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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI H. S. SIDHU & SHRI PRASHANT MAHARISHI
Appellant by: Sh. Umesh Chand Dubey, Sr. DR Respondent by: Sh. KR Manjani, Adv Date of Hearing 15/11/2016 Date of pronouncement 07/02/2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is appeal filed by the revenue and cross objection filed by the assessee against the order of the ld CIT (A)-XIX, New Delhi for the Assessment Year 2007-08. The assessee has raised the following grounds of appeal:-
2. The Ld. CIT(A) has erred on facts and in law by deciding that the “1. difference of 35,85,498/- on account of exchange of land was a short term capital loss; i. By ignoring the fact that in respect of the 7.33 acres of land that was converted from investment to stock-in-trade and then sold, the market price on the date of conversion should have been taken as the cost of acquisition and short term capital gain thereon should accordingly have-been computed. ii. By ignoring the fact that in respect of the 7.33 acres of land that was purchased in connection with the project, the value Page 2 of 17 of purchase should have been capitalized as the assessee was following the project completion method of accounting.
2. The Ld. CIT (A) has erred on facts and in law by deleting additions of Rs. 3,38,35,600/- on account of outstanding creditors by relying" on confirmations and affidavits submitted on later dates and by ignoring the registered sale deeds and statements given by the sellers before the Registrar of Properties confirming receipts of full payments in lieu of land sold by them to the assessee.
3. The Ld. ,CIT(A) has erred on facts and, in law by deleting addition of Rs.6767,120/- made u/s 40A(3) by ignoring the facts that payments were made in cash by the assessee to farmers from whom it purchased land although the farmers had access to banking facility in the area.”
The briefly stated facts are that Assessee, a Company, is engaged in the business of real estate. The return of income was filed on 31.10.2007 showing income of Rs. 8959626/-. For the year, assessee has claimed a loss of Rs. 3985998/- on exchange of land. The explanation of the assessee is that during the year it has exchanged a land with M/s. AGP Developers Pvt. Ltd. The ld Assessing Officer stated that loss on sale of land is on account of trading of land and therefore it is part of the project cost of the assessee. As the assessee is showing revenue on project completion method he allowed loss of Rs. 280614/- and disallowed balance amount of Rs. 3705384/-. The assessee carried this issue in appeal before the ld first appellate authority, who allowed the claim off the assessee therefore the revenue is in appeal before us.
4. The ld DR addressing the first ground of appeal submitted that the ld CIT(A) has allowed the claim of the assessee without giving any reason but merely on the written submission of the assessee. He therefore, referred to the facts stated in para No. 7.1 reproduced in the order of the ld CIT(A). He vehemently contested that the loss so incurred by the assessee is a short- term capital loss incurred on account of sale of land and not business loss. He further submitted that cost of land, which was purchased for the project, was treated as part and parcel of stock in trade. He also submitted that the land was exchanged because the land of the other party, which was purchased, was falling in the project land and therefore to carry on this project it was necessary to acquire that plot and instead of paying money the assessee has steeled it by offering the other land . Therefore, the claim of the assessee is incorrect.
Page 3 of 17 5. The ld AR stated that the assessee is engaged in the business of real estate and however, the assessee can maintain two portfolios and can hold land either investment or in stock in trade. He therefore submitted that the loss incurred by the assessee is short-term capital loss.
