Case Law Details
Monika Chitrasen Patil Vs ITO (ITAT Pune)
Introduction: The case of Monika Chitrasen Patil Vs ITO (ITAT Pune) offers significant insights into the interpretation of tax laws concerning cash payments in property transactions. As the appellant challenged the disallowance of Rs.21,33,333/- u/s. 40A(3) of the Act, the case’s resolution provides vital guidance on the nuances of the tax laws in such situations.
Analysis: In this case, the assessee, engaged in the business of buying and selling agricultural lands, had made cash payments as part of the sale consideration to sellers who didn’t have bank accounts at the time. The tribunal referred to past judgements and the Supreme Court’s ruling in the case of Attar Singh Gurmukh Singh Vs. ITO, which highlighted that the terms of section 40A(3) of the Act are not absolute. The tribunal observed that the cash payment was part of the sale consideration and that no disallowance should be made under section 40A(3) of the Act when the transaction is genuine. The Tribunal agreed with the assessee’s contention that due to business exigency and specific demands of the sellers, it was not practical to make the payment via cheque or draft.
Conclusion: The verdict of this case has significant implications for business transactions, particularly those involving land and property. The decision emphasises that the provision u/s. 40A(3) of the Act should not restrict business activities and should consider the context and practicalities surrounding each transaction.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee against the order dated 29-07-2019 passed by the Commissioner of Income Tax (Appeals)-2, Nashik [‘CIT(A)’] for assessment year 2012-13.
2. The assessee raised three grounds of appeal amongst which the only issue emanates for my consideration is as to whether the CIT(A) justified in confirming the disallowance of Rs.21,33,333/- u/s. 40A(3) of the Act.
3. Brief facts relating to the case are that the assessee is an individual engaged in the business of purchase and sale of agricultural land, plots, etc. The assessee conducts her business under the name and style as “M/s. Sarth Associates”. The assessee filed return of income declaring a total income of Rs.4,08,119/- and under scrutiny, the AO determined the same at Rs.25,41,452/- inter alia making addition on account of cash payment in violation of section 40A(3) of the Act. The CIT(A) confirmed the same.
4. Heard both the parties and perused the material available on record.The ld. AR submits that the assessee along with her co-purchasers purchased three different lands with two groups. First one is More group and another one is Wagh group. I note that the assessee’s submissions were reproduced by the CIT(A) at page 4 of the impugned order regarding the More group. According to the ld. AR that total sale consideration was Rs.55,00,000/- in respect of land at SS No. 18/2 of Pachora (More group). Out of said Rs.55,00,000/-, the assessee along with co-purchasers paid Rs.25,00,000/- in cash. The ld. AR argued that there being two purchasers, the share of assessee in cash payment is only Rs.12,50,000/-. It was argued vehemently that the assessee made cash payment to the sellers as they have no bank accounts standing to their name as on the date of registration of sale deed and only after the receipt of consideration in part as post dated cheques, the sellers opened the bank accounts. This fact is not disputed by both the authorities below. Further, I note that copies of identity proof of sellers, affidavit of one of the sellers and copy of purchase deed also filed before the CIT(A) as well before this Tribunal from pages 1 to 92 of the paper book. The ld. AR argued that the cash payment to the tune of Rs.12,50,000/- was made due to business exigency at the instance of sellers. Further, she argued that both the lower authorities did not dispute the genuineness of the said transaction. I note that in support of the cash payment the sellers filed identity proof and also affidavits acknowledging the cash payment with regard to the sale of their land. Further, it is also not disputed that the said cash payment to the share of assessee was not reflecting in the sale deed.
5. Coming to the other Wagh group, I note that the assessee along with two others purchased agricultural land at Gat No. 663, Madsangwi, Nashik, through two sale deeds. I note that the details of payment regarding the first sale deed for Rs.79,50,000/- for 1 hectare and 2 ares at page 8 of the impugned order. The ld. AR submits that there was a Civil Suit pending in connection with the dispute amongst legal heirs of Wagh family. The parties therein agreed for settlement, but, one of such party agreed for settlement on a condition that out of sale consideration in both the sale deeds concerning 1 hectare and 2 ares and other for 85 ares, insisted for payment of Rs.22.5 lacs from both the transactions. The ld. AR submits that other two co-purchasers having residing in Nashik immediately drew a demand draft for Rs.22,50,000/- and amongst which Rs.7,50,000/- and Rs.3,75,000/- for first deed and likewise, Rs.7,50,000/- and Rs.3,75,000/- for the second deed. The details of which reproduced by the CIT(A) in pages 8 and 9 of the impugned order. The contention of ld. AR is that the assessee did not pay any cash payment to the sellers to both the transactions involving two sale deeds but however, made cash payments to the other two co-purchasers who purchased two demand drafts for amounting to Rs.22,50,000/- form their bank accounts. The ld.AR vehemently argued that provisions u/s. 40A(3) is not attracted to the said transactions, the assessee paid amount to her co-purchasers in the capacity of her agents and drew my attention to Rule 6DD of the Rules. She further placed on record the orders of this Tribunal in the cases of Dnyaneshwar Jagannath Dhamne in ITA No. 202/PN/2016 and M/s. Dhanshree Ispat in ITA No. 794/PUN/2013. She contends in all the transactions with More group, the transactions were admitted before the registering authority by the sellers and they filed confirmation, identity and sale deed also in support of claim. She argued vehemently there as no cash payment in Wagh group as alleged by the AO taking into account entries in the cash book. The finding of Tribunal in the above said cases are applicable to the facts on hand and no disallowance u/s. 40A(3) is warranted.
6. I note that the Hon’ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO reported in (1991) 191 ITR 667 (SC) held that the provisions u/s. 40A(3) of the Act must not be read in isolation or to the exclusion of Rule 6DD. Further, it was observed that the provisions u/s. 40A(3) of the Act are not intended to restrict the business activities. It is insisted only to enable the AO to ascertain whether the cash payments made are out of the income from disclosed sources. Further, it is held the terms of section 40A(3) of the Act are not absolute. I find the collective reading of provisions u/s. 40A(3) of the Act along with Rule 6DD of the Rules provides where an assessee can be exempted from the requirement of payment by a crossed cheque or bank draft in the circumstances specified under which the assessee is unable or not practicable causing genuine difficulty. I note that the payment in cash was part of sale consideration which is incorporated in the purchase deed. The ld. AR placed on record a copy of purchase deed before this Tribunal from pages 9 to 62 of the paper book.
7. This Tribunal in the case of ITO Vs. M/s. Dhanshree Ispat (supra) by following the decision of Hon’ble Supreme Court in the case of Attar Singh Gurmukh Singh (supra) deleted the addition made u/s. 40A(3) of the Act vide para 7 of the said order by holding when the transaction is genuine no disallowance is warranted. In the present case also the cash payment forming part of sale consideration was incorporated in the purchase deed and a contention was made before the CIT(A) that on the demand of the sellers cash payment to the tune of Rs.12,50,000/- was paid concerning More group. Cash payment to the extent of Rs.1,33,333/- of Wagh group concerning two sale deeds. Admittedly, the said sellers were identified and confirmed receipt of cash payment before the Registering authority. It is also noted that the AO did not dispute the same. Therefore, in my opinion, the finding of this Tribunal in the case of M/s. Dhanshree Ispat (supra) is applicable to the facts on hand when the transaction is genuine no disallowance could be made u/s. 40A(3) of the Act.
8. Further, this Tribunal in the case of Dnyaneshwar Jagannath Dhamne (supra), the Tribunal in para 11 at page 7 of the said order clearly held the cash payment of Rs.3 lakhs were part and parcel of total sale consideration which was admitted before the Government authority i.e. Sub-Registrar of State of Maharashtra. The Tribunal held the disallowance u/s. 40A(3) of the Act is not maintainable if the cash payment is part and parcel of total sale consideration. In the present case also the cash payment was part and parcel of total sale consideration which is not disputed by both the lower authorities. Therefore, the finding of this Tribunal in the case of Dnyaneshwar Jagannath Dhamne (supra) is applicable.
9. Further, to the decision of Hon’ble High Court of Bombay in the case of Madhav Govind Dhulshete Vs. ITO in Income Tax Appeal (L) No. 2128 of 2018 vide order dated 08-10-2018, the contention of ld. AR is that the Hon’ble High Court of Bombay did not observe that Rule 6DD is not exhaustive. On perusal of the relevant para 9 of the said decision, I note the Hon’ble High Court of Bombay was pleased to observe that Rule 6DD of Rules enables the assessee to urge that the exceptional or unavoidable circumstances led to payment made in cash. Therefore, I find force in the arguments of ld. AR that Rule 6DD is exhaustive and it is open to the assessee the exceptional and unavoidable circumstances which made the assessee to make payment in cash. I find the assessee did not pay cash as already discussed above, the contention of the assessee before the CIT(A) that the sellers demanded the assessee to pay in cash of Rs.12,50,000/- and Rs.1,33,333/- being assessee’s share which is part and parcel of total sale consideration. Further, there is no dispute with regard to identification of the sellers as well as their confirmations in respect of payment in cash from the assessee. It is also not disputed that the said cash payment is not part and parcel of total sale consideration which is reflected in all the purchase deed. Further, the sellers also admitted the payment of cash before the registering authority under due process. The contention of ld. AR is that the payment vide cheque or draft is not at all practicable due to circumstances on demand of settlement of purchase consideration in cash from the sellers of the properties. Therefore, the ratio laid down by the Hon’ble Supreme Court in the case of Attar Singh Gurmukh Singh (supra) is applicable and the disallowance of Rs.21,33,333/- as confirmed by the CIT(A) in the hands of assessee on account of section 40A(3) of the Act is deleted. Thus, grounds raised by the assessee are allowed.
10. In the result, the appeal of assessee is allowed.
