Prime Infra Developers (P) Ltd. Vs ITO (ITAT Delhi)
Conclusion: Disallowance under section 40A(3) with respect to cash payment made by assessee to farmers on Sunday for purchase of agricultural land could not be disallowed as Sunday was bank holiday and rule 6D(J) was clearly attracted in assessee’s case as payment was made due to commercial expediency.
Held: Assessee-company had made advance payment for purchase of various lands to farmers as a token money for the execution of the deal on Sunday i.e. the day which was public holiday for Banks. AO observed that payment in cash made on Sunday was not bona fide. Assessee however contended that it was covered by rule 6DD(j). It was held payment was made on ‘Sunday’ which was not disputed by AO as well as CIT (A) and Rule 6DD(j) specifically provides exception for disallowance under section 40A(3) on the day on, which banks were closed. Payments were made to farmers for purchase of their agricultural land and payments were duly supported by various documentation in form of conveyance deed etc., therefore, disallowance under section 40A(3) was unjustified.
FULL TEXT OF THE ITAT JUDGEMENT
The Assessee has filed this Appeal against the Order dated 22.09.2017 of the Ld. CIT(A)-38, New Delhi relating to assessment year 2013-14 on the following grounds:-
1. On the facts and circumstances of the case, tile order passed by the learned Commissioner of Income Tax (Appeals) is bad both in the eyes of law and on facts.
2(i) On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in passing the order without giving assessee an opportunity of being heard in violation of principle of natural justice.
(ii) That the non appearance before the CIT(A) was an account of reasons beyond the control of the assessee.
3. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in confirming the disallowance of Rs.1 ,54,97,974/- made by AO an account of cash payments invoking the provision of section 40A(3) of the Act.
4. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in confirming the disallowance despite the fact that the reason for cash payment was an account of one of the reasons provided in exceptional circumstances for these payments under Rule 6DD of the Act.
5. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law, in confirming the disallowance despite the payments having been made out of business expediency.
6. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law, in confirming the disallowance despite the fact that there being no doubt as to the genuineness of transactions and thus no disallowance u/s 40A(3) can be made.
7. That the appellant craves leave to add, amend or alter any of the grounds of appeal.
2. The brief facts of the case are that the assessee company is stated to be engaged in the business of real estate. The case of the assessee was selected under scrutiny through CASS. Accordingly, notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred as the Act). The assessee company has purchased various lands during the relevant period for residential project in Gurgaon. From the perusal of the details submitted by the assessee, AO observed that the assessee company has purchased various land. From the sale deed it has been noticed that substantial cash amount has been utilized for purchase of inventory. Total cash amount that has been paid for the purchase of inventory of Rs. 1,54,97,974/-. The assessee vide order sheet entry dated 02.3.2016 was asked to explain the reason for payment made in cash and it has also been asked to explain the same. The assessee vide submission dated 14.3.2016 has submitted that assessee company is engaged in real estate and property development business and major activity of the company to launch the new residential and commercial projects. During the year company had been purchased the land in bulk from farmers to launch a residential project. It was further submitted that advance was paid as a token money for the execution of deal on Sunday i.e. the day which was public holiday for banks. The fact that the advance payment was made on Sunday i.e. 05.08.2012 is also mentioned to the registry itself and at that time of advance payment no banking facility was available due to bank holiday and the assessee company had no alternative option to make the payment immediately. Thereafter, AO observed that it may not be out of place to mention that payments in cash to persons who are holding land in and around Delhi are not out of purview of taxation. There is substantial possibility that the persons selling the land are not filing their return of income or not disclosing the full income. Thus the act of the assessee by making payment in cash cannot be assumed to be bonafide, even though it is in blatant violation of the provisions of section 40A(3) of the Income Tax Act. Accordingly, an amount of Rs. 1,54,97,974/- was disallowed under section 40A(3) of the Act and income of the assessee was assesseed at Rs. 1,54,97,970/- u/s. 143(4) of the Act vide order dated 30.03.2016. Against the assessment order, the assessee appealed before the Ld. CIT(A), who vide his impugned exparte order 22.09.2017 has dismissed the appeal of the assessee by observing that there was sufficient application of mind by AO while framing the assessment and the factual findings regarding violation of clause (j) of Rule 6DD have not been controverted by the assessee during appeal proceedings and in view of the continued non-compliance and non-prosecution of appeal by the assessee, he upheld the assessment order. Aggrieved with the impugned order dated 22.09.2017, Assessee is in appeal before the Tribunal.
3. Ld. Counsel of the assessee has filed a Paper Book containing pages 1-68 having the copy of acknowledgement return of income alongwith computation of income; copy of Audited Financial Statements; copy of reply filed with the AO dated 18.2.2016 alongwith the copy of sale deeds of the property purchased; copy of reply filed by the assessee before AO on 22.2.2016 and copy of letter filed before AO dated 23.3.2016 enclosing affidavit from Real Estate Broker. He submitted that learned CIT(A) has passing the exparte order without giving assessee an opportunity of being heard in violation of principle of natural justice, despite the fact that non appearance before the CIT(