Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI K. NARASIMHA CHARY, JM & DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the assessee, pertaining to the assessment year 2011-2012, is directed against an order passed by ld. Commissioner of Income Tax (Appeals)-Siliguri, in Appeal No.45/CIT(A)/SLG/2014-2015, dated 05.08.2015, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section.143(3) of the Income Tax Act 1961, (in short the ‘Act’), dated 25.03.2014.
The facts of the case qua the assessee are that the assessee filed its return of income on 28.03.2012 declaring total income of Rs.2,91,670/- . The return of income of the assessee was processed U/s.143(1) of the I.T.Act. Subsequently, assessee’s case was selected for scrutiny U/s.143(3) of the Act and the AO has completed the assessment by observing that assessee has violated the provisions of Section 40A(3) of the Act. Ld. AO observed that assessee has paid cash of Rs.37,07,000/- which is in violation of Section 40A(3) of the Act r.w.rule 6DD of the Act.
Aggrieved from the order of Assessing Officer, the assessee filed an appeal before the CIT(A), who has also confirmed the action of AO observing the followings :-
“3.4. It is to be seen whether the cash payments made by the appellant were covered by the conditions and circumstances laid down in Rule 6DD(j) of the Income Tax Rule 1962. Sub Rule (j) of Rule 6DD provides as follows: "(J) in any other case, where the assessee satisfies the Income-tax Officer that the payment could not be made by crossed cheque drawn on a bank or by a crossed bank draft- , (1) Due to exceptional or unavoidable circumstances, or (2) 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 Also furnishes evidence to the satisfaction of the income-tax Officer as to the genuineness of the payment and the identity of the payee." The Board, vide Circular No. 220/1977, clarified the provisions of section 40A (3) as well as rule 6DD (j). It has been provided as follows: "4. 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: (i) The purchaser is new to the seller; or (ii) The transitions are made at a place where either the purchaser or the seller does not have a bank accounts; or (iii) The transactions and payments are made on a bank holidays; or (iv) The seller is refusing to accept the payment by way of crossed cheque/draft and the purchasers 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.
3.5. The Ld. AR taken plea that the payments of Rs.19,00,000/- were made to Smt. Kalpana Rani Saha and others as the recipients were not conversant with banking practice and they are widow and housewives. For the other cash payments of Rs.18,07,000/- to Manik Sarkar and others, similar reasons have been taken and also stated that the land in question was encroached upon by others and the sellers were required to pay cash of Rs.8.00 lakhs to remove the encroachment. These conditions are not covered by conditions and circumstances laid down in Rule 6DD(j). It appears that the appellant placed full emphasis on condition (iv) above that sellers refused to accept payments by account payee cheques or drafts and therefore, appellant made cash payments for business interest. However, going by the nature of business of the appellant as well as nature of transactions involved, appellant's case does not qualify to take shelter under condition (iv) above.
3.6. The appellant is a builder and developers. Both plots in question, are located in Siliguri. Both purchaser and sellers are residents of Siliguri. There are more than hundred bank branches in Siliguri. Being transactions in landed properties, both purchaser and sellers got sufficient time to negotiate and finalize the deals. Appellant has not mentioned in his submission that none of the sellers were having bank account at the time of payments. In any case, one could have opened a bank account during this span of time. It is also not the case that appellant purchased those two plots in lesser than the market price. Again it also cannot be said that there were no other plots for sale in Siliguri. Thus, appellant's case is not at all covered by the condition (iv) above. Further, the facts of this case are clearly distinguishable from the facts of plethora of case laws cited by the Ld. AR. In those cases, cash payments by the contractors in a remote place, cash payments for 'nut' purchases, for raw hide purchases, cash payments for SlM card purchases, cash payments where banking facility is not available etc. have been dealt with. None of the case law cited by the appellant covers cash payments for purchases of plots by the builder. Here is a case where a builder made cash payments to sellers for purchase of landed properties in a city called Siliguri where more than hundred bank branches were functional. Thus, it is held that even the payments were. genuine, appellant indeed violated the provisions of section 40A(3) of the Act and going by the facts and circumstances of the case and such payments were not covered under the exceptional conditions provided in Rule 6dd(j) of the l.T. Rule, 1962. The addition of Rs.37,07,000/- is therefore, upheld.
