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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: MS. SUCHITRA KAMBLE & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 16.07.2018 passed by learned Commissioner of Income-Tax (Appeals)-I, Indore [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 29.12.2016 passed by learned ITO, Ward-3(2), Indore [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2014-15, the revenue has filed this appeal on following grounds:
"1(i) The Ld. CIT(A) erred in restricting the addition of Rs.23,26,323/- made on account of disallowance of expenses to Rs. 8,63,293/- despite the fact that assessee failed to substantiate its claim of expenses and failed to comply with the provisions of 194C of I.T. Act, 1961. Page 1 of 16 Simran Developers Assessment year 2014-15 2.(i) The Ld.CIT(A) erred in deleting the addition of Rs.96,30,181/- made on account of determination of cost of goods as assessee has claimed unsubstantiated and incorrect expenses in calculation of cost of sales. (ii) The Ld. CIT(A) erred in considering the brokerage expenses as leveling expenses of land despite the fact that assessee itself submitted working of stock during the assessment proceedings and in calculating value of stock it had taken brokerage expenses too. (iii) The Ld. CIT(A) erred in considering the brokerage expenses as leveling expenses of land merely relying on the submissions of assessee that too in absence of any plausible documentary evidence. (iv) The Ld.CIT(A) erred in deciding above issue without giving any opportunity for verification/comments to AO, as new contention was made by assessee during appellate proceedings. 3.(a) The Ld. CIT(A) erred in deleting the addition made under section 40A(3) of the I.T. Act, 1961 of Rs. 40,00,000/- despite the fact that assessee had committed default within the purview of section 40A(3) of the I.T. Act, 1961 by making cash payment in excess of Rs. 20,000/-. (b) The Ld. CIT(A) erred in ignoring the fact that the seller Shri Jineshwar Lallulalji Jain was well known to the assessee and the seller was maintaining regular bank account. (c) The Ld. CIT(A) erred in ignoring the decision of Hon'ble Kolkata Tribunal in case of ITO v. Kenaram Saha & Subhash Saha [2009] 116 ITD 1 (Kol.-Trib.) (SB) regarding applicability of Rule 6DD(g) of Income Tax Rules, 1962. (d) The Ld. CIT(A) erred in relying only on the submissions made by not considering the facts and details mentioned by the AO. (e) The Ld. CIT(A) erred in making the decision against the Principle of Natural Justice by not considering the facts/observation made by the AO and only relying on the submissions furnished by assessee.”
When the case was called, none appeared on behalf of assessee nor any adjournment application filed. On perusal of case-records, it is found that the appeal relates to AY 2014-15 and the case has been fixed for hearing on multiple occasions but there is no representation from assessee. On further perusal, it is also observed that the notices of hearing sent to the address of assessee available in records have been returned with the remark “left”. Ld. DR pointed out that it’s a departmental-appeal and it can be decided on the basis of material held on record and after hearing him.
Simran Developers Assessment year 2014-15 Accordingly, the hearing is proceeded and the case is being disposed of by this order.
Briefly stated the facts are such that the assessee is engaged in real estate business. For the relevant assessment-year, the return of income declaring a loss of Rs. (-) 9,05,177/- was filed which was subjected to scrutiny-assessment wherein the AO assessed total income at Rs. 1,50,51,327/- after making additions on three counts, viz. (i) disallowance of Rs. 23,26,323/- out of expenses; (ii) difference of Rs. 96,30,181/- in valuation of cost of goods sold/closing stock; and (iii) disallowance of Rs. 40,00,000/- u/s 40A(3). Being aggrieved, the assessee went in first-appeal and succeeded partly. Now, the revenue has come in this appeal assailing the order of first-appeal.
We proceed to adjudicate the grounds in seriatim.
Ground No. 1:
In this ground, the revenue claims that the CIT(A) has erred in restricting disallowance of Rs. 23,26,323/- out of expenses made by AO to Rs. 8,63,293/-.