We have carefully considered the rival contentions. The assessee has exchanged a land purchased measuring 40.64 acres for Rs. 81659050/- from various farmers. This land was shown as investment in the books of account. During the year, assessee transferred 33.31 acre of land, which was required for the project and converted it into stock in trade. The balance land of 7.33 acres was sold during the year on 13.07.2006. Similarly, a piece of land measuring 7.33 acres, which was located in between the project land, was purchased on 13.07.2006 to the same party and the consideration was settled by exchange of land. Consequently, assessee computed the loss of Rs. 3985498.50 as the land was sold for Rs. 9156500/- and purchase price of the land was Rs. 13141998/-. The assessee as business loss claimed the loss so incurred. The part of the business loss was disallowed by the Assessing Officer for the reason that the assessee is showing revenue on project completion method and therefore 7.04% is recognized during the year, he allowed Rs. 280614/- as revenue for the year and disallowed the balance sum of Rs. 3705384/-. The ld CIT(A) has taken the whole issue on the ground that whether the amount of loss incurred by the assessee is a capital loss chargeable to tax as short-term capital loss or business loss. In the end, he held that it is short-term capital loss accepting the claim of the assessee. However, the ground raised before the ld CIT(A) was that the ld Assessing Officer erred under the law while capitalizing the loss of Rs. 3985998/- incurred on exchange on land which is not part of the project under progress of the appellant company. The ld Assessing Officer did not dispute that a loss of Rs. 3985998/- incurred by the assessee on exchange of plot of land but has held that the land exchange was part of the project and the balance land was exchanged for the reason as 7.33 acre of the land falling amidst the project area was required to be acquired from the other party and in turn that other party was given 7.33 acre of the land which is adjacent to the project land and both the piece of land were valued and thereby the assessee incurred a loss of Rs. 3985498/-. The issue was that whether this loss is part of the project Page 4 of 17 cost and as assessee follows completed contract method would go to increase the cost of the project as work in progress or is allowable as loss incurred independently of the project and allowable fully. The ld CIT(A) has decided the issue that it is short-term capital loss incurred by the assessee and he merely followed the written submission filed by the assessee, which is reproduced at para No. 5 of his order. He has completely ignored the reasons given by the Assessing Officer in disallowing the sum of Rs. 3705384/- which is also reproduced at para No. 4 of his order. In view of this we set aside ground No. 1 of the appeal of the revenue to the file of ld CIT(A) to decide the issue afresh keeping in mind that whether the loss incurred by the assessee is part of the project cost or is independent business loss in view of the undisputed fact that new land purchased by the assessee was situated in the project land and without which the project would not have been commenced. In result ground No. 1 of the appeal of the revenue is allowed accordingly.
Ground No. 2 of the appeal of the revenue is against deletion of addition of Rs. 33835600/- on account of outstanding creditors by relying upon confirmation and affidavits submitted and ignoring the registered sale deeds and statement given by the sellers before the Registrar of Properties confirming receipts of full payments in lieu of land sold by them.
The brief fact of this ground is that the assessee has purchased land from various parties by a registered sale deed however, it has shown creditors for payment of such land as at the end of the year Rs. 33835600/-. During the course of assessment proceedings on verification of purchase deed, which was registered, it was observed by the Assessing Officer that in the deed it is mentioned that the buyer has already received the payment in full. Therefore, outstanding creditor for the purchase of land and also the confirmation by the sellers at the time of registration in the registered sale deed were contradictory. The assessee during the course of hearing submitted the confirmation and affidavit of the buyer about the outstanding sum. However, the ld Assessing Officer disbelieved those confirmation and made an addition of Rs. 33835600/-. The assessee contested this addition before the ld CIT(A), who deleted the same vide page No. 5 to 14 of his order as under:-
Page 5 of 17 “Ground No. 3 reads as under: "That the addition of Rs. 3,38,35,60Q/- alleged to be undisclosed income of the appellant society is totally arbitrary and uncalled for in view of the amount being payable to the trade creditors of the appellant society which is evident from the confirmations and affidavits of the creditors."
