M/S KVR HOLDINGS ,BANGALORE vs. INCOME TAX OFFICER WARD-7(2)(4), BANGALORE

ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 22/02/2017 passed by Ld. CIT (A)-7, Bangalore for assessment year 2012-13 on following grounds of appeal: “1. The order of the Hon'ble Commissioner of Income Tax (Appeals) - 7 is opposed to law and facts of the case.

2. The Hon'ble Commissioner of Income Tax (Appeals) - 7 ought to have held that the provisions of Section 40A (3) of the Act are not applicable in the facts and under the circumstances of the present case.

3. The Hon'ble Commissioner of Income Tax (Appeals) - 7 erred in holding that the payment is made in a sum of Rs. 86,50,000/- are in violation of the provisions of Section 40A (3) of the Act.

4. The Hon'ble Commissioner of Income Tax (Appeals) - 7 ought to have held that the appellants case squarely falls within the exceptions provided under Rule 6BB of the Income Tax Rules.

. Brief facts of the case are as under:

2. Assessee is a firm and is in the business of construction. During the year under consideration it filed its return of income declaring total income of Rs.6,65,100/- on 30/09/2012. The case was taken up for scrutiny and notice under section 143 (2) and 142 (1) of the Act, was issued in response to which, representative of assessee appeared before the Ld. AO and filed requisite details as called for.

3. Ld.AO noted that during the year, assessee purchased a property for Rs.1,65,59,200/- including stamp duty and had debited the same to the trading account to claim expenditure. Ld.AO noted, from sale deed that assessee paid sum of Rs.86,50,000/- in cash, which was in violation of section 40A(3) of the Act. Assessee was called upon to furnish details, as to why the same should not be disallowed under section 40A(3) of the Act. As no submissions were made by assessee, till the date of passing of assessment order, Ld.AO made disallowance of Rs.86,50,000/-under section 40A(3) of the Act.

4. Aggrieved by addition made, assessee preferred appeal before Ld.CIT(A).

5. Before Ld.CIT(A) assessee submitted that, property was purchased at Belekahalli Village, Begur Hobli, vide sale deed dated 16/03/2012, for sale consideration of Rs.1,50,00,000/-. It was submitted that, the vendor also insisted some cash to be paid to his sister, who was claiming right of share in the property purchased by assessee. Assessee thus paid Rs.44,50,000/- in cash to the vendor. Another sum of Rs.42,00,000/- was paid to confirming party in cash. The reasons for making payment to the confirming party was submitted by written submission filed by assessee before Ld. CIT (A).

6. Ld. CIT (A) however rejected the contentions of assessee and confirmed addition made by Ld. AO by observing as under:

4.9 In the instant case, there are no circumstances available to the appellant to claim the exceptions provided in Rule 6DD of I.T. Rules. The payments were made in cash to the vendor without any express demand of payment in such nature and the shelter of agreement between the vendor and confirming party and others cannot be treated as compelling reasons for the appellant to pay in cash to the vendor. lithe Appellant would have paid these amounts in the manner prescribed under section 40A(3) of the. Act, there was always an occasion available with the vendor to withdraw cash from his own account and pay in cash to the parsons with whom he has agreed independently.