Income Tax Appellate Tribunal - Chandigarh
Silver Oaks Township Ltd., Bathinda vs Assessee on 30 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.749/Chd/2014
(Assessment Year : 2006-07)
ITA No.750/Chd/2014
(Assessment Year : 2007-08)
ITA No.464/Chd/2014
(Assessment Year : 2008-09)
And
ITA No.751 /Chd/2014
(Assessment Year : 2009-10)
M/s Silver Oaks Township Ltd., Vs. The D.C.I.T.,
# 34008, ST.No.6/1, Central Circle-III,
Power House Road, Ludhiana.
Bathinda.
PAN: AAJCS3445B
(Appellant) (Respondent)
Appellant by : Shri Sudhir Sehgal
Respondent by : Shri Manjit Singh, DR
Date of hearing : 16.02.2016
Date of Pronouncement : 30.03.2016
O R D E R
PER RANO JAIN, A.M. :
This bunch of four appeals filed by the same assessee are directed against the separate orders of the 2 learned Commissioner of Income Tax (Appeals)-I, Ludhiana dated 23.6.2014, 23.6.2014, 27.3.2014 and 23.6.2014, relating to assessment years 2006-07, 2007-08, 2008-09 and 2009-10 respectively.
2. In all the appeals, the issue is common and, therefore, these appeals were heard together and are being disposed off by this common order for the sake of convenience. The additions challenged in all the years are Rs.12,10,000/-, Rs.15,85,300/-, 2,53,66,000/- and 1,22,57,417/- respectively.
3. We will first take up the appeal of the assessee in ITA Nos.749/Chd/2014.
ITA No.749/Chd/2014 :
4. Briefly, the facts of the case are that the assessee being in the business of real estate developer had purchased land during the year amounting to Rs.1,43,13,750/- out of which purchases to the extent of Rs.60,50,000/- were made in cash. On being confronted by the Assessing Officer, the assessee replied that no business has been done during the year and only purchases had been made, therefore, the provisions of section 40A(3) of the Income Tax Act, 1961 (in short 'the Act') are not applicable. It was further submitted that the payment to the seller were 3 made on bank holidays. The Assessing Officer rejecting the contention of the assessee, made a disallowance of an amount of Rs.12,10,000/- being 20% of Rs.60,50,000/- on account of cash payments.
5. Before the learned CIT (Appeals), the contentions raised before the Assessing Officer were reiterated. It was stated that since no business was done during the year, no expenses have been claimed, therefore, no disallowance under section 40A(3) of the Act can be made. Further, it was argued that the cash payment was made to the agriculturists for purchase of their land, on account of business expediency because there was no other option with the assessee but to make payment in cash as it was essential to purchase land for running the business of the assessee. Reliance was placed on a number of judgments including that of the Jaipur Bench of the I.T.A.T. in the case of Ace India Adobes Ltd. Vs. ACIT in ITA No.79/JP/2011. However, the learned CIT (Appeals) did not find himself in agreement with the submissions of the assessee. Relying on a number of judgments, he held that onus was upon the assessee to substantiate its claim of there being exceptional circumstances to make cash payment for purchase of land. Further, he stated that since out of a total amount of Rs.1,43,13,750/-, purchases to the extent 4 of only Rs.60,50,000/- have been made in cash, which shows that a substantial chunk of payment has been made by cheque also. In view of this, he dismissed the appeal of the assessee.
6. Aggrieved by this, the assessee has come in appeal, raising the following grounds of appeal :
"1. That the Worthy Commissioner of Income Tax (Appeals), Ludhiana has erred in confirming the addition of Rs.12,10,000/- u/s 40A(3) of the Income Tax Act, 1961 on account of purchase of land by making cash payment of Rs. 60,50,000/- to the Sellers.
2. That Ld. CIT(A) erred on facts and law in confirming the addition made by the AO by invoking the provisions of section 40A(3) as the assessee made cash payments exceeding Rs.20000/- for purchase of land held as stock in trade. The explanation furnished by the assessee, based on facts and case laws, during the course of appellate proceedings has not been rebutted by the Ld. CIT(A).
3. That the appellant craves leave to add or amend any grounds of appeal before the appeal is finally heard or disposed off."