During assessment-proceeding, Ld. AO observed that the assessee did not produce books of account i.e. ledger, cash-book, bills, vouchers, evidence or explanation, etc. regarding the development expenses of Rs. 1,57,51,980/- and labour charges of Rs. 75,10,340/-; both totaling to Rs. 2,32,62,320/- claimed in P&L A/c.
Regarding “development expenses”, Ld. AO also noted that the assessee has supplied following details:
Name of the party Amount TDS Aashish Traders 1,23,000 1,230
Simran Developers Assessment year 2014-15
Zakir Khan 80,98,538 80,985 Others 64,08,762 64,087 Other direct expenses 11,21,680 - Total 1,57,51,980 1,46,303 Ld. AO further observed that no details/bills/confirmations/ledger accounts have been produced; moreover in respect of “Others” and “Other direct expenses” shown in the above table, even the names of the parties have not been supplied. He further observed that although the assessee has submitted challan of deposing TDS, but no TDS return had been filed. Accordingly, he concluded that the claim of “development expenses” is not verifiable.
Regarding “labour charges”, he observed that the assessee claimed to have paid these charges to labourers and labour supervisors but no details/ ledgers/labour sheets were filed, hence the claim is not verifiable.
Finally, Ld. AO disallowed 10% of the total expenditure amounting to Rs. 23,36,323/- and also made a reference to TDS wing of the department for non-filing of TDS returns.
During first-appeal, Ld. CIT(A) reduced the quantum of disallowance to Rs. 8,63,293/- by observing and holding thus:
“4.1 Ground No.1: Through this ground of appeal, the appellant has challenged the addition Rs. 23,26,323/- on account of disallowance out of expenses. The AO made the disallowance @ 10% out of the development expenses. The AO made the disallowance without any basis. The appellant firm is a Real Estate Developer. Being the real estate work, the appellant engaged the labour and contractors for doing the work. TDS was deducted on the payments made to contractors. The three contractors have carried out the allotted work to them. For the year under consideration the appellant has shown the total sale of Rs.3,56,28,160/- and has shown the net profit @ 21% of the turnover and very reasonable & fair in this line of business. In the assessment, disallowance of Rs.1,59,56,504/- was made and if the said disallowance is added to the total income, the net profit comes to Rs.1.50,51,327/- (Rs.(-)9,05,177/- Rs.1,59,56,504/-) which is nearly 47.10%
Simran Developers Assessment year 2014-15 of the total turnover which is very high and unreasonable in this line of business. It is held by various courts that if the AO is not satisfied about the correctness of the expenditure claimed by the appellant, he should invoke the provisions of section 145 which is as under: "Section 145(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144" Thus, it is clear that if the AO has any doubt about any expenditure claimed by the appellant, the provisions of section 145 should be applied and profit should be determined at reasonable figure. All the payments made to the aforesaid three contractors were by account payee cheques. The department has not pointed out any instances where it can be proved that the cash come back to the appellant. The appellant has shown the net profit on total contract @ 21% which is very reasonable in case work was executed on contract basis. Thus, from all corners, it is clearly established that the work is given on contract basis and hence, there is no justification to add back the same in the hands of the appellant. In any civil contract business earning profit margin of 47.10% is unthinkable. The AO also mentioned that the appellant is a Real Estate Developer. The only thing objected by the AO was claim of higher expenses. Even AO went on making addition largely on the basis of assumption and to some extent on the basis of deliberation of facts gathered. I find that both the AO and appellant were not correct in so far as appellant offered loss of Rs. 9,05,177/- from the total receipt of Rs 3,56,28,160/- which is only net loss and on the other hand AO estimated a much higher net income from contract at Rs 1,50,51,327/- which comes to a whopping 47.10% of net profit from total receipt. Considering both of the net profits as unjustified and incorrect, it will be appropriate to estimate the net profit of appellant after allowing the expenses on which the appellant has deducted the TDS. The appellant has deducted TDS in respect of following payments:-
Name of the Party Gross Amount TDS Ashish Traders 1,23,000/- 1,230/- Zakir Khan 80,98,538/- 80,985/- Others 64,08,762/- 64,087/- Total 1,46,30,300/-
4.1.2 Therefore, the AO is not justified in making disallowance of 10% out of Rs.1,46,30,300/- As a result out of the total addition of Rs.23,26,323, an addition of Rs. 14,63,030/- (Rs 1,46,30,300/- (*) 0.10) is Deleted and the appellant will get the relief of Rs. 14,63,030/- Therefore the addition made by Simran Developers Assessment year 2014-15 the AO amounting to Rs. 8,63,293/- (Rs.23,26,323 (-) Rs 14,63,030) is Confirmed. Therefore the appeal on this ground is Partly Allowed.”