Vide (Ground No. 3, the assessee challenged the action of the AO in making an addition of Rs. 3,38,35,600/-. The reasons given by the AO are as under: "The assessee was asked to "explain as why no payments have been to the parties though the land has already been registered in the name of company. While going through the registration deed of .the properties it is clear that no payment is left outstanding and specially when theses are small farmers no prudent person would leave the balance unpaid before getting the land registered and parting away with the possession of the land. From the registration deeds it was observed that in the deeds it is clearly mentioned that the buyers has already received the payments in full. Further it is always customary that before the registration of the property by the. registrar, he always asks if the payment has been received by the seller and only on his confirmation that he registers the property. It is further confirmed in the registered sale deed documents. The subsequent confirmation by the creditor and affidavit, as filed by the assessee, for the amount outstanding does not hold good as his confirmation is contradicting the creditors own statement given before the Registrar of Properties and the sale deed which has been signed by him before the registrar which has more evidentiary value than a mere - confirmation at a later date. Further the assessee in his- reply dated. 18.11.2009 has shown four creditors as having been paid off in the subsequent year namely S.No. Name Address Amount 1 Jamail Singh Village Vallah, Tehsil 28,85,000 & Distt. Amritsar 2. Joginder- Harpal- Village Vallah, Tehsil 26,85,300 Charan & Distt. Amritsar 3 Mahinder Singh S/o Village Vallah, Tehsil & 30,57,300 Narain Singh Distt. Amritsar 4 Mukhtair Balwinder Village Vallah, Tehsil 60,34,000 S/o Karnail Singh & Distt. Amritsar Total= 1,46,61,600 Out of English translations submitted along with the reply dated 21.12.2009 filed by the AR, the sale deed of Mr. Joginder Singh, Harpal and Charan Kaur has been submitted showing land consideration of Rs. 1,03,89,000/- for which the sale consideration has been shown to be paid in the same year as per registered deed. Despite making the payment in full, still these parties have been shown as creditors for Rs. 26,85,300/-. Even if it is presumed that these cheques of Rs. 26,85,300/- have been presented in subsequent year, since the cheques have been drawn at a date for the running assessment year 2007-08, there should not be any creditors for the same as at the end of the year on 31.03.2007 and should have appear in bank reconciliation statement. 'This shows- that the books of accounts of the assessee do ' Page 6 of 17 not show this transaction and on this basis, the contention of the assessee that these four creditors are outstanding as on 31.03.2007 is rejected. Regarding the other 11 creditors shown by the assessee the payments have been made by the assessee in cash or in some other mode, undisclosed in the books of accounts, to the parties from whom land has been purchased, and in order to cover up the transaction, the assessee has shown the outstanding payments as creditors which in fact do not exist at all. Further as no prudent farmer or else any one would transfer the land without getting the money paid to the property owner, hence-the plea of the assessee that the creditors are still outstanding cannot be believed and is not established. The documents submitted and the explanation offered by the assessee in support of outstanding creditors is not satisfactory and 1 am not satisfied with the above explanations and documents.' Since the assessee has paid this amount of Rs. 3,38,35,600/- to the above parties but have not shown such payment to them, hence it is being consideration as payment made out of undisclosed income of the assessee and this amount is added back to assessee's income. (Addition: Rs. 3,38,35,600/-) 10.1 The AR filed detailed written submissions in this regard which are as under: "The appellant company has shown sundry creditors amounting to Rs. 4,78,80,118/- as per schedule VI11 annexed with the balance sheet filed with l.T. Return at page 34. The said schedule comprises trade creditors on account of purchase of land for Rs. 3,38,35,600/- as per detail available on page 3 sub-para (e) of the impugned assessment order:- The A.O. during the course of assessment proceedings on the basis of Sale Deeds of various agriculture land noticed that the sellers of the land has received full consideration towards sale of land. The A.O. has further alleged that it is customary on the part of sub-Registrar to confirm from the seller before Registering a document in favour of buyer whether the seller has received the consideration for sale of land as mentioned in the registry documents. Thereafter, having confirmation from the seller in this regard, the Registrar executes the sale deed. Therefore, relying upon the sale deeds of agriculture land as submitted by the appellant, the