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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI. B. R. BASKARAN & SMT. BEENA PILLAI
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 20/06/2018 passed by the Ld.CIT(A)-6, Bangalore for assessment year 2013-14 on following grounds of appeal:
Brief facts of the case are as under: 2. The assessee is a firm having income from business. It filed its return of income on 28/09/2013 declaring total income of Rs.3,47,10,000/-. The return was processed under section 143(1) of the Act and the case was selected for scrutiny. Notice under section 143(2) of the Act was issued to assessee, in response to which representative of assessee appeared before the Ld.AO and called requisite details. 2.1 During the course of assessment proceedings, the Ld.AO observed that assessee debited sum of Rs.4,38,21,784/- to the P&L account by way of purchase of land. The Ld.AO treated the land purchased as stock in trade and the cash purchases incurred amounting to Rs.1,41,03,750/- as not allowable under section 40(A)(3) of the Act. The Ld.AO observed that, the payments were made in the name of Laughter Yoga Iternational Foundation, and not in the name of the vendors. 2.2 The Ld.AO called upon assessee to explain why the cash payment and checked payment made in the name of Laughter Yoga Foundation should not be disallowed. In response the assessee submitted that, it acted as agents of Society for acquisition of land and the amounts paid by the society were used to defray the expenses in connection with the purchase of land and ultimately the profit that is derived by assessee is nothing but commission for agency. The assessee submitted that instead of reflecting the income alone, they resorted to show the gross receipts and expenses relating to the project in the profit and loss account.
2.3 The Ld.AO after going through the MOU entered between the assessee and society, came to the conclusion that assessee is not acting as agent of assessee, purchased the land and sold it to the assessee. He thus made addition in the hands of assessee under section 40(A)(3) amounting to Rs.1,41,03,750/-. 2.4 Aggrieved by the order passed by the Ld.AO assessee preferred appeal before the Ld.CIT(A).
The Ld.CIT(A) was of the opinion that, assessee is in the business of real estate and has agreed to sell sites to the society. The Ld.CIT(A) was of the opinion that since assessee agreed to sell sites to the society, it had to acquire lands, develop it into sites, and sell the sites to the society. Thus the Ld.CIT(A) also concluded that assessee is not an agent of the society, and it is a contract between one principal and another principle. The Ld.CIT(A) upheld the addition made by the Ld.AO. 3.1 Aggrieved by the order of Ld.CIT(A), assessee is in appeal before us now. 3.2 Before us, the Ld.Counsel submitted that, assessee is a developer and agreed to sell residential sites to society for which it acquired lands. For purpose of acquisition it made payment of Rs.1,41,03,750/- by cash to the parties, which is disallowed by the Ld. AO under section 40(A)(3) of the Act. 3.3 The Ld.Counsel submitted that, assessee has also made payment in cheque to the said parties, which has been encapsulated in the assessment order at page 2. The agreements entered into with parties have been registered and stamp duty has been paid as per the market value.
3.4 He submitted that in the paper book at page 10-81 the agreements pertaining to purchase of the land from the relevant parties are placed along with the Ledger account wherein the payment paid to various vendors are mentioned as per the books of account of assessee. The Ld.Counsel submitted that, few owners are minors and has been represented by the legal guardians. It is submitted that at the instance of the vendors, who did not have any bank accounts, the payment were made in cash. He also submitted that such cash payments has not been denied by assessee and has been duly recorded in the books of account. He further submitted that it is not the case of the revenue that these are bogus transactions entered into between assessee and the vendors.
On the contrary, Ld.Sr.DR relied on the orders passed by the Ld.CIT(A). He also placed reliance on the decision of Hon’ble Karnataka High Court in case of Nam Estates Pvt Ltd vs ITU reported in (2020) 428 ITR 186 that upheld the decision of coordinate bench of this Tribunal reported in (2013) 141 ITD 659. He submitted that assessee has not established that the vendors to whom cash payments were not made, do not have any bank accounts.
We have perused submissions advanced by both sides in light of records placed before us. 5.1 The only issue raised by assessee is in respect of the disallowance of cash payment made by assessee to various vendors for purchase of land, under section 40 (A) (3) of the Act. 5.2 We note that, the agreements are entered with the assessee through the power of attorney holders. Amongst the vendors there are few who are minors, who are represented by their natural guardians. Following are the reasons cited by assessee for which the cash payments have been made:
5.3 The necessity shown by assessee to make the payment in cash is that, the vendors insisted at the last moment in certain cases. It is also noted that the said monies paid in cash to various vendors are out of drawings made from bank accounts and therefore exigency in making the such payment in cash cannot be suspected. 5.4 In case of an CIT vs Nam Estates Pvt. Ltd., relied by the Ld.Sr.DR, we note that the reason for which the cash payments were made therein by the assessee was found to be incorrect. In the present facts of the case the reason for making the payments in cash to certain vendors by the assessee has not been found to be incorrect by any of the authorities below. There is no iota of evidence that is brought on record which could cast doubt on the reason for which the payment has been made in cash by assessee. Further it is also not the case of Ld. AO that, the transaction entered into between assessee and the Vendors towards purchase of the land is bogus. Admittedly payments made by the assessee by cheque has been accepted by the Ld. AO. 5.5 The Ld.counsel relied on the decision of Hon’ble Karnataka High Court in case of M.K.Agrotech Pvt.Ltd., reported in 412 ITR 315. Hon’ble Court therein observed that, once the payee admits the acceptance of the monies in cash and has been credited into their respective accounts the object with which section 40(A)(3) was promulgated stands satisfied. We note that in the present facts of the case the monies received in cash has been recorded in the agreements entered into between the assessee and various vendors. There is no denial of having received the monies in cash by the vendors and therefore in the present facts of the case the observations of Hon’ble Karnataka High Court in case of MK Agrotech (supra) would apply as against the decision relied by the Ld.Sr.DR. 5.6 Therefore we are unable to agree with the view taken by the Ld.CIT(A) and the same is reversed. Accordingly the grounds raised by assessee stands allowed. In the result appeal filed by assessee stands allowed. Order pronounced in the open court on 23rd July, 2021