Before us, Ld. DR made certain submissions. Firstly, he submitted that the Ld. CIT(A) has himself noted at more than one places in the appeal- order that the assessee has declared loss of Rs. (-) 9,05,177/- and still he has made an opposite finding that the assessee has shown 21% net profit from contracts. Thus, there is a total contraction and dichotomy in the order of Ld. CIT(A) which is apparent at the first blush itself. Secondly, he submitted that it is an undisputed fact that the assessee has not submitted/produced any iota of evidence, books of account, bills, vouchers, ledgers confirmations, etc. in support of the claim of expenses. He submitted that when the assessee claims deduction, it is the burden of assessee to prove without any doubt that he has incurred expenditure and such expenditure is for business purpose but in the present case, the assessee has not produced even basic documents to department. With these submissions, Ld. DR argued that the AO has rightly made a disallowance of 10% of expenditure claimed by assessee and the Ld. CIT(A) has wrongly allowed relief to assessee. Ld. DR prays to reverse the decision of Ld. CIT(A).
We have considered the submissions made by Ld. DR and perused the orders of lower-authorities. We find merit in the first submission of Ld. DR that there is a contradiction/dichotomy in the order of Ld. CIT(A) as narrated in the preceding paragraph. Going further we also find weightage in his submission that the assessee has not produced any books of account or evidence in support of expenditure. However, on perusal of assessment- order, we find that the assessee has supplied party-wise details of Rs. 1,46,30,300/- paid against “development expenses”; the assessee has deducted TDS therefrom u/s 194C; and also submitted the challan of TDS to AO. Taking into account these facts, Ld. CIT(A) has deleted the disallowance to the extent of 10% of Rs. 1,46,30,000/- i.e. Rs. 14,63,030/- and granted part-relief to assessee. The objection of Ld. AO qua this part is very limited i.e. the assessee has not filed TDS return. But for that objection,
Simran Developers Assessment year 2014-15 the AO has taken a separate action and referred the matter to TDS wing which is very clear from the assessment-order. In the circumstance, we agree with Ld. CIT(A) that the AO is not justified to make disallowance qua the payment of Rs. 1,46,30,000/- for which the assessee has supplied party- wise details and also deducted TDS. Thus, there is nothing wrong in the part-relief granted by Ld. CIT(A). We approve his action. This ground of revenue is, thus, dismissed.
Ground No. 2 (including sub-grounds thereof):
In this ground, the revenue claims that the CIT(A) has erred in deleting the addition of Rs. 96,30,181/- made by AO on account of determination of cost of goods sold. The revenue has raised this grievance on several counts as mentioned in different sub-grounds.