7. The assessee had also filed an additional ground of appeal, however, the learned counsel for the assessee withdrew the same during the course of hearing. 5
8. The only issue in this appeal remains is the disallowance under section 40A(3) of the Act. The learned counsel for the assessee drew our attention to Paper Book pages 3 to 7 to show that during the year, no business has been conducted by the assessee. The assessee being a real estate developer, is in the process of collecting land by purchasing the same from various farmers. During the year under consideration, the land collected has been transferred to the 'project in progress' account and no expenses have been claimed. It was the contention of the learned counsel for the assessee that since no expenses have been claimed, no disallowance under section 40A(3) of the Act is called for. Further, it was submitted that the genuineness of transactions cannot be doubted as the lands have been purchased after duly registering the same before the Sub Registrar on full payment of the consideration. The cash payment made to the farmers for purchase of land was on account of business expediency because there was no other option with the assessee but to make the payment in cash. Reliance was placed on the judgment of Hon'ble Punjab & Haryana High Court in the case of Gurdas Garg Vs. CIT, ITA No.413 of 2014, dated 16.7.2015, which was delivered after considering the judgment of the Hon'ble Apex Court in the case of Attar Singh Gurmukh Singh Vs. ITO, whereby it was held that cash payments made by real estate developers cannot be 6 disallowed under section 40A(3) of the Act. Further, the said judgment of Punjab & Haryana High Court has been followed by the I.T.A.T., Chandigarh Bench in the case of Dhuri Wine Vs. DCIT in ITA No.115/Chd/2013, dated 9.10.2015.
9. The learned D.R. relied on the orders of the lower authorities.
10. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The only issue to be decided by us is whether the cash payment amounting to Rs.60,50,000/- is exigible to disallowance by invoking the provisions of section 40A(3) of the Act. The undisputed facts of the case are that the assessee has made cash payment of Rs.60,50,000/- to some agriculturists for purchase of land. The assessee is a real estate developer during the year and is in the process of accumulating land from various sources. It has not done any business during the year. From the perusal of accounts filed before us, we see that no claim of any expenditure or even purchases have been made during the year. The lands purchased have been transferred to 'project in progress' account. In view of all this, we 7 observe that the provisions of section 40A(3) of the Act cannot be invoked. Section 40A(3) of the Act reads as under :
"40A(3) Where the assessee incurs any expenditure in respect of wh i c h a payment or aggregate of payments m a d e t o a p e r s o n i n a d a y , o t h e r wi s e than by an account payee cheque d r a wn o n b a n k o r a c c o u n t p a y e e b a n k d r af t , e x c e e d s t we n t y t h o u s a n d r u p e e s , no deduction shall be a l l o we d in respect of such expenditure."
11. The language of the section is very clear that in cases of expenditure incurred by the assessee in cash, no deduction on account of that expenditure is allowed under this provision. We are aware of the proposition that even if the expenditure is in the nature of purchases, the same is prone to disallowance under section 40A(3) of the Act. However, when no claimed of any such expenditure or purchases has been made, how can a disallowance be made. In view of this, we direct the Assessing Officer to delete the disallowance.
12. The appeal of the assessee is allowed. ITA No.750/Chd/2014 :
13. It is relevant to observe here that the issue raised in this appeal is similar to the issue in I TA No.749/Chd/2014 and the findings given in I TA 8 No.749/Chd/2014 shall apply to this case also with equal force.
14. The appeal of the assessee is allowed. ITA No.751/Chd/2014 :
& ITA No.464/Chd/2014 :
15. The issue is same in these two years also. The findings given by the Assessing Officer as well as the learned CIT (Appeals) are also the same. However, during the course of hearing, it was brought to our notice by the learned counsel for the assessee that in these years, the assessee was into the business of real estate and the purchases form part of stock-in-trade and not a part of 'project in progress' as in earlier two years. In view of this, it was stated that no claimed was made and hence, no disallowance under section 40A(3) of the Act can be made, does not hold good in these years. The learned counsel for the assessee confined his arguments to the genuineness of the transaction being carried out of business exigency. Reliance was placed on the judgment of Punjab & Haryana High Court in the case of Gurdas Garg (supra) and that of I.T.A.T., Chandigarh Bench in the case of Dhuri Wine (supra).