Not being satisfied with the order of CIT(A), the assessee is in further appeal before us.
In this appeal, the assessee has raised four grounds of appeal, but at the time of hearing the main grievance of the assessee has been confined to ground No.2. The solitary grievance of the assessee in ground No.2 is that the AO had made addition to the extent of Rs.37,07,000/- invoking the provisions of Section 40A(3).
5. Ld. AR for the assessee has submitted before us that cash payment made to illiterate widow woman and other persons is genuine. However, ld. CIT(A) held that cash payment is not covered in exception under rule 6DD(j) of the I.T.Rules, 1962. Ld. AR has pointed out that the assessee under consideration is in the real estate business and he paid the cash in the genuine circumstances which can be verifiable with the help of agreement. The assessee has submitted the copy of agreement to whom the cash has been paid and have been clearly written therein the agreement. The payment in cash was made in genuine circumstances and considering the business expediency. Since assessee under consideration has purchased the land and it is a genuine transaction and he has paid only 17% payment in cash, and other payment he made through cheque. Therefore, considering the size of the deal/transaction 17% payment in cash in not a material. Ld. AR also submitted that payments made by cash in violation of Section 40A(3) of the Act have been duly acknowledged by the recipient and moreover there is an agreement. Hence, genuineness of the payments made by the assessee stands clearly established beyond doubt. The assessee made these payments for the purpose of business. Moreover, the payments of cash was supported by relevant documents and witnesses. Ld. AR also pointed out that the purpose of Section 40A(3) of the Act is to curb the expenditure in cash and to counter evasion. The CBDT Circular No.6-P dated 6.1.1968 reiterated this view that this provision is designed to counter evasion of tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the Department, as to the identity of the payee and the reasonableness of the payment. This provision does not restrict the fundamental right to carry on the business. There is no restriction in assessee in his trading activities. In addition to this, ld. AR for the assessee has relied on the following judgments :-
i) Smt. Srabani Chakraborty Vs. ITO, order dated 27.03.2014: ii) M/s Samar Biri Factory Vs. ACIT, ITA No.8/Kol/2013, order dated 5.12.2014; iii) Anupam Tele Services Vs. ITO, Tax Appeal No.556 of 2013, dated 22.1.2014 (Gujarat High Court) iv) Shri Manoranjan Raha Vs. ITO, ITA No.1448/Kol/2011, order dated 18.11.2015; and v) CIT Vs. CPL Tannery, 175 Taxman 316 (Calcutta High Court)
The sum and substance of the above cited judgments are that exception contained in Rule 6DD is not exhausted and said rule must be interpreted liberally. However, the genuineness and bonafide nature of transaction of the assessee are not disputed and assessee is able to show that there was business expediency. As also business expediency for the requirements of paying cash for the purpose of goods necessary for the business, therefore, the assessee would be entitled to get the relief from the applicability of section 40A(3) of the IT Act, 1961.
On the other hand, ld. DR for the revenue has primarily reiterated the stand taken by the AO, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
Having heard the rival contentions, various material available on record, we are of the view that there is a merit in the submissions of the assessee, as the proposition canvassed by the ld. AR for the assessee are supported by the above cited judgments and facts narrated by him. As he has explained before us that in the present case clearly the AO has not disputed the genuineness or bonafide of the transaction in respect of payment made by the assessee to purchase the land. The person from whom the assessee purchased the land/asset can be identified and genuineness can also be proved. The agreement with the purchaser also shows the genuineness and the assessee made the payment for the purpose of business/business expediency. Therefore, all the conditions required for showing the business expediency, and bonafide and moreover the transactions have been done as per the written agreement.
Hence, it is proved by the ld AR that payment by cash is in genuine circumstances. Therefore, we are of the view that cash payment made by the assessee for the purpose of purchasing land/assets would not be hit by the provisions of Section 40A(3) of the I.T.Act, 1961. Therefore, the addition made by the AO and as confirmed by the ld. CIT(A) on this issue stands deleted. 8. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on this 21/10/2016.
Sd/- Sd/- (NARASIMHA CHARY) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 21/10/2016 �काश �म�ा/Prakash Mishra,�न.स/ PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant –ITO Ward-1(1), Kolkata 2. ��यथ� / The Respondent.-M/s Abhay Carrier Private Ltd. 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,