During assessment-proceeding, the Ld. AO interrogated the assessee qua the valuation of closing stock. When the assessee filed working of closing stock, the AO found certain anomalies in the “closing stock” as well as its counter-part “cost of goods sold”. Finally, Ld. AO made an addition of Rs. 96,30,181/- by observing as follows:
“7.2.3 It can be seen that the assessee has included various expenses while calculating cost of goods sold which have not been incurred during the year. Despite repeated queries it has failed to produce any background material/or basis to justify such claim of expenses which have not actually been incurred except saying that the development of the plots sold and adjoining areas as well as various facilities to be provided are yet to take place and he has taken the claim on such expenses to be incurred. Interestingly the assessee has also made a claim in respect of brokerage charges to be paid that too @ 110/ per sq ft which comes to around 16% of the sale price. Items such as Brokerage is not an item of trading account and never taken for valuation of closing stock. Moreover while computing the profit in respect of goods sold during the year he has separately made claim of brokerage paid in the P&L account. Regarding other expenses no details has been provided in respect of the claim. The counsel of the assessee argued that the instant year is the beginning of the project and the assessee has to carry out various development expenses for which he has already charged the purchasers and booked the entire amount as sales. He argued that the assessee is entitled to the claim of such expenses since he has already booked entire amount received on account of sale and development expenses in the sales declared during the year. Alternatively he Simran Developers Assessment year 2014-15 argued to account for only the part of sales in respect of which the work has already been done. 7.2.4. The assessee's submission and arguments of the AR have been duly considered and it is seen that there is no justification for claiming brokerage expenses (claimed @110 per sq ft) while calculating cost of goods sold as the brokerage expenses form part of P& L account and not the trading account and the same has already been claimed as expenses on actual basis in the P&L account of the instant year while calculating profit and income of the assessee. Hence, brokerage expenses claimed @ 110 per sq ft is not at allowable and it is against all principal of accountancy. Hence the same is liable to be reduced from the cost of goods sold. Regarding other expenses, no supporting documents have been furnished and hence the same is not verifiable hence 20% of Rs 507.13 per sq ft (617.13-110) which amount to Rs 101.42 per sq ft disallowed. Therefore, cost of goods sold is taken at Rs 405.71 per sq ft is taken. Hence, total addition of Rs. 211.42 per sq ft is made. The land sold during the year is 45550 sq ft, hence addition of Rs 96,30,181/- is made to the income of the assessee on this account.”
During first-appeal, Ld. CIT(A) deleted this addition by observing and holding thus:
“4.2 Ground No. 2: Through this ground of appeal the appellant has challenged the addition Rs. 96,30,181/- out of difference in valuation of cost of goods sold. The AO has made addition of Rs. 96,30,181/- in the appellant's income, on account of undervaluation of closing stock. The addition was made mainly on account of two items, viz (a) Addition @110 per Sq Ft on the area sold during the year: (b) Adhoc disallowance of 20% of the cost of development. 4.2.1 During the course of assessment proceedings, the appellant had furnished the working of the closing stock before the Assessing Officer. In the examination of the working, the assessing officer was of the view that the brokerage charges of Rs.110/- which has been estimated in the cost of development of area is a selling expenses and accordingly the same is not required to be added to the stock and addition of Rs. 50,10,500/- (45550 Sq. Ft. X Rs.110 per Sq Ft) was made. The amount of expenses which has been termed as Brokerage was actually land-filling expenses which was inadvertently termed as brokerage. The working of closing stock was prepared and was furnished during the course of assessment-proceedings. The fact that the expenses of brokerage was actually expenses for leveling of land. The land on which the development work is being undertaken by the appellant firm is a hilly area with many ups and downs. It was imperative on the part of the appellant firm to get the same leveled and thereafter commence the development activity. The second ground of addition on undervaluation of stock was on account of adhoc deletion of 20% of the expenses to be incurred. The sole reason for estimated disallowance was that the appellant was not able to provide any supporting evidences for the expenses. The development Simran Developers Assessment year 2014-15 activity for a parcel of land is not an activity which is restricted to a particular year but is spread over various year which may stretch to 5-7 years. The amount of cost to be incurred for development is estimated based upon the details given by the Architects and Engineers. Since the appellant follows percentage of completion method, the estimated expenses are being reduced from the carrying cost of working in progress in respect of the inventory sold and the balance figure is reflected as closing work in progress. The Appellant has provided details of valuation of closing