9
16. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The issue is identical to the facts of the case of Gurdas Garg (supra) decided by the Punjab & Haryana High Court. This case has been very aptly analyzed in following terms in the order of the I.T.A.T., Chandigarh Bench in the case of Dhuri Wine (supra) :
"10. S i n c e h e a v y r e l i a n c e wa s p l a c e d o n a latest j u d g me n t of the Hon'ble Jurisdictional Punjab & Haryana High Court in the case of Gurdas Garg (supra), af t e r perusing the said j u d g me n t we f i n d t h a t a v e r y a p t g u i d a n c e i s provided by the Hon'ble High Court in deciding the issue in question. Theref ore, at the very f irst i n s t a n c e , we wo u l d a n a l y z e t h e s a i d j u d g me n t o f the Hon'ble Jurisdictional High Court. In this c a s e , t h e a s s e s s e e wa s e n g a g e d i n t h e b u s i n e s s of trading in properties. Admittedly, certain payments we r e made in cash in excess of Rs.20,000/- per day. Invoking the provisions of section 40A(3) of the Act, the Assessing Off icer made the d i s a l l o wa n c e . The learned CIT (Appeals) in his order gave finding that the identity of the payees i.e. the vender in respect of the land purchased by the assessee wa s established. T h e s a l e d e e d s we r e p r o d u c e d , t h e g e n u i n e n e s s t h e r e o f wa s a c c e p t e d . The amount p a i d i n r e s p e c t o f e a c h o f t h e s e a g r e e me n t s wa s certif ied by the S tamp Regis tration Au thority. I n t h i s wa y , t h e l e a r n e d C IT ( A p p e a l s ) h e l d t h a t the bar against the grant of deductions under s e c t i o n 4 0 A ( 3 ) o f t h e A c t wa s n o t a t t r a c t e d . The Tribunal did not upset these f indings given by 10 t h e l e a r n e d C IT (Appeals) including as to the genuineness and the correctness of the transactions. In f act, the Tribunal noted the contention on behalf of the assessee that there w a s a b o o m i n t h e r e a l e s t a t e m a r k e t , t h a t i t wa s necessary, theref ore, to conclude the transactions at the earliest and not to postpone t h e m, t h a t t h e a s s e s s e e d i d n o t k n o w t h e v e n d o r s and obviously, theref ore, insisted f or payment in cash. The Tribunal did not doubt this case. H o we v e r , the Tribunal held that claim f or d e d u c t i o n wa s n o t s u s t a i n a b l e i n v i e w o f s e c t i o n 4 0 A ( 3 ) o f t h e A c t a s t h e p a y m e n t s we r e m a d e i n cash over Rs.20,000/-. The Hon'ble High Court wh i l e d e c i d i n g t h e i s s u e r e l i e d u p o n t h e j u d g me n t of Hon'ble Rajasthan High Court in the case of Smt.Harshila Chordia Vs. IT O (2008) 298 IT R 3 4 9 , wh e r e b y i t wa s h e l d t h a t t h e r e b e i n g n o dispute about the genuineness of the transaction and the p a y me n t and identity of the receiver b e i n g d i s c l o s e d , t h e d i s a l l o wa n c e u n d e r s e c t i o n 40A(3) of the Act cannot be made. The Hon'ble Rajasthan High Court relied upon a Circular of the CBDT dated 31.5.1977 reported in (1977) 108 (St.) 8. Further the Hon'ble Punjab & Haryana H i g h C o u r t a l s o m a d e a r e f e r e n c e t o a j u d g me n t of the Hon'ble Apex Court in the case of Attar S i n g h G u r mu k h Singh Vs. ITO (1991) 4SCC 385, wh e r e b y it wa s held that the provisions of section 40A(3) of the Act and Rule 6DD of the I n c o me T a x R u l e s we r e i n t e n d e d t o r e g u l a t e t h e business transactions and to prevent the use of u n a c c o u n t e d mo n e y o r r e d u c e t h e c h a n c e s t o u s e black mo n e y f o r business transactions. Af ter analyzing all these, the Hon'ble High Court held that the T ribunal has not disbelieved the transactions or the genuineness thereof , nor has 11 it disbelieved the f act of payments having been m a d e , mo r e i m p o r t a n t l y , t h e r e a s o n s f u r n i s h e d by the assessee f or making the cash payments have not been disbelieved. This clearly makes out a case of business expediency. I n t h i s v i e w, the Hon'ble High Court held the payments to be outside the purvie w of section 40A(3) of the Act.