A.O. has held that the appellant has already made the payment of Rs. 3,38,35,600/-to the trade creditors (fanners) as stated above out of undisclosed income of the appellant and accordingly, he has added back this amount to the income of the appellant company. Name of Date of Total Amt. Balance Amount paid by Date of the Execution payable as Payable as Cheque No. & Date Encashment Creditor of Sale per Registry on of Cheque Document documents 31.03.2007 Mukhtya 21,03.200 67,79,000/- 60,34,000/- Rs. 1 5,00,000/- 10.05.2007 . r 7 Ch. 170285 dt: Balwinde 12.04.07 10.05.2007 r Rs. 15,00,000/- Ch. 170279 dt: 24,05.2007 13.04.07 Rs. 1 5,87,000/- 24.05.2007 Ch. 170287 dt: 14.04.07 Rs. 14,47,000/- Ch. 170286 dt: 16.04.07 Page 7 of 17 Mahinde 22.01.200 1,25,65.500 30,57,300/- Rs. 10,57,300/- 06.10.2007 r 7 /- Ch.028276dt: Singh 12.04.07 07.03,2008 Rs.20,00,000/- Ch. 028274 dt: 10.04.07 Joginder 21.02.200 1,03,89,000 26,85,30/ Rs. 16,85,300/- 10.04.2007 Harpal 7 /-. Ch.l70239dt: Charan 26.03.07 17.05.2007 Rs. 10,00,0007^ Ch. 170240 dt: 28.03.07 Jernail 21.03.200 32,30,000/- 28,85,000/- Rs.8,00,000/- 17.05.-2007 Singh 7 CM70282dt: 13,04.07 30.05.2007 Rs.8,00,000/- Ch 170281 dt: 20.06.2007 12.04.07 Rs.8,00,000/- 26.07.2007 Ch.l70283dt: 14.04.07 Rs.4,85,000/- Ch.l70284dt: 16.04.07 On perusal of letter dated 29.12.2009 at page 54-76 your honour will appreciate that it was explained to the AO that although as per land purchase documents the seller of the land has already received the payment against sale of land but there is no infirmity in such a statements made by the farmers as the same has been made on receipt of payment by cheque/draft and post dated cheque(s) equivalent to outstanding amount shown as payable by the appellant company to these farmers in its balance sheet, as on 31.03.2007. This was the prevailing practice of sale of agriculture land in Punjab during boom period of real estate in the year of 2006-07/ In support of such practice the appellant vide letter dated 29.12.2009 furnished ledger account copies at page 77-91 of following creditors to whom the appellant company has issued account payee cheque(s) against total consideration which includes post dated cheques also. Those were encashed in subsequent assessment year i.e. 2008-09 as per detail under:- Photocopy of bank statements are available at page 77-91. Admittedly, all the above 4 creditors has admitted before the sub-registrar that they have received full consideration for sale of land at the time of execution of sale deed in favour of appellant company. We are enclosing herewith one English translated copy of sale deeds of Harpal Charan alongwith photocopies of Sale Deed of remaining creditors at page 92-104. Kind attention of your honour is drawn to the page number 92 & 93 of the sale deeds in this regard in support of our contention. The A.O. in the impugned assessment order a page 5 ara 2 has alleged that the appellant has not furnished confirmation of above parties in support of its contention Page 8 of 17 which is far from the truth. On perusal of letter dated 29.12.2009 page 54-76 your honour will appreciate that the appellant has filed confirmation in the shape of affidavit of following three creditors:- Joginder -Harpal -Charan Copy at page 64 Mohinder Singh S/o.-Sh. Narain Singh Copy at page 57 Mukhttar Balwinder Copy at page 66 The appellant could not furnished confirmation/affidavit of Jernail Singh during the course of assessment proceedings, as he was not readily available in the village. However, now we are enclosing herewith confirmation in the shape of affidavit of Jernail Singh confirming the transaction at page 105. On perusal of letter dated 07.12.2009, 10.12.2009 and 29.12.2009 copy at page 35- 53 & 54-76 the appellant company furnished following documents in support of genuineness of outstanding trade creditors:- s. Name Amount Documents Letter dated No. outstanding furnished 01. Balwinder Kaur 22,06,250/- Confirmation 10.12.2009 Affidavit 29.12.2009 02. Balwinder Singh 5,62,500/- Confirmation 07.12.2009 Affidavit 29.12.2009 03. Iqbal Singh 24,86,000/- Confirmation 07.12.2009 Affidavit 29.12.2009 04. Jernail Singh 28,85, 000/- Ledger A/c. 07.12.2009 subsequent year 05. Jasbir Kaur 22,06,250/- Confirmation 10.12.2009 06. Joginder Harpal 26,85,300/- Ledger A/c. 07.12.2009 subsequent year 29.12.2009 Affidavit 07. Kasmir Singh 5,62,500/- Confirmation 07.12.2009 Affidavit 29.12.2009 08. Mahinder Singh 30,57,300/- Ledger A/c. 07.12.2009 subsequent year 29.12.2009 Affidavit 09. Manpreet Kaur 22,06,250/- Confirmation 07.12.2009 Affidavit 29.12.2009 10. Mukhtiyar Balwinder 60,34,000/-. Ledger A/c. 07.12.2009, subsequent year 29.12.2009 Affidavit 11. Pyara Singh 42,43,750/- Confirmation 07.12.2009 Affidavit 29.12.2009 12 Raghubir Singh 4,60,000/- Confirmation 07.12.2009 13. Rajwant Singh . 