stock which are in line with percentage completion method and is widely accepted in such kind of businesses, rejection of valuation on the grounds of undervaluation will be quite unjustified. It would be imperative to highlight the fact that even for the sake of argument if it is considered that the estimation of the cost of development is excessive, there is no revenue loss. The amount of expenses which the appellant is required to incur for the development shall be duly reflected in the books of accounts in the ensuing years. If due to any error in estimation, the cost of development is taken at a higher figure in the initial years, the cost available for charge against the inventory sold in the later years would be automatically be less. Thus the effect would be revenue neutral. The A.O. has estimated cost of sales @ Rs. 405.71 per sq.ft. against the appellant's claim of Rs. 617.13 per sq.ft. The AO has not brought out any comparable cases while adopting the rate while valuing the cost of sales. The AO should have adopted the comparable rate prevailing in that area. The AO has also not referred the matter to the valuation cell for valuation, who is Competent Authority for this purpose. The AO has not brought out any material on record which suggests that the appellant is doing any business other than reflected in the return of income. In the case of International Forest Co. vs. CIT (1975) 101.JTR 721 (J&K) it is held that AO cannot proceed to make an arbitrary addition and base his conclusion purely on guess work. He ought to have related his estimate to some evidence or material on the record as it is now well settled that if the profits shown by the appellant in his return are not accepted it is for the taxing authorities to prove that the appellant has made more profits than returned. Here the AO failed to bring on record anything which shows that appellant has earned more profit than shown in the return of income. The AO has not made any enquiry and arbitrarily made the addition. The AO disallowed the expenses claimed by the appellant and simultaneously reduced the cost of closing stock. This is nothing but the double addition of the same amount. The expenses claimed have been already confirmed in the ground no.1 (Supra) @ 10%. The AO is not justified to further make the addition on account of valuation of cost of goods sold. Therefore, the addition made by the AO amounting to Rs.96,30,181/- is Deleted. Therefore, the appeal on this ground is Allowed.”
13. Before us, Ld. DR assailed the order of Ld. CIT(A) on several counts. The contentions raised by Ld. DR are summed up below:
(i) The Ld. CIT(A) has accepted a new and distinct submission of assessee that the impugned expenditure @ Rs. 110/- per square feet was in the nature of “land filling expenditure” whereas the assessee
Simran Developers Assessment year 2014-15 himself claimed the same as “brokerage expenditure” before AO. Ld. CIT(A) has accepted this newer submission of assessee without calling any remand-report from Ld. AO, which is totally illegal and unjustified.
(ii) The Ld. CIT(A) has given a finding that the development activity is not restricted to one year but is spread over various years and that even if the expenditure incurred for development is excessive, there is no revenue loss. He has further stated that if due to any error in estimation, the cost of development is taken at a higher figure in the initial years, the cost available in later years would be automatically less, thus the effect would be revenue-neutral. Ld. CIT(A) has not given any working or calculation to arrive at such a heighted finding.
(iii) The Ld. CIT(A) has made a finding that the AO has not made any reference to valuation-officer for valuation of closing stock. This finding is meritless because it is the assessee who has to prove, by means of complete working, the valuation of closing stock / cost of goods sold, there is no obligation in Income-tax law upon the AO to make any reference to valuation officer for such purpose.
We have considered the submissions of Ld. DR and also perused the orders of lower authorities. After a careful consideration, we find the arguments of Ld. DR as meritorious. We agree to his submission that the Ld. CIT(A) has accepted a newer submission of assessee that the impugned expenditure @ Rs. 110/- per square feet was in the nature of “land filling expenditure” whereas the assessee himself claimed the same as “brokerage expenditure” before AO. We find weightage in the submission of Ld. DR that the CIT(A) has accepted this newer submission of assessee without calling any remand-report from Ld. AO. Going further, we agree to Ld. DR’s submission that the CIT(A) has not made any working or calculation to arrive at a finding that claiming higher expenditure in the current year,
Simran Developers Assessment year 2014-15 would reduce the claim of assessee in later years and thereby the exercise would become revenue-neutral. Therefore, in the situation, we are of the view that a thorough working of the closing stock / cost of goods sold is required to be made/verified by Ld. CIT(A) and the Ld. AO must be given an opportunity of hearing on this issue. Hence, it would be most appropriate to remand this issue back to the file of Ld. CIT(A) to decide afresh. Needless to add here that the Ld. CIT(A) would decide the issue afresh without being influenced by earlier decision and after giving fair opportunities to both sides. This ground is thus allowed for statistical purpose.