11. T aking the guidance from the above s a i d j u d g me n t o f t h e H o n ' b l e J u r i s d i c t i o n a l H i g h C o u r t , wh i c h i s a l s o a v e r y r e c e n t j u d g me n t o f t h e H o n ' b l e H i g h C o u r t we n o w a d v e r t t o a n a l y z e the case of the present assessee. The p r o p o s i t i o n l a i d d o wn b y t h e H o n ' b l e H i g h C o u r t is quite un amb ig uous to the eff ect th at even if the case of the assessee does not fall in any of the c l a u s e s o f R u l e 6 D D o f t h e I n c o me T a x R u l e s , i n v o k i n g t h e p r o v i s i o n s o f s e c t i o n 4 0 A ( 3 ) of the Act can be dispensed with if the assessee is able to prove the business expediency because of which it have to make the cash payments, the genuineness of the transactions have also to be verif ied. In the present case, detailed submissions with corroborative evidences were f iled at every stage including that of the Assessing Officer as well as the learned CIT (Appeals). Even before us, the voluminous Paper Book has been f iled . The elaborate submissions were made to prove that the expenses incurred in cash were genuine which were paid to distilleries through Excise Department for purchase of liquor and there were practical expediency because of which the payments have to be made in cash. This is an undisputed f act that the assessee f irm has twelve partners, who are operating business through vends located at distinct places. Each person has l i c e n c e i n h i s o wn n a m e t o m a k e t h e s a l e s a n d 12 purchases as per the t e r ms of these licence a g r e e me n t s . F u r t h e r , i t i s q u i t e a k n o wn f a c t that in the business of the liquor, transactions are to be done in cash. A l l t h e s e f ac t s h a v e n o t been controverted by the Assessing Off icer or e v e n b y t h e l e a r n e d C IT ( A p p e a l s ) . This makes out a case that the assessee has business expediency under wh i c h it have to make payments in cash. Further, not a single transaction has been questioned at any stage. T h e l e a r n e d C IT ( A p p e a l s ) wh i l e a d j u d i c a t i n g t h e c o n t e n t i o n o f t h e a s s e s s e e wi t h r e g a r d t o t h e genuineness himself has held that it is not suff icient f or the assessee to establish that the payments we r e genuine and the parties we r e iden tif iable. He wa s of the vie w that the assessee is f urther required to prove that due to exceptional and unavoidable c i r c u ms t a n c e s as provided under the Rules, the payments we r e made in cash. Theref ore, it is not a case of the D e p a r t me n t t h a t t h e p a y me n t s s o m a d e i n c a s h we r e n o t g e n u i n e . The reasons given by the assessee at every stage have not been disbelieved. Since these reasons are correct, they really make out a case of business expediency. I n t h i s v i e w, r e s p e c t f u l l y f o l l o wi n g t h e j u d g me n t o f t h e H o n ' b l e P u n j a b & H a r y a n a High Court in the case of Gurdas Garg (supra), we h o l d t h a t t h e p a y m e n t s c a n n o t b e d i s a l l o we d under section 40A(3) of the Act. The addition is deleted."
17. The proposition, thus, coming out of the judgment of the Jurisdictional High Court is that even if the assessee does not fall in any of the clauses of Rule 6DD, being the exceptions provided invoking the 13 provisions of section 40A(3) of the Act can be dispensed with if the assessee is able to prove the business expediency out of which it had to make the cash payments and the genuineness of the transaction has also to be proved. We observe that none of the lower authorities have questioned the genuineness of the transaction. The only reason for disallowance is the provisions of section 40A(3) of the Act. The assessee had all along stated the reason of business exigency out of which he had to make cash payments, which were also not doubted by any of the lower authorities. Further, we see that the facts of the case are exactly same as that of Gurdas Garg (supra). Therefore, we are inclined to hold that the said cash payments cannot be disallowed to the assessee. The addition is hereby deleted.
18. In the result, all the appeals of the assessee are allowed.
Order pronounced in the open court on this 30th
day of March, 2016.
Sd/- Sd/-
(BHAVENESH SIANI) (RANO JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 30 t h March, 2016
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, 14 ITAT, Chandigarh