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Income Tax Appellate Tribunal, JAIPUR BENCHES “B”, JAIPUR
Before: SHRI N.K. SAINI & SHRI SANDEEP GOSAIN, JM vk;dj vihy la-@ITA No. 305/JP/2020
ORDER PER: SANDEEP GOSAIN, J.M. The present appeal has been filed by the assessee against the order of the ld. CIT(A), National Faceless Appeal Centre, Delhi (NFAC) dated 07/08/2020 for the A.Y. 2012-13. The assessee has raised following grounds of appeal: “1. That ld. AO has erred in doing addition U/s 40A(3) of Rs. 18,00,000/- on account of payment made in cash for purchase of Land for getting settlement/withdrawal of case from Civil Court by seller may please be declared as illegal and order passed by ld. AO to the extent may please be set aside.
2. That Ld. CIT(A) has erred in confirming order of Ld. AO and which is without any basis and thus same may also please be declared as illegal and unjustified in the facts and circumstances of the case.
2 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO 3. That the appellate craves leave to add, amend or alter any of the ground to this appeal with the request to allow to submit written submission at the time of hearing of appeal.” 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
The brief facts of the case are that the assessee company is engaged in the business of real estate development, colonization of plots etc. The assessee had filed its return of income on 28/09/2012 declaring income of Rs. 13,81,790/-. The case of the assessee was selected for scrutiny and statutory notices were issued and served upon the assessee. Finally the assessment was completed U/s 143(3) of the Income Tax Act, 1961 (in short, the Act) on 16/03/2015 determining total income of Rs. 31,18,790/- by making disallowance of Rs. 18,00,000/- on account of cash payment for land settlement charges and added the same in the total income of the assessee.
4. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of the parties and material placed on record, upheld the action taken by the A.O. Against the order passed by the ld. 3 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO CIT(A), the assessee has preferred the present appeal before the ITAT on the grounds mentioned above:
5. Both the grounds of appeal raised by the assessee are interrelated and interconnected and the assessee is basically aggrieved by the order of the ld. CIT(A) in upholding the addition of Rs. 18.00 lacs made U/s 40A(3) of the Act. In this regard, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied upon the written submissions filed before the Bench and the contents of the same are reproduced below: “(1) That the appellant company had made payment of Rs.25,00,000/- to Mr. Hari Narain S/o.Chotu, Resident of Village:Mandau, Dola Ki Dhani, Tehsil: Sanganer, Jaipur for getting withdrawal of case from ADJ No.5, District & Session Judge, Civil Court, Jaipur which was filed by him for want of compensation for getting clearance of Land Title in favour of appellant company. As the appellant company was under acute pressure for getting clearance of title from Jaipur Development Authority (JDA) for approval of its map and other necessary statutory approvals which was not able to grant without having good and clear Land Title. As the Suit was lodged by Mr. Hari Narain and in which Temporary Injunction (T.I.) was ordered by Hon’ble Additional Chief Judicial Magistrate, Jaipur-5, Jaipur vide their order dt.20.11.2011 in which direction was given to respondent company for not doing mortgage, sell or transfer of Land under consideration and not to carry out any construction activity and directed to maintain status quo of Land.
4 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO Thus by such an Temporary Injunction Order the company was stuck down and might face several criminal complaint for not timely delivering title and possession to its buyers. Under such compelling circumstances appellant company as a way to overcome from such difficult situation had to incur additional charges in form of compensation of Rs.25,00,000/- so that court case may be withdrawn by Mr. Harinarayan and good and clear Land Title may be issued by JDA and all development, construction activity may be undertaken by appellant as the appellant was duty bound to handover the possession to various buyers within stipulated time and pass on good and clear land title to various buyers. The details of Rs.25,00,000/- are given as under:- Amount Date of payment Mode of Payment ----------- ---------------------- ------------------------ 7,00,000/- 28.11.2011 Cheque no.: 013771 of Axis Bank, Vaishali Nagar, Jaipur 18,00,000/- 30.11.2011 Cash --------------- 25,00,000/- Total --------------- (2) That Rs.7,00,000/- was paid from bank account of company and remaining Rs.18,00,000/- was paid in cash under compulsion for settlement of dispute from Mr. Hari Narain. That Rs.7,00,000/- was paid through cheque was also not easily accepted by Mr. Hari Narain due to not having trust upon appellant company on apprehension that whether this amount of Rs.25,00,000/- will be paid by company to him or not and on perception that without release of settlement payment Receipt of settlement may be issued from him, therefore after having mediation from Mr. Tara Chand S/o. Shri Hema Ram, resident of Kesar Baba Ki Dhani, Sanganer, Jaipur who was having good connection and relation with Mr. Hari Narain and whose great insistence Rs.7,00,000/- was accepted by him through cheque and even after insistence remaining amount of Rs.18,00,000/- was paid to him in cash only.