Ground No. 3 (including sub-grounds thereof):
During assessment-proceeding, the AO found that the assessee has purchased a land for Rs. 40,00,000/- from Shri Jineshwar Lallulal Jain and made payments in cash violating the provisions of section 40A(3). Ld. AO show-caused the assessee as to why disallowance u/s 40A(3) may not be made. In response, the assessee filed following reply which is re-produced by AO in assessment-order:
“Regarding purchase of property in cash the said purchase comprise of purchase of agriculture land from a farmer and as informed to us by the assessee that the said farmer does not maintain regular bank account, no disallowance can be made under section 40A(3) of the Act in view of the provisions of Rule 6DD(g) of Income-tax Rules.” Thereafter, Ld. AO made disallowance by observing and holding thus:
“However, till date no evidence regarding the claim that the land was purchased from a farmer, who has no bank account, was adduced by the assessee. Hence, since no evidence from the assessee’s side and also in view of the provisions of section 40A(3) the amount of Rs. 40,00,000/- is disallowed.” 16. During first-appeal, Ld. CIT(A) has deleted this addition by observing and holding thus:
“4.3 Ground No.3: Through this ground of appeal, the appellant has challenged the addition Rs. 40,00,000/- on account of cash payment u/s 40A(3) of The Act. The appellant submitted that he had purchased the land Simran Developers Assessment year 2014-15 from Shri Jineshwar Lallulalji Jain. The seller of the land is farmer and was not having long term relationship with the appellant. The farmer was unknown to the appellant. The seller refused to accept the payment by cheque, therefore, the appellant has to make the payment in cash. It has been held in the case of Gurdas Garg v/s The commissioner of Income Tax Appeals, the high court of Punjab and Haryana held that The Identity of the payees i.e.; the vendors in respect of the land purchased by the applicant was established each of these agreement was certified by the stamp registration authority …. the transaction were genuine and bar against the grant of deduction under section 40A(3) of The Act was not attracted. 4.3.1 In case of Rakesh Kumar v/s Asst. CIT, the ITAT Amritsar Bench also held that sale deeds of properties were registered with revenue Dept. of govt... the payments cannot be disallowed under section 40A(3) of the Act. 4.3.2In the present case, the genuineness of payment has not been doubted as Assessing Officer himself has held that sale deed of property was registered with the Revenue Department of Govt. Therefore, the case of the assessee is fully covered by the above decision of Hon'ble Punjab and Haryana High Court. 4.3.3 The Hon'ble ITAT Indore Bench, Indore vide dated 14.07.2016 in the case of Tirupati Constructions has allowed complete relief on the aforesaid point of addition to the appellant. 4.3.4 Similar view has been taken by ITAT Indore bench, Indore in the case of Vijay Kumar Jaiswal vs ACIT, 28 ITJ 289. In this case Hon'ble ITAT held that the payments were made at the direction of the department and the situation was not within the control of the appellant and ITAT deleted the said disallowances. 4.3.5 ITAT Indore bench Indore in the case of ITO Vs Jitendra Kumar Mandlecha, 23 ITJ 644 In this case the facts of the case was as under: Assessee made payment of business expenditure above Rs. 20000/- in cash, AO made disallowances of the same - ITAT Held that object behind the provisions is that persons are not allowed to show false expenditure for avoiding income tax and therefore, once the genuineness of payment and identity of the payee is established fully, the object is achieved and in such a situation, if the payment has been made looking to the necessity of settlement or difficulty of payee as payee was in need of money after banking hours. The same cannot be said to have been made in violation of object of the rules - Expenditure is therefore allowable in present case, as same is genuine and duly recorded and out of business exigencies. 4.3.6 Therefore, respectfully following the same the addition made by the AO amounting to Rs.40,00,000/- is Deleted. Therefore, the appeal on this ground is Allowed.”
