xii) In view of the above discussion, it is held that the payments to Shri Ashok Agarwal are covered by the provisions of Rule 6DD(j) of the IT Rules as the appellant was required to make payment in cash on Sunday and thus the AO was not justified in making disallowance of Rs. 1,82,40,000/- u/s 40A(3) of the Act, hence, the same is deleted. (xiii) The balance cash payments of Rs. 53,00,982/- was made on (Thursday) in violation of provisions of section 40A(3) to the remaining four sellers as per following details: Name of the Seller Amount in Whether Date and time of sale Rs. agreement to sell deed presentation registered before sub registrar Shri Heera Lai Khetan 4,00,000/- Yes 15.09.2011 at 5.30PM 11,75,000/- Yes 15.09.2011 at 5.23 PM Smt. Shanta Devi Mittal Shri Ramesh 23,13,324/- No Chandra Agarwal Shri Heera Lai Khetan 9,62,658/- No Shiv Pal Singh 4,50,000/- 20.07.2001 Copy of sale deed not (Wednesday furnished Total 53,00,982/-

ITA 497 & 549/JP/2016_ 22 ITO Vs. Shyam Apparels

(xiv) It was the contention of the appellant that these payments were made in cash out of circumstances arising out of unavoidable business scenario. The appellant company had made the arrangement with these sellers to purchase the land after negotiating the price at the lowest possible rate and ensured to make the payment at the earliest possible date, but due to non availability of funds in the bank, it kept on prolonging the payment and was under constant pressure of sellers to make the payment immediately, otherwise they will cancel the deal or revise the selling price. On 15/09/2011, the appellant company received the cash payment of Rs. 2.09 Crore on account of sale of land to M/s Ocean Seven Buildtech Pvt. Ltd. and on the very same day, it made the payment of Rs. 48,50,982/- to the above mentioned sellers and got the sale deeds registered in the case of Shri Heera Lai Khetan and Smt. Shanta Devi Mittal for Rs. 4,00,000/- and Rs. 11,75,000/- respectively. It was the contention of the appellant that the payments were made in cash out of business expediencies to safe guard its interest. In support of its contentions, the appellant relied on a number of judicial pronouncements i.e. Attar Singh Gurmukh Singh Vs. ITO, 1991 191ITR 667, 673 (SC) , followed in CIT Vs. Raja Pal Automobiles , (202) 320 ITR 185 (All), in which it was held that the terms of section 40A(3) are not absolute, consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the appellant to furnish to the satisfaction of the assessing officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is pertinent to mention here that the appellant has not stated anything in respect of cash payment of Rs. 4.50 Lac to Shiv pal Singh for purchase of land, which was disallowed by the AO u/s 40A(3) of the Act.

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(xv) It is noted from the registered sale deed executed by the appellant in favour of M/s Ocean Seven Buildtech P Ltd on that the said sale deed was presented before the Sub Registrar at 6.20 PM on 15.09.2011. It is further noted that the total consideration for the said sale was Rs. 2.44 Crore and not Rs. 2.09 Crore as stated by the appellant and the said sale deed does not reflect that the payment of Rs. 2.09 Crore was paid in cash on 15.09.2011 itself. In the sale deed, it is stated that the appellant has received full consideration of Rs. 2.44 Crore and nothing is left to be paid by the buyer. Thus, it is held that the appellant was not able to establish that it received a sum of Rs. 2.09 Crore in cash from M/s Ocean Seven Buildtech P Ltd on 15.09.2011 itself. Hence, the contention of the appellant that it made payment in cash amounting to Rs. 48,50,982/- for purchase of land on 15.09.2011 out of the sale proceeds of land received in cash from M/s Ocean Seven Buildtech P Ltd on 15.09.2011 cannot be believed and rejected in the absence of any documentary evidence to support its contention and in view of the above discussion. The appellant has not stated anything about the cash payment of Rs. 4.50 Lac made to Shri Shiv Pal Singh on 20.07.2001 (Wednesday), for purchase of land. It is, therefore, held that the appellant has no reason to explain why cash payment of Rs. 4.5 Lac was paid for purchase of land in violation of provision of section 40A(3) of the Act and thus the said payment is not covered by Rule 6DD.