21,62,500/- Confirmation 07.12.2009 Affidavit 29.12.2009 14. Ranjit Singh 16,17,500/- Confirmation 07.12.2009 Affidavit 29.12.2009 15. Sukhbir Singh 4,60,000/- Confirmation 07.12.2009 Affidavit 29.12.2009 TOTAL 3,38,35,600/- The identity of these creditors cannot be subject to any .doubt as these creditors were duly "appeared before sub-Registrar for transferring the property in favour of appellant company. The genuineness of the transaction cannot be subject to any doubt as the transactions has taken place by account payee cheques and the creditors have parted with possessions of the land against consideration. As far as allegation of AO about cash payment to these creditors outside the books out of other source of income is concerned, the AO has not brought any material on records except copy of sale deed which the appellant himself has furnished and the customary statement of the farmers before the sub-registrar which the fanner has inner way retracted during these proceedings. Therefore, mere relying upon copy of sale deeds submitted by the appellant himself without bringing corroborative evidence in view of various documents submitted by the appellant, the observations made by the A.0. is totally arbitrary and uncalled for. The Hon 'ble Bombay High Court in the case of CITv/s. Mahalaxmi Glass Works Pvt. Ltd. Dated 28,04.2009) 2009 TOIL 234-SC ,(Mon) has. held the evidence brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidence. The A.O. should have passed a speaking order instead of casual remark "the documents submitted and explanation offered by the assessee in support of outstanding creditors is not satisfactory and are not satisfied with the above explanation & documents " (page 6 para 3 of the impugned order) With due respect the Ld. A.O. in the impugned assessment order has further alleged that "no prudent farmer or else in any one would transfer the land without getting the money paid to the property owner, hence the plea of the assessee that the creditors are still outstanding cannot be believe and is not established (page 6 para 3 of the impugned order) It is settled proposition-of law, that the A.O. cannot step into the shoe of the assessee. The Hon'ble ITAT Bench of Chennai vide its order dated 18.03.2009 reported as 2009 TOIL - 271 ITAT (Mad) has held A.O. cannot decide how business has to be done. The assessee has liberty to choose its business model. In a complex manufacturing process it is the assessee who decides as to what to produce in the factory, what to buy and what to outsource. The A.O. cannot justifiably claim to put himself in the arm chair of the businessman and assume the role to decide how to do the business having regard to the circumstances of the case. The A.O. has to put himself in the shoes of the assessee and see how a prudent businessman would act. How should not look at the matter from his own view point but from that of a prudent businessman. It was produce on the part of the farmers to accept the balance consideration by account payee cheque(s) instead of insisting the appellant company to make payment by demand draft or by account payee cheque of .current date as the farmers were fully aware about their legal rights in case of bouncing of cheque under section 138 of Negotiable Instrument Act, 1881. These were negotiated deals between the parties. Your honour will appreciate from the above documents and submissions made before the A.O. and now before your honour it is proved beyond doubt the veracity of the transactions. There was not a single iota of evidence to assume otherwise, or to conclude that the transactions are no.t genuine. It is matter of records that the A.O. has not pointed out any discrepancy or irregularity in the documents or evidence produced by the appellant except by raising presumption that no prudent farmer or else anyone would transfer the land without getting the money paid to the property owners. In the recent judgment the Hon'ble ITAT New Delhi in the case of M/s. Standard Gum Industries Pvt. Ltd. v/s. DCIT Circle 9(1) New Delhi (2008) TIOL-643 ITAT Delhi on 17.10.2008.
Page 10 of 17 Held therefore, no enquiry was made by the A.O. from the respective parties and that he had has not pointed out any discrepancy or irregularity in he documents or evidence produced by the assessee except by raising presumptions that no prudent businessman would indulge into series of transactions of purchases and sales resulting into loss to the assessee. Also held that the CIT(A) upheld AO's order only on preponderance of probabilities. The Ld. Assessing Officer brushed aside all the legal and valid evidences tendered before him-during the assessment proceeding and has raised only suspicion on the genuine business transactions took place in the course of regular business which is not only illegal but unjest as per law decided by Hon 'ble Supreme Court of India in the case of "Umacharan Shah & Brothers v/s. CIT reported in 37-ITR-271 (SC) held that:- "A suspicion however, strong cannot take place of evidences". It is needless to say that the A.O. has made addition only on the basis of suspicion." 