Before us, Ld. DR read over the above paragraphs of assessment-order as well as order of first-appeal. Analysing the same, Ld. DR made a strong
Simran Developers Assessment year 2014-15 submission that the assessee claimed before AO that the seller of land was a farmer who did not maintain regular bank account, that is why exception provide under Rule 6DD(g) was applicable. But, however, the assessee argued before Ld. CIT(A) that the seller was not having long-term relationship with the assessee and the seller refused to accept payment by cheque, that is why the cash-payment had to be made due to business exigencies and section 40A(3) is not applicable. Ld. DR submitted that the assessee has not only taken different stands before Ld. AO and Ld. CIT(A) to come out of section 40A(3) but also miserably failed to prove his stands. Therefore, according to Ld. DR, the assessee does not deserve the benefit of the judicial rulings relied upon by Ld. CIT(A). Ld. DR strongly contended that the disallowance u/s 40A(3) is a statutory disallowance and since the assessee is not able to make out a successful case to demonstrate why section 40A(3) cannot be applied, there has to be a disallowance as provided for in the section. Ld. DR, therefore, prayed to uphold the disallowance.
We have carefully considered the submission of Ld. DR and also perused the orders of lower authorities. We observe that the assessee has purchased a land; the cost of land has been claimed as a business- deduction; the purchase consideration has been paid in cash; and therefore the situation attracts the provision of section 40A(3) of Income-tax Act, 1961. There is no dispute on these points. Now, what remains to be decided is a very short-point i.e. whether the assessee has any valid reason to come out of section 40A(3) or not? On a careful consideration of assessment- order, we observe that the before AO, the assessee attempted to take benefit of clause (g) of Rule 6DD which provides that the disallowance u/s 40A(3) shall not be attracted “where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town”. Accordingly, the assessee submitted to Ld. AO that the impugned cash-payment was made to the seller who does not maintain regular bank account. But when the AO tested the assessee to Simran Developers Assessment year 2014-15 prove this claim, the assessee could not file any evidence to prove the same. Therefore, the Ld. AO resorted to disallowance. Then came the next stage of first-appeal before Ld. CIT(A). We observe that before Ld. CIT(A), the assessee took an altogether new and different stand i.e. the seller was not having long-term relationship with the assessee and the seller refused to accept payment by cheque, that is why the cash-payment had to be made due to business exigencies. Thus, the assessee has attempted to put forward different claims before the lower authorities and interestingly, not able to prove any of them. It is very apparent that the claim of assessee that the seller was a farmer and refused to receive payment by cheque, is a newer theory taken by assessee for the first time before Ld. CIT(A) just to take benefit of decided rulings when the assessee realized that its original claim before AO was not going to be successful. It is also noteworthy that the assessee has not produced any iota of evidence that the seller in fact refused to receive payment by cheque. On a careful analysis of the order passed by Ld. CIT(A) [Para No. 4.3 of his order as reproduced above], we also observe that the Ld. CIT(A) has not uttered any voice on the original claim of clause (g) of Rule 6DD raised by assessee before AO. The Ld. CIT(A) has simply recorded the newer stand of assessee, cited the judicial rulings thereon and deleted the disallowance. In fact, the Ld. CIT(A) has not taken pains to consider (i) that the assessee made a different claim before Ld. AO which was turned down by Ld. AO; and (ii) that the assessee has not given any evidence in support of newer stand taken for the first time before him. That brings us to conclude that the assessee miserably failed to prove on facts as to how the section 40A(3) is not applicable to it. We do not have quarrel with the decisions cited by Ld. CIT(A) but since we do not find credence / strength in the claims of assessee on facts, we do not hesitate in concluding that the assessee has failed to prove the circumstances to come out of the clutches of section 40A(3). Therefore, we are of the view that the disallowance u/s 40A(3) is attracted in this case. We uphold the action of Simran Developers Assessment year 2014-15 Ld. AO and so also the disallowance made by him. Thus, this ground is allowed.
Resultantly, this appeal of revenue is partly allowed in terms indicated above.
Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 18/04/2023. Order pronounced in the open court on ….../……/2023.