(xvi) The appellant has drawn my attention to the language of section 40A (3) which reads as “ Provided no disallowances shall be made and no payment shall be deemed to be the profit and gain of business or profession under section (3) and this sub section where a payment or aggregate of payment made to a person in a day, otherwise than by a account payee cheque drawn on a bank or account payee bank draft , exceeds Rs. 20,000/-, in such case and under such circumstances as may

ITA 497 & 549/JP/2016_ 24 ITO Vs. Shyam Apparels

be prescribed , having regard to the nature and extent of banking facilities available, considerations of business expediencies and other relevant factors.

(xvii) It may be mentioned here that Rule 6DD provides relief to the assessee from the rigour of section 40A(3) in the circumstances prescribed therein and thus Rule 6DD has taken into account, the circumstances having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.

(xvii) Hence, in view of the above discussion, out of cash payments of Rs. 2,35,40,982/- disallowed by the AO u/s 40A(3), a sum of Rs. 53,00,982/- (48,50,982 + 4,50,000) is hereby sustained and the appellant company gets a relief of Rs. 1,82,40,000/- thereof.

ITAT. The ld. Sr. DR has relied on the order of the Assessing Officer. On

the other hand, the ld AR of the assessee has submitted the brief facts

and submissions as under:

Brief facts pertaining to these grounds of appeal are that during the year under consideration, assessee company made certain payments in cash towards the purchase of land being stock in trade, amounting to Rs. 2,35,40,982/- to following parties :-

Name of the Seller Amount paid in cash Shri Heera Lal Khetan 13,62,658 Smt. Shanta Devi Mittal 11,75,000 Shri Ramesh Chandra Agarwal 23,13,324 Shri Shiv Pal Singh 450,0000 Shri Ashok Agarwal 1,82,40,000 TOTAL 2,35,40,982

ITA 497 & 549/JP/2016_ 25 ITO Vs. Shyam Apparels

During the course of assessment proceedings, it was submitted that, the said payments were made either under business exigencies, or on holidays or due to pressure and threats by the concerned parties to cancel the deal and forfeiture of advances paid. The assessee had also submitted before the ld. AO, copy of a letter/ notice received from one such seller (APB 29-30).

With regards to the above payments alleged to have made in contravention to provisions of section 40A(3), it was explained that, payment to Shri Ashok Agarwal, who was POA holder of his daughter, the transaction was entered into during the financial year 2009-10, against which the advance payment was made in that year itself and the balance payment was to be made within a year. But due to title problems regarding the concerned land in the hands of seller, the assessee did not make the balance payment for the next two years, in spite of repetitive reminders received from the seller. Finally after receiving the final notice from the seller to either pay the balance amount or the deal would be cancelled and the advance money would be forfeited, the assessee met with the seller to resolve the issue and during such meeting, the seller handed over the copies of title document of the subject property. Assessee after taking legal opinion and verification decided to make the payment within the time frame allowed by seller which was going to expire on 25.03.2012. Later it was realized that, 25th March was a Sunday and therefore the assessee was left with no other option but to make payment in cash on 25th March or else the seller would have cancelled the deal and forfeited the advance amount. Thus, under such exceptional circumstances, the payment of Rs. 1,82,40,000/- was made to Shri Ashok Agarwal, and hence was squarely covered under the clause (j) of rule 6DD.

Regarding payment of Rs. 53,00,982/- made to the remaining four persons, it is submitted that, the assessee had negotiated the price for purchase of land with the above sellers at the lowest rate possible, and promised to pay the sale consideration at the earliest. But due to unavailability of required

ITA 497 & 549/JP/2016_ 26 ITO Vs. Shyam Apparels

bank balance, the assessee was not able to pay them, and was under constant pressure of losing on the deals, as the sellers were constantly warning to cancel the same. Under such circumstances, when the assessee struck a deal with M/s Ocean Seven Buildtech (P) ltd and was to receive the sale consideration in cash at the time of registration of sale deed to be executed on 15.09.2011, the assessee asked all the above four parties to get their sale deed registered on the same day for which they all had agreed. However, on 15.09.2011 the director of M/s Ocean Buildtech (P) Ltd., could reach Jaipur from Gurgaon only after banking hours. The deed could be registered at late evening (APB 23-28). Since the payment against such sale deed was received in cash due to closure of banking hours, cash payment was made to the above four parties, and the deeds were registered on the same date as they had refused to come again for this purpose and seriously warned the assessee to forfeit the advance. These facts are duly verifiable from the purchase deeds filed with the Ld. AO (APB 60-88). Hence, payment to these four sellers were also made in cash under business exigencies. It is also a matter of fact that the said pieces of land that got registered on 15.09.2011 is not disputed by Ld. AO, who did not accept the explanation of the assessee for the only reason that the registry of land sold to M/s Ocean Buildtech (P) Ltd. was done after the execution of the above said purchase deeds.