5 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO An Affidavit of Mr. Tara Chand with regard to above facts was submitted before Commissioner(A) on dt.9.10.2017 but Ld. Commissioner(A) merely on the ground that above payment of Rs.18,00,000/- do not falls within the exception list of Rule 6DD has mechanically confirmed addition. (3) That apart from above an Affidavit of Mr. Mahendra Kumar Jaimini- employee of appellant company was also submitted before Commissioner (A) wherein he has said all above factual situations of the case but same was also not considered. (4) Therefore this cash payment was not deliberate and was coupled with sufficient cause and same was beyond control also. That cash of Rs.18,00,000/- is paid out of getting withdrawal from the bank as per details given as below:- Date Amount withdrawn cheque no & from bank date -------- -------------------------- ----------------- 23.11.2011 9,00,000/- 13766 dt.23.11.2011 24.11.2011 9,00,000/- 13767 dt.24.11.2011 -------------- Total: 18,00,000/- ======== That above cash is withdrawn from bank account of appellant by doing transfer of same in bank account of its employee Mr. Mahendra Kumar Jaminiand wherein funds are transferred from its Axis Bank, Jaipur Branch having a/c no.:910020025192090 to its employee Mr. Mahendra Kumar Jamini s/b a/c no.911010014162743 and from this account cash is withdrawn from bank account. Copy of both bank statements were submitted before both the lower authorities and copy of which are enclosed herewith. That appellant has paid Rs.7,00,000/- through cheque and Rs.18,00,000/- were paid in cash and thus it itself establishes that due to difficult circumstances and under beyond control situations therefore appellant had to make payment in cash only and by withdrawing same 6 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO from bank account of company. That by going through with the bank statement it is apparent that there was sufficient bank balance and just under unavoidable circumstance and at the insistence of Seller the appellant had withdrawn cash and made payment to him and where ever it was possible to make payment through cheque, the payment was made through cheque only.
That after getting settlement of dispute the letter was also submitted to Jaipur Development Authority on dt.16.12.2011 with regard to fact that dispute of Land has been settled and necessary action of JDA with regard to issuance of PATTA may be released by JDA.
That legislative intention of Section 40A(3) is to curb those transactions where any expenditure in the garb of cash payment is being claimed and further to curb the black money but genuineness of transaction, business expediency and genuine hardship has also been kept as relevant consideration by way of above provision. That Central Board has issued Circular no. 220 (F.No. 206/17/76-IT (A-II) dt.31.5.1977 which provide exception list and circumstances as below:- “………………….
All the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are : (a) The purchaser is new to the seller; or (b) the transactions are made at a place where either the purchaser or the seller does not have a bank account; or (c ) the transaction and payments are made on a bank holiday; or (d) the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser’s business 7 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO interest would suffer due to non availability of goods otherwise than from this particular seller; or (e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or (f) specific discount is given by the seller for payment to be made by way of cash.” Thus by going with above exception list it is apparent that case of appellant is squarely covers within clause no.(d) above wherein Mr. HariNarain (land owner) has refused to accept payment through cheque and had insisted for doing payment in cash only.