10.2 The AR further relied on the following case laws in support of various propositions. • CIT v/s. Calcutta Discount Co. 9L ITR 8 (2002) TOP: - 550-SC-IT-CB) • Sona Electrics - Delhi High Court • CIT v/s. Praveen Electronics Limited 312 ITR .179 (Delhi) • CIT v/s. Ram NarahrGoel (1,996) 224 ITR 180 (Punj. & Har.) \ -. • Epari Raghuram Patra &Sons v/s. CIT 135 Taxman 514 (Orissa) • Hazxari Lal RoopChand v/s. CIT 65 ITR 488 (All) • CIT v/s. Anupam Kapoor ( 2008) ITR 179 (Punj & Har) • Mehta Pareek & Co. 30 ITR 181 ' • ITO v/s. Laxman Das Makhija (Agra)(TM ) 47 • CIT Vs. Nathu Ram Prem Chand 49 ITR 561 ( Allahabad H.C.) • CIT v/s Pradeep Gupta 207 CTR 115 • Bansal Strips Pvt. Ltd. v/s. ACIT (2006) 99 ITD 177 11. I have gone through the assessment order and the detailed written submissions filed by the AR in this regard. 12.1 The assessee has purchased land during the F.Y. relevant for A.Y. 2007-08 from various parties/farmers for the real estate project undertaken by the assessee. It was noticed by the AO that Rs. 3,38,35,600/- was shown payable/outstanding to the said parties as on 31.03.2007. The AO added these amounts on the ground that the assessee might have cleared/paid these amounts out of undisclosed income and the liability cannot be believed to have been existing as on 31.03.2007. 12.2 The following are the details of parties, outstanding amounts, evidence brought on record both by the assessee and the AO. s. Name Outstanding Payments made in Evidence brought No. Amount subsequent months on record by the after 01.04.2007 assessee 01. Balwinder Kaur 22,06,250/- Still outstanding Confirmation letter and Affidavit 02. Bal winder Singh 5,62,500/-. Still outstanding Confirmation letter and Affidavit 03. Iqbal Singh 24,86,000/- Still outstanding Confirmation letter and Affidavit Page 11 of 17 04. Jernail Singh 28,85,000/- Rs. 8,00,000/- Ledger A/c of Ch. 170282 dt: subsequent year 13.04.2007 Encashed on 17.05.2007 Rs.8,00,000/-Ch 170281 dt: 12.04.2007 Encashed on 30.05.2007 Rs .8,00,000/-Ch. 170283 dt: 14.04.2007 Encashed on 20.06.2007 Rs.4,85,000/- Ch.170284 dt: 16.04.2007 Encashed on 26.07.2007 05. Jasbir Kaur 22,06,250/- Still outstanding Confirmation 06. Joginder Harpal 26,85,300/- Rs.16,85,300/- Ledger A/c. of Ch.170239 dt: 26.03 subsequent year .2007 Affidavit Encashed on 10.40.2007 Rs.10,00,000/-Ch. 170240 dt: 28.03.2007 Encashed on 17.05.2007 07. Kasmir Singh 5,62,500/- Still outstanding Confirmation letter and Affidavit 08. Mahinder Singh 30,57,300/- Rs.10,57,300/- Ledger A/c. of Ch.028276 dt: subsequent year 12.04.2007 Affidavit Encashed on 06.10.2007 Rs.20,00,000/-Ch. 028274 dt: 10.04.2007 Encashed on 07.03.20.08 09, Manpreet Kaur 22,06,250/-' Still outstanding Confirmation letter and Affidavit Page 12 of 17 10. Mukhtiyar Bal 60,34,000/-. Rs. 15,00,000/- Ledger A/c. of winder Ch. 170285 Dt. subsequent year 12.04.2007. Affidavit Encashed on 10.05.2007 Rs. 15, 00,000/- Ch. 170279 dt: 13.04.2007 Encashed on 10.05.2007 Rs.l 5,87,000/- Ch. 170287 .dt: 14.04.2007 Encashed on 24.05.2007 Rs.14,47,000/- Ch. 170286 dt: 16.04.2007 Encashed on 24.05.2007 11. Pyara Singh 42,43,750/- Still outstanding Confirmation letter and Affidavit -. 12 Raghubir Singh 4,60,0007- Still outstanding Confirmation letter 13. Rajwant Singh 21,62,5007- Still outstanding Confirmation letter and Affidavit 14. R.anjit Singh 16,17,5007- Still outstanding Confirmation letter and Affidavit 15. Sukhbir Singh 4,60,0007- Still outstanding Confirmation letter and Affidavit 12.3 The assessee has purchased the land from various persons/ farmers and made the payments by way of cash, cheques and post dated cheques as seen from the documents furnished and the land was registered in favour of the assessee company. The farmers stated before the registering authorities that the sale consideration due to them was received as mentioned in the deeds/ documents, which it appears to be a requirement or an enquiry conducted usually by the Registration authorities before registering the documents. The AO gave importance to these remarks and concluded that there is no scope for any outstanding amount as on 31.03.2007. The AO further observed that the assessee might have paid the amounts out of the undisclosed income and added. 12.4 The main contention of the AR is that all the farmers confirmed the transactions and "provided the copies of sale deeds and other documents as required by the AO in the course of assessment proceedings. He further stated that confirmation letters and affidavits were furnished to prove the purchase of land, receipt of monies by way of cheques and post dated cheques. The AR further stated that in respect of four persons the post dated cheques were encashed in the subsequent months of April, 2007/May, 2007 and other months as mentioned in the table given in para 12.2. The AR further stated that the liability is being shown in favour of farmers instead of Bank. It is a matter of reconciliation and there was no payment of money outside the books of account as presumed by the AO.