In this regard it is humbly submitted that, both sale and purchase deeds were registered on the same day (15.09.2011) is not disputed nor the fact that these were registered after banking hours was doubted by Ld. AO or Ld. CIT(A). Both the sale and purchase deeds were put forth before the registrar and were registered on the same day, in fact this further strengthens the contention of the assessee that, the cash received from one party was indeed utilized to pay the other four parties, who in turn got the land registered immediately in the name of assessee, and this proves beyond

ITA 497 & 549/JP/2016_ 27 ITO Vs. Shyam Apparels

doubts, the business exigency that compelled the assessee to make cash payment for the purchase of land parcels from them. Further the fact that assessee had received cash from sale of its land to M/s Ocean Seven Buildtech (P) ltd is verifiable from the cash book [APB 89-110] placed on records of the Ld. AO wherein cash deposit of Rs. 2.09 Cr. and Rs. 13.50 lacs [this was for another sale of a small piece of land made to M/s Ocean Buildtech (P) Ltd. on the same date] is duly appearing on 15.09.2011 [APB 89] and neither Ld. AO nor Ld. CIT(A) has disbelieved such entries. It is also a fact on record that the books of accounts maintained were not doubted nor rejected. The Ld. CIT(A) disregarded the explanation given by the assessee in a very summary manner, by alleging that, the cash book shows only a receipt of Rs. 2.09 Cr. on 15.09.2011, whereas the sale consideration was Rs. 2.44 Cr. as per the sale deed and nothing was mentioned as pending, in the deed. In this regard it is submitted that the balance Rs. 35 lacs was received in cash on 17.09.2011 [APB 28], and this being a very small portion of the entire sale consideration, the assessee readily agreed to take the balance amount a day after the registry, as it was in immediate need of funds, in order to make the payments against the purchases of above lands. Thus, all the payments as above are duly made under business exigencies, and hence covered under the sub-rule (j) to rule 6DD of IT Rules, 1962.

It is humbly submitted that undoubtedly, provisions of section 40A(3) calls for a disallowance whenever there is any cash payment exceeding Rs. 20,000/- in respect of any expense otherwise allowable while computing business income. However, each and every provision is inserted in the Act with some purpose, which is described in the legislative intention explained while introducing the same. The intention of the Legislature while enacting section 40A(3) was to ensure that payments exceeding the sum specified are made by a crossed cheque drawn on a bank or by a crossed bank draft so that it will be easier to ascertain, when deduction is claimed,

ITA 497 & 549/JP/2016_ 28 ITO Vs. Shyam Apparels

whether the payment was genuine and whether it was made out of income from disclosed sources.

Further that, Rule 6DD of the Income Tax Rules, 1962 provides that an assessee can be exempt from payment through crossed cheques or bank draft in the circumstances specified therein. These circumstances given, though not exhaustive, give the underlying idea that if the identity of the payee is known, it would be possible for the AO to crosscheck the authenticity of the transaction. It is pertinent to note here that in the instant case, Ld. AO never doubted the authenticity of the transaction nor alleged that there was malafide intention of the assessee in paying amount in cash nor it has been brought on record that the transactions were with the intention to evade tax.

Thus it is clear that under Rule 6DD, it is open to the assessee to explain to the assessing authority, the circumstances which compelled payment in cash of an amount exceeding the stipulated limit, and also explain the genuineness of transaction.