That the appellant wish to rely on the judgments as below:- (i) That in the case of Attar Singh Gurmukh Singh etc. Vs. ITO 1991- 191- ITR – 667 (Supreme Court) Held that provision of section 40A(3) is not intended to restrict the business activities, only restraint intended to curb the chances and opportunities to use or create black money. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assesse to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in Section 40A(3) was not practicable or would have caused genuine difficulty to the payee. (copy of judgment is enclosed)
8 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO (ii) That in the case of PACS India Ltd. Vs. Asstt. CIT 2010 – 38 – DTR – 1 (ITAT, Jaipur Bench) It is held that when there is no dispute regarding the identity of the payees and the genuineness of the transactions in respect of which payments were made, thus the payments were covered under second proviso to Section 40A(3) and rule 6DD(h). (iii) That in the case of Harshila Chorida Vs. ITO 208 CTR 208 (Raj. High Court) It has been held that exceptions contained in Rule 6DD are not exhaustive and that the said Rule must be interpreted liberally.” That clause 6DD(j) has to be liberally construed and ordinarily where the genuineness of the transaction and the payment and identity of the receiver is established, the requirement of rule 6DD(j) must be deemed to have been satisfied. That it is worth to submit that neither the assessing authority nor appellate authority has doubted the genuineness of payment made to Mr. HariNarain as same is quiet evident from the settlement deed as submitted before the ADJ Court, Jaipur. And thus when there is no dispute about genuineness of payment made and that is also after getting withdrawn from the bank account, doing disallowance of cash payment is absolutely illegal and unjustified in the facts & circumstances of the case. Your honour is humbly prayed to kindly direct to delete addition of Rs.18,00,000/- made u/s.40A(3) and order passed by lower authorities may please be set aside & oblige.
6. On the other hand, the ld. DR has vehemently supported the orders of the lower authorities.
9 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO 7. We have considered the rival contentions and carefully perused the material placed on record. From the record, we noticed that there is no dispute to the fact that the assessee had made payment of Rs. 18.00 lacs in cash and making of payment in cash by the assessee is in violation of provisions of Section 40A(3) of the Act. The ld. AR appearing before us could not point out any exception as given in Rule 6DD of the Income Tax Rules, 1962 (in short, the Rules), therefore, in our view, simply because the payment is made by the assessee, the claim of the assessee cannot be accepted. Although, the assessee has relied upon its written submissions and has relied upon the judgments contained therein i.e. Shri Attar Singh Gurmukh Singh etc. Vs ITO (1991) 191 ITR 667 (SC) and M/s PACS India Ltd. Vs ACIT (2010) 38 DTR 1(JP Trib). However, the pari materia contained in those judgments are altogether different and are not applicable to the facts of the present case and they are of no help to the case of the assessee. The legislative intent of Section 40A(3) of the Act is to curb those transactions where any expenditure in the garb of cash payment is being claimed and further to curb the black money but genuineness of transaction, business expediency and genuine hardship has also to be kept in mind and they are also relevant consideration as per circular issued by the CBDT No. 220 (F.No. 206/17/76-IT(A-II) dated 31/05/1977. However, as per the facts of the present case, although, the 10 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO assessee has categorically stated that they have made payment of Rs.18.00 lacs in cash to one Shri Hari Narain for land settlement charges but except filing affidavit of the mediator, no other documents have been placed on record. The A.O. has failed to carry out necessary verifications from the said Shri Hari Narain or to verify the genuineness of making of payment by the assessee. From the records, we noticed that the said Hari Narain to whom payment was made was not even called or confronted.
Be that as it may, considering the entirety of facts and circumstances of the case and also keeping in view that the A.O. had not carried out detailed investigations and verifications with regard to genuineness of the payments, we restore the matter back to the file of the A.O. with direction to carry out necessary verifications/investigations to verify the genuineness of the payment made by the assessee if any. We direct accordingly.
In the result, this appeal of the assessee is allowed for statistical purposes only.
Order pronounced in the open court on 08th February, 2022. Sd/- Sd/- ¼,u-ds-lSuh½ ¼lanhi x®lkÃa½ (N.K. SAINI) (SANDEEP GOSAIN) mik/;{k@Vice President U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 08/02/2022 11 ITA 305/JP/2020_ Vishnu Realcon P Ltd. Vs ITO *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Vishnu Realcon Private Limited, Jaipur. 1. izR;FkhZ@ The Respondent- The I.T.O., Ward 4(1), Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 305/JP/2020) 6. vkns'kkuqlkj@ By order,
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