12.5 I have carefully gone'through the details, documents and the record maintained by the AO. The assessee issued post dated cheques which were mentioned in the documents showing, purchase of land. These post .dated cheques were encashed .by the four persons (out of 15 creditors) in the subsequent financial year/ s which was not disputed by the AO. 12.6 In respect of the balance 11 creditors/persons, the amounts are still outstanding. The AR has filed confirmation letters vide explanation letters dated 07.12.2009 & 10.12.2009 and affidavits subsequently in the course of assessment proceedings which fact/s was/were also recorded in the assessment order. It is further seen from the assessment record that the AO has issued enquiry letters dated 09.11.2009 u/s 133(6) to all the farmers and the AO received replies which are available on the record. The AO has not noticed any discrepancy and the facts brought on record by the assessee were not controverted. 12.7 The AO simply presumed that money might have been paid out of undisclosed income without bringing any evidence on record for "" such payments. No addition/disallowance can be made on suspicion, surmises or conjectures as per the established legal position. 12.8 In the case of Acchyalal Shaw v. ITO (2009) 30 SOT 44 (Kol.) (URO), the Hon'ble ITAT observed as under: "Suspicion cannot replace evidential document. Simple argument or allegation of manipulation is not sufficient without proper evidence." 12.9 In the light of the above discussion, there is no ground for making an addition of Rs. 3,38,35,600/- representing outstanding creditors as on 31.03.200/- towards purchase of land. The addition is hereby deleted. Relief: Rs. 3,38,35,600/-“ 9. Against the order of the ld CIT (A) the revenue is in appeal before us.
The ld DR submitted that the registered sale deed shows that payments have been made fully to the buyers and they have also stated before the Govt authority that full payment is received by them towards sale of land then there cannot be any creditor in the books of account of the assessee. He further submitted that even if it is presumed that some cheques have been encashed or presented in the subsequent years even then there cannot outstanding creditor in the books of the assessee. He therefore stated that sum of Rs. 33835600/- has already been paid by the assessee and the sundry creditors are incorrect.
The ld AR relied on order of the ld CIT(A) and submitted that the assessee has submitted the complete confirmation and affidavit or the buyers. The sundry creditors are correct. He referred to specifically para No. 12.2 to 12.9 of the order of the ld CIT(A).
Page 14 of 17 12. We have carefully considered the rival contentions. It is undisputed that the assessee has purchased land from 15 persons and an amount of Rs. 3.38 crores are outstanding in their accounts whereas they have confirmed in the sale deed registered before the sub-registrar that they have received the total payment. The sale deed is signed by the buyer and seller both along with two witnesses. In confirmations and affidavits before the ld Assessing Officer when he confronted the assessee were submitted. A chart was also submitted which is reproduced at para No. 12.2 of the order of the ld CIT(A), wherein, out of 15 persons in case of 11 persons the amount was still outstanding till the date of order of the ld CIT(A) i.e. for more than 3 years. Even before us during the course of hearing the ld AR did not mention whether payments have been made to these parties or not. Further, as it is submitted before the ld CIT(A) that payment has been made through post dated cheques and therefore, the creditors are correct. These theory losses its credence where it is evident that to sum of these parties the cheques are dated before the end of the year i.e. 31.03.2007 and still they are shown as creditors. Such specific instance is parties at Sl. No. 6 of the above chart. Therefore, it is apparent that cheques have been issued before the end of the year by the appellant to those parties but are not recorded in the books of account and still parties are shown as creditors. Further, it is startling that the sale deeds have been registered and the parties have confirmed before the sub-registrar about the receipt of the payment as consideration for the sale of properties. However, have subsequently, denied to have received the payment and stated it that it is outstanding by furnishing affidavit. When two contradictory statements of the recipient of the consideration are on record then it becomes necessary for the ld Assessing Officer as well as the ld first appellate authority to carry out necessary examination of such persons as well as to inform the sub-registrar of the property about the facts stated before him. The ld AO and ld CIT(A) both have failed to carry out further investigation of the facts. In view of this the ground No. 2 of the appeal of the revenue is set aside to the file of the ld Assessing Officer to examine the issue afresh by ascertaining the correct dates of the payment with respect to all 15 persons, examined about the veracity of the truth stated by the them before the sub-registrar as well as before the AO himself, ascertain and inform about the correct states of Page 15 of 17 affairs of such payment to the Sub-registrar Office, to ascertain the correctness of the books of accounts of the assessee vis a vis the banking transaction where though cheques were issued before 31.03.2007 but were not recorded in the books of accounts and then decide the issue on merits afresh. Needless to say that the assessee is also directed to produce the sellers before the Assessing Officer for examination and AO will give proper opportunity of hearing to the appellant for adducing the evidence. In the result ground No. 2 of the appeal of the revenue is allowed accordingly.
Ground No. 3 of the appeal of the revenue is against the order of the ld CIT(A) by deleting the addition of Rs. 6767120/- disallowed by the AO u/s 40A(3) of the Act. the ld Assessing Officer has disallowed Rs. 7980946/- 20% of Rs. 39904732/-. The ld CIT(A) has confirmed the disallowance of Rs. 1213826/- being 20% of Rs. 6069132/-. The reason being that as he has held that a sum of Rs. 33835600/- which was added towards unexplained creditors and it was held by him that there is no such cash payment in respect of outstanding creditors therefore, form Rs. 39904732/- he reduced the above sum. Therefore, revenue is in appeal before us. As this ground of appeal
is linked to Ground No. 2 of the appeal of the revenue which has been set aside by us to the file of the ld Assessing Officer therefore, for the complete decision on the whole issue this ground of appeal cannot be decided in isolation of decision in that ground. Therefore we set ground No. 3 of the appeal of the revenue to the file of the ld Assessing Officer to decide afresh after deciding the issue involved in ground No. 2 of the appeal of the revenue. in the result ground No. 3 of the appeal of the revenue is allowed accordingly.
14. In the result the appeal of the revenue is allowed for statistical purposes.
15. Now we come to the cross objection filed by the assessee, wherein it is contested that disallowance u/s 40A(3) of the Act sustained by the ld CIT(A) of Rs. 1213826/- is erroneous.
16. The ld AR contested that the issue is covered by the circular of CBDT reported at 108 ITR 8 (ST).
17. The ld DR relied upon the order of the lower authorities.
18. We have carefully considered the rival contentions and also perused the circular cited before us which is as under:-
Page 16 of 17 “All Commissioners of Income-tax. Subject : Section 40A(3) of the Income-tax Act, 1961—Rule 6DD(j) of the Income-tax Rufes, 1962—Clarification regarding. Sir, Clause (j) of rule of the Income-tax Rules, 1962, provides that no disallowance under section 40A(3) of the Income-tax Act, 1961, shall be made where the assessee satisfies the Income-tax Officer that the payment could not be made by way of a crossed cheque drawn on a bank or by a crossed bank draft— (a) due to exceptional or unavoidable circumstances ; or (b) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof; and also furnishes evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee.
It would be seen that where payment of a sum exceeding Rs. 2,500 is made, otherwise than by a crossed cheque/draft, the assessee besides furnishing evidence as to the genuineness of the payment and the identity of the payee, is required to satisfy the Income-tax Officer that his case falls under any one of the circumstances mentioned in (a) and (b) above if he claims that no disallowance should be made under section 40A(3) of the Income-tax Act, 1961.
3. Various representations have been received by the Board regarding the difficulties that are being experienced by the taxpayers due to lack of uniformity in the interpretation of the provisions of rule of the Income-tax Rules, 1962, by the Income-tax Officers. The Board have considered these representations and have decided to lay down certain guide- lines to ensure uniformity of approach among Income-tax Officers in this behalf.
All the circumstances in which the conditions laid down in rule would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are ; (i) The purchaser is new to the seller ; or (ii) The transactions are made at a place where either the purchaser or the seller does not have a bank account; or (iii) The transactions and payments are made on a bank holiday ; or (iv) The seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non- availability of goods otherwise than from this particular seller ; or (v) The seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or (vi) Specific discount is given by the seller for payment to be made by way of cash.
It can be said that it would generally satisfy the requirements of rule if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the