ITO, WARD, RAJPURA vs. M/S RAJPURA PROPERTIES, RAJPURA

O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year (AY) 2015-16 arises out of an order of learned Commissioner of Income Tax (Appeals), Patiala [CIT(A)] dated 12-03-2019 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 29-12-2017. The sole grievance of the revenue is deletion of addition of Rs.318.40 Lacs as made by Ld. AO invoking the provisions of Sec.40A(3) which denies deduction of expenditure to the assessee AY: 2015-16 in case of cash payments exceeding the prescribed limits. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. Assessment Proceedings 2.1 The assessee is stated to be engaged in sale and purchase of properties. During assessment proceedings, it transpired that the assessee purchased 6202 Sq. Yards of Land in Industrial Area, ITI, Rajpura on 22-07-2014. As per registered sale deed, the assessee made payment of Rs.50 Lacs through RTGS on 14-02-2011 whereas balance payment of Rs.318.40 Lacs was made in cash on the date of registration i.e., on 22-07-2014. The assessee was not holding any bank account during the year. Since the land was purchased as stock- in-trade, Ld. AO invoked the provisions of Sec.40A(3) for cash payment in the deal and show-caused the assessee. 2.2 The assessee explained the circumstances in which the said payment was made. It was stated that there was dispute between the parties. Initially, advance of Rs.50 Lacs was paid on 14-02-2011 through RTGS from account of one of the partners but due to dispute, the sale transaction was completed only on 22-07-2014 i.e., after a gap of more than 3 years. After a long peacemaking talks, the sellers agreed to execute the deed against cash payment. As neither party was ready to trust the other party, the payment was to be made in cash only at the time of registration of documents. As there was fear of losing Rs.50 Lacs paid as advance, there was no way for the assessee AY: 2015-16 other than agreeing to the demand of the seller. Hence, the payment was made due to business expediency. The assessee also stated that originally the land was purchased for investment purposes, but later on, as the market went down drastically by the end of calendar year 2014, it was thought prudent to convert the said land into stock-in-trade, Therefore, the provisions of Sec.40A(3) were not attracted under these circumstances. Reliance was placed on second proviso to Sec. 40A(3), which, inter-alia, provided that no disallowance would made on account of consideration of business expediency and other relevant factors. Reference was also made to various judicial decisions to oppose the proposed disallowance. The assessee also stated that the payment was made after deduction of Tax at source, the transaction was genuine, the payment was confirmed by the seller and the identity of the receiver was also clear. Reference was further made to CBDT Circular No.6P dated 06-07-1968 which reiterated that these provisions were designed to counter evasion of tax through claims of expenditure shown to have been incurred in cash with a view to frustrate proper investigation by the department as to the identity of the payee and reasonableness of the payment. 2.3 However, Ld. AO rejected the submissions on the ground that no document was furnished by the assessee to establish that there was dispute between the parties. The assessee did not even open bank account even though initial payment of Rs.50 Lacs was made through RTGS from account of one of the partners. The assessee was not AY: 2015-16 having an intention to make the payments through banking channels. Further Rule 6DD do not cover instances of business expediency. The contention that the land was kept as an investment was also rejected. It was finally held that the assessee violated the provisions of Sec.40A(3) and accordingly, the cash component of Rs.318.40 Lacs was disallowed u/s 40A(3). Appellate Proceedings 3. The assessee furnished additional evidences in the shape of documents evidencing complaints / counter complaints before appropriate authorities at various levels. The additional evidences were subjected to remand proceedings wherein Ld. AO opposed admission of the same. The assessee pleaded for due consideration of the same on the ground that no such evidences were called for by Ld. AO during the course of assessment proceedings. The Ld. CIT(A) accepted the said plea of the assessee in the light of its elaborate written submissions which have already been extracted in the impugned order. Finally, Ld. CIT(A) recorded following factual findings: - 5.3 The appellant has claimed that the payments to the parties are covered under business expediency / exigency as they appellant had already given an advance of Rs.50,00,000 three years ago and that the bitter dispute lead to the seller Shri Mangat Ram Goyal to threaten to forfeit the advance paid three years ago. The uncertainty of the completion of the transaction precluded completing formalities and that the partnership deed was registered only on 2nd May 2014. 5.4 As regards the situs of the impugned payments to the suppliers that these are Rajpura where a number of bank accounts operate and that the seller had a bank account is a matter of record and not disputed by the Ld AR. 5.5 That Shri Ravi Jindal and other partners of the firm were in dispute over the purchase of the property in question and that there were a number of police complaints and counter complaints from 2011 immediately post the payment of earnest money, is in. my considered view duly established.