M/S. SHREE BUILDCON & ASSOCIATES,,NASHIK vs. JOINT COMMISSIONER OF INCOME-TAX,,

आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee arises out of the order dated 15-01-2015 passed by the CIT(A)-2, Nashik in relation to the assessment year 2010-11. 2. The only issue raised in this appeal is against the confirmation of two disallowances made by the Assessing Officer (AO) u/s.40A(3) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’). 3. Briefly stated, the facts of the case are that the assessee is a Builder and Developer engaged in civil construction and also

2 ITA No.445/PUN/2015 M/s. Shree Buildcon & Associates

rendering allied legal and technical services. A return was filed

declaring total income of Rs.1,10,61,126/-. During the course of

assessment proceedings, the AO observed that the assessee made

certain payments through bearer cheques amounting to

Rs.24,65,500/- which were in violation of section 40A(3) of the

Act. On being called upon to put forth its stand, the assessee

submitted that all the payments were made to Kharjul family

members through bearer cheques during the course of carrying out

its business activity. Commercial expediency was stated to be the

reason for making payments through bearer cheques. The AO

discussed one-by-one all the payments by observing that such

amounts were paid through bearer cheques while certain other

payments to all such persons were also made through account

payee cheques. Not accepting the assessee’s commercial

expediency, the AO made disallowance u/s.40A(3) amounting to

Rs.24,65,500/-. The ld. CIT(A) countenanced the disallowance.

relevant material on record, it is found as an admitted position that

payments totalling Rs.24,65,500/- were made to Kharjul family

members against which deduction was claimed in the Profit and

loss account. The case of the assessee is that these payments were

3 ITA No.445/PUN/2015 M/s. Shree Buildcon & Associates

made because of business expediency and hence, disallowance

should not be made. The assessee also harped on the genuineness

of the transactions so as to escape the disallowance. However, one

thing has been admitted that the payments were made through

bearer cheques which are otherwise hit by section 40A(3) and

further none of the payments fall under any of the relevant

exemption clause of Rule 6DD.

respective points of view. Por una parte, certain High Courts

including the Hon’ble Gujarat High Court in Anupam Tele

Services Vs. ITO (2014) 366 ITR 122 (Guj.) and the Hon’ble

Rajasthan High Court in Harshila Chordia Vs. ITO (2008) 298 ITR

349 (Raj.) have deleted the disallowance in the cases of genuine

business transactions, por otra parte, certain other High Courts

including the Hon’ble Bombay High Court in Madhav Govind

Dulshete Vs. ITO (2018) 259 Taxman 949 (Bom.), the Hon’ble

Madras High Court in Vaduganathan Talkies and others Vs. ITO

(2020) 428 ITR 224 (Mad.), the Hon’ble Karnataka High Court in

Nam Estates Pvt. Ltd. Vs. ITO (2020) 428 ITR 186 (Kar.) and the

Hon’ble Calcutta High Court in Bagmari Tea Company Ltd. Vs.

CIT (2001) 251 ITR 640 (Cal.) have confirmed the disallowance

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where the payment was made in cash exceeding the stipulated

amount notwithstanding the genuineness of the transaction.

engaged in the business of sale of Kerosene which was purchased

from notified dealers. He made purchases of Kerosene from

certain companies. Some of the payments were made in cash

while others were in cheque. The AO made disallowance by

invoking section 40A(3) in respect of cash payments exceeding the

limit by noticing that both the assessee and seller had banking

facilities. The CIT(A) affirmed the assessment order. The

Tribunal echoed the AO’s view by finding that both the buyer and

sellers had bank accounts. The Hon’ble jurisdictional High Court

countenanced the view of the Tribunal sustaining the disallowance

thereby repelling the assessee’s contention of a genuine business

transaction as a ground for not making disallowance u/s 40A(3) of

the Act.

High Courts on the point - some deleting the disallowance on the

basis of the genuineness of the transactions while others sustaining

the disallowance - what matters for the Tribunal is to follow the

binding precedent, being, the judgment of Hon’ble jurisdictional

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High Court. That being the position, the Pune Tribunal is bound

by the judgment of the Hon’ble jurisdictional High Court in

Madhav Govind Dulshete (supra) sustaining the disallowance in

case of cash payments exceeding the stipulated limit

notwithstanding the fact that the transactions were genuine and the

parties were identifiable. Respectfully following the judgment, we

uphold the disallowance sustained in the first appeal. This ground

fails.

Rs.20,05,056/- is again u/s.40A(3) of the Act. The assessee made

total payment of Rs.27,97,856/- to various persons through bearer

cheques. Explanation was tendered about payments amounting to

Rs.7,87,800/- which was accepted by the AO. Remaining amount

of Rs.20.05 lakh was paid to contractors towards weekly bill of

labour. The assessee contended that the payment was covered

under Rule 6DD(k) being payment made to an agent. The AO

rejected this contention, which got affirmed in the first appeal.

relevant material on record, it is found as an admitted position that

the assessee paid the amounts in question to the labour contractors

in violation of section 40A(3) of the Act. The case of the assessee

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is that the payments were covered under clause (k) of Rule 6DD,

which provides that no disallowance will be made where the

payment is made by any person to his agent who is required to

make payment in cash for goods or services on behalf of such

persons. The important point to be noted in such cases is that the

payment must be by the assessee to his agent, who, in turn, pays to

some third person on behalf of the assessee for goods or services.

It means that the agent to whom the payment is made must

represent the principal in making the payments for goods or

services. Adverting to the facts of the instant case, it is seen that

the assessee made payment to contractors and such payments were

as such recorded as expenditure in the books of account of the

assessee. In such circumstances, it cannot be said that the

contractors were agents of the assessee for the provision of labour.

Had the payments been made by the assessee to contractor and

then, in turn, to the labourers and the transaction of payments to

labourers had been considered as expenditure of the assessee, then

the case would have been covered by clause (k) of Rule 6DD.

Here is a case in which the assessee paid to the contractors on

principal-to-principal basis and no agency of any sort was involved

in this transaction. We, therefore, hold that the authorities below

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were justified in coming to the conclusion that clause (k) of Rule

6DD was not attracted. If Rule 6DD is taken out of purview, then

the payment is otherwise in violation of section 40A(3) of the Act.

As such payments were made in violation of the provision, we hold

that the disallowance u/s.40A(3) has been rightly confirmed in the

first appeal.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 10th May, 2022 Satish

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT(A)-2, Nashik 4. The Pr.CIT- 2, Nashik िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “B” / 5. DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 6.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

8 ITA No.445/PUN/2015 M/s. Shree Buildcon & Associates

Date 1. Draft dictated on 10-05-2022 Sr.PS 2. Draft placed before author 10-05-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *