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Facts
The assessee, a real estate developer, purchased immovable property for Rs. 23,92,500/- in cash from agriculturists. The Assessing Officer disallowed this expenditure under Section 40A(3) of the Income Tax Act, 1961, which was upheld by the CIT(A).
Held
The Tribunal held that the earlier decisions cited by the assessee were distinguishable as they pertained to businesses where cash payments were a necessity, unlike the present case where the assessee had sufficient time to make payments through cheque or demand draft. Thus, the disallowance under Section 40A(3) was justified.
Key Issues
Whether cash payments exceeding Rs. 20,000/- for the purchase of land by a real estate developer are allowable as expenditure under Section 40A(3) of the Income Tax Act, 1961.
Sections Cited
40A(3), 143(3)
AI-generated summary — verify with the full judgment below
आदेश/Order Per Krinwant Sahay, A.M.:
1. Appeal in this case has been filed by the Assessee against the order of the ld. CIT(A-5,) Ludhiana dated 11.04.2018 for assessment year 2012-13.
Grounds of appeals are as under:-
939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 2
1. That Ld. CIT(A) erred on facts and law in confirming the action of the AO of assessing the income of the assessee at Rs. 43,25,1007- as against income declared at Rs. 18,49,600/- in the return of income.
2. That the Worthy Commissioner of Income Tax (Appeals)-5, Ludhiana has erred in confirming the addition of Rs. 23,92,500/- u/s 40A(3) of the Income Tax Act, 1961 by making cash payment to the sellers on account of purchase of land.
3. That Ld. CIT(A) erred on facts and law in confirming the addition made by the AO by invoking the provisions of section 40A(3) as the assessee made cash payments exceeding Rs. 20,000/- for purchase of land held as stock in trade. The explanation furnished by the assessee, based on facts and case laws, during the course of appellate proceedings has not been rebutted by the Ld. CIT(A). 4. That Ld. CIT(A) erred on facts and law in confirming the disallowance of Rs. 83,000/- made by the AO on account of preoperative expenses being fee paid to Registrar of Companies. 5. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
Brief facts of the case, as per written submissions filed by the Counsel of the Assessee, are as under: -
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The assessee is carrying on the business of real estate developer and filed the return of income declaring income af 18,49,600.
2. The case of the assessee was selected for scrutiny and the order u/s 143(3) was passed making an addition of Rs.24,75,500.
3. The additions were made on account of the following:- (i) Rs.23,92,500 u/s 40A(3) by disallowing the expenditure on purchase of immovable property (ii) Rs.83,000 by treating the pre-operative expenses debited in profits : loss account as capital expenditure. 4. The assessee filed an appeal before the Worthy CIT(A) and the appeal of the assessee was dismissed and the order of AO was upheld. 5. Thus, this appeal. BRIEF SYNOPSIS 1. With regard to the first addition amounting to Rs.23,92,500, the brief facts are that during the assessment year the assessee purchased immovable property amounting to Rs.23,92,500 in the normal course of business of the assessee. 2. And as the said properties have been purchased from Agriculturists, the payment of the same has to 939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 4 be made in cash due to many reasons which are not in the control of the assessee including banking difficulties, reliance of agriculturists more on cash etc.
3. Therefore, the Ld. AO during the assessment proceedings disallowed such cash payments made to the sellers u/s 40A(3).
4. The assessee as mentioned above is a real estate developer and the land purchased by the assessee has direct nexus to its business expediency and no adverse with regard to the same has been noticed by the Ld. AO or by the CIT(A).
5. The assessee has also filed the copies of the purchase deeds before the Ld. AO and before the Worthy CIT(A) and no adverse inference with regard to the said documents have been noticed by the Ld. AO.
6. Not only the identity if the sellers but the amount of the transactions were very much clear from the said purchase deeds and the same has been accepted by the department.
7. Further, the assessee has also proved the sources of such payment, which was from the regular maintained books of accounts and no adverse
939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 5 inference with regard to the same was also noticed by the department.
Not only this, but the identity and genuineness of the payment can also never be questioned because at the time of registering the sale deed, the sub- registrar confirms the identity of the sellers and also confirms the fact that the seller has actually received payment from the buyer from the said transaction.
9. Therefore, it goes on to prove that the identity of the sellers, sources of the assessee and the genuineness of the transactions has never been questioned rather the same has been duly accepted by the department.
10. Furthermore, as mentioned above the payment has been made to agriculturists and such agriculturists do not maintain any account in Bathinda i.e. where the immovable properties were situated.
11. Moreover, it is very much agreeable that the agriculturists insist on receiving the payments in cash and moreover, in many cases it also occurs that the agriculturists do not execute the deal unless and until the payment is to be made in cash.
Therefore, considering the above submissions it is clear that when the genuineness of transactions,
939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 6 identity of the sellers and sources of the assessee has been accepted then no disallowance u/s 40A(3) can be made.
The case of the assessee is covered by its own judgment of the Jurisdictional bench of this Hon'ble ITAT in the case of the Assessee for the Assessment Years 2006-2007 to 2009-2010 in ITA No.749/CHD/2014.
Further, even after the judgment of Gurdas Garg reported in 63 taxmann.com 289 P&H-HC has been recalled by the Punjab and Haryana High Court, various / benches of the ITAT has passed order pertaining to Assessment Years subsequent to AY 2009-2010, wherein it has been held that when the genuineness of the expenditure has been proved, no disallowance U/s 40A(3) can be made.
The ld. Counsel for the Assessee, during the proceedings before us argued that the order in the case of ‘Munish Arora vs. ACIT’ I.T. Appeal Nos.156, 157, 158, 169, 170 & 171(Chd.) of 2019, the Coordinate Bench, Chandigarh has considered and given relief to the Assessee against additions made u/s 40A(3) of the Income Tax Act, 1961 (in short 'the Act'). He also brought on record another order of 939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 7 the Chandigarh Bench in ITA No.817/Chd./2018 in the case of ‘ITO vs. Shri Kailash Sharma’, wherein the Coordinate Bench has given relief to the Assessee against the addition made u/s 40A(3 .
The ld. DR vehemently argued that facts in the above two cases, as brought on record by the Counsel of the Assessee, are entirely different from the facts of this case before us.
We have considered the findings of the Assessing Officer in the assessment order and the decision of the ld. CIT(A) in his appellate order and we have also considered the case laws brought on record by the ld. Counsel of the Assessee in the case of ‘Munish Arora v ACIT’ (supra), we find that the Assessee is engaged in the business of event management and the cash payments have been made over and above Rs.20,000/- for items like taxi / vehicle charges fuel charges meals for workers, petrol for generator, engine oil for genset, payment of photography and cameras, photo development, truck repair and sound repairs etc. All these things were 939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 8 considered necessary to run the business of event management and for these expenses money is to be paid instantly. Accordingly, payment exceeding the prescribed limit u/s 40A(3) was allowed. Similarly, the ld. Counsel for the Assessee has brought on record the case laws in the case of ‘ITO vs. Shri Kailash Sharma C/o M/s Verka Milk Agency’ in (supra). In this case also the Chandigarh Bench had allowed the payment exceeding eligible limit and additions were not confirmed by the ITAT u/s 40A(3) on the fact that the Assessee was a cash carry dealer for supplying Verka Milk and fresh milk products in Palampur and adjoining areas. The assessee has also explained that the milk was to be lifted daily and the payments were to be collected in the evening which were to be made to the Verka Agency in the morning itself and further the Verka Milk Agency did not provide milk on credit basis and further the payment was made to the Union of Producers of milk. Considering the above practical aspects, factors and circumstances and business expediency, it was held by the Tribunal that the Id. CIT(A) was justified in 939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 9 deleting the disallowance made by the A.O. and the appeal of the Revenue dismissed.
But here in this case, the ld. DR has pointed out that the Assessee as per findings given by the A.O. and accepted by the ld. CIT(A), is a company is engaged in the real estate development. The company has developed different projects, the company purchased lands from different people where cash payment were made amounting to Rs. 23,92,500/- (to different parties) in cash exceeding Rs. 20,000/-. We have considered the facts brought on record by the Assessing Officer and we have also considered the findings given by the ld. CIT(A) and we find that the case laws brought on record by the Counsel of the Assessee are having entirely different facts from the facts of the case of ‘Munish Arora vs. CIT’ (supra) as well as in the case of ‘Kailash Sharma C/o M/s Verka Milk Agency’ (supra), wherein the Assessee was carrying on business where cash payments was must. For example, payment for food for labour or payment for vehicle / taxi charges etc. are such expenses which are to be made immediately and in such circumstances, clearly cash is paid.
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8. Similarly, in the case of ‘Kailash Sharma C/o M/s Verka Milk Agency’ (supra) the Assessee is engaged in the business of procurement of milk on day to day basis where milk was procured in the morning and payments were necessarily to be made by the evening. Normally, credit is not available in these kinds of business, therefore, keeping in view the necessity / requirements / exigencies of the business, cash payments exceeding Rs. 20,000/- could be made. But in the instant case, the Assessee is engaged in the business of land development and it had purchased land from different parties. Payment for purchase of lands have been made in cash, which in our view, is not acceptable because the Assessee had enough time to make payment either by cheque or demand draft to different land sellers, therefore, coordinate bench decisions in the case of ‘Munish Arora vs. CIT’ (supra) and ‘Kailash Sharma C/o M/s Verka Mila Agency’ (supra) are quite different from the facts and circumstances of the instant case. Accordingly, we find the action of the Assessing Officer for making addition of Rs. 23,92,000/- u/s 40A(3) and its confirmation by the ld.
939-Chd-2018 M/s Silver Oaks Township Ltd, Bhatinda 11 CIT(A) are very much justified and need no interference. Accordingly, Assessee’s appeal on Ground Nos. 1 to 3 are dismissed.
Appeal in Ground No. 4 has not been pressed. Hence, it is dismissed as not pressed.
Ground No.5 is general in nature.
In the result, Assessee’s appeal is dismissed.
Order pronounced on 03.02.2025.