The contention of the assessee gets support from the following pronouncements: Walford transport (Eastern India) ltd vs. CIT [1999 (240 ITR 905) Gau] [APB 210-215] where the transaction is found to be genuine and the identity of the payee is established a liberal view of compelling and mitigating circumstances should be taken. CIT vs. K.K.S.K Processor (P) ltd [2007] 292 ITR 669] [APB 216-220] The object of the Rule 6DD is to relax the rigours of sec 40A(3) in genuine and bonafide cases to avoid hardships and harassment Reliance is also placed on the decision of the Apex Court in the case of Attar Singh Gurmukh Singh vs. ITO [191 ITR 667 (SC)] [APB 221-223] which was

ITA 497 & 549/JP/2016_ 29 ITO Vs. Shyam Apparels

followed by the Allahabad High Court in the case of CIT vs. Raja Pal Automobiles [320 ITR 185] [APB 224-227] wherein it has been held that, the terms of sec 40A(3) are not absolute. Consideration of business exigencies and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in sec 40A(3) was not practicable or would have caused genuine hardships to the payee.

Based on above submissions, it is evident that parties to the transactions are not disputed, payment made is evident, source of payment is clearly identified and the genuineness of payment made is amply substantiated coupled with the unavoidable circumstances attached with such payments which compelled the assessee to make payment in cash, thus all the above payments, made in contravention of provisions of sec 40A(3), are squarely covered in the exemption provided for u/r 6DD of the Income Tax Rules, 1962, and hence the entire disallowance of Rs. 2,35,40982/- made u/s 40A(3) deserves to be deleted and the assessee prays accordingly.

Reliance is further placed on the following judicial pronouncements: 1. DCIT Vs. M/s Shree Salasar Overseas (P) ltd [ITAT JPR bench in ITA No. 416/JP/15 dated 15.06.2016] (APB 228-232) 2. Ajmeer Food Products (P)Ltd V/s Jt. CIT 145 DTR (JP) Tribunal 57 [APB 233- 238]”

appeal is concerned, we find that the payment of Rs. 1,82,40,000/- to

Shri Ashok Agarwal, power of attorney holder of his daughter, the amount

was paid on Sunday and also the seller has given the notice to release the

payment by 25/3/2012, which was Sunday. Sunday was a bank holiday.

ITA 497 & 549/JP/2016_ 30 ITO Vs. Shyam Apparels

Under these compelling situations, the assessee had to make payment in

cash. The revenue has failed to controvert these facts, therefore, we find

no merit in this ground of revenue’s appeal. The same is dismissed. As far

as the assessee’s appeal is concerned, we have noticed that the evidences

have been filed which establishes that the documents for registration

submitted after the banking hours in respect of land purchased from Hira

Lal Khetan for Rs. 13,62,658/- and from Smt. Shanta Devi Mittal for Rs.

11,75,000/-. No such evidence is available on record in respect of other

purchases. The assessee has also sold his property on 15/09/2011 for

which a deed was also executed in favour of M/s Ocean Seven Buildtech

(P) Ltd., Gurgaon on the same day after banking hours. It was submitted

that Director of M/s Ocean Seven Buildtech (P) Ltd. reached to Jaipur on

15/9/2011 after the banking hours, therefore, the payments against the

sale deed were received in cash due to closure of the banking hours and

the same cash received from this party was further paid to these two

parties from whom the land was purchased by the assessee. These facts

are verifiable from these two purchase deeds, which were duly filed

before the Assessing Officer. Therefore, it is established that the assessee

has to make payment to these two sellers of the land in cash under the

business exigency to safeguard the interest and also for genuine and

bonafide needs of assessee’s business. It is also a fact that these

ITA 497 & 549/JP/2016_ 31 ITO Vs. Shyam Apparels purchases and sale deeds were put forth before the Registrar on the

same day after banking hours which strengthen the contention of the assessee. The cash received on the sale of the land was utilized for

making payment to two parties. These deeds were registered after 4.00 P.M., which is usually the banking hours. Therefore, considering all these

facts and circumstances, we partly allow this ground of assessee’s appeal.

the assessee is partly allowed.

Order pronounced in the open court on 07/11/2017.

Sd/- Sd/- ¼dqy Hkkjr½ ¼Hkkxpan½ (Kul Bharat) (BHAGCHAND) U;kf;d lnL;@ U;kf;d lnL;@Judicial Member ys[kk lnL;@ U;kf;d lnL;@ U;kf;d lnL;@ ys[kk lnL;@ ys[kk lnL;@Accountant Member ys[kk lnL;@ Tk;iqj@Jaipur fnukad@Dated:- 07th November, 2017 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- The ITO, Ward 3(2), Jaipur. 1. izR;FkhZ@ The Respondent- M/s Shyam Apparels Pvt. Ltd., Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 497 & 549/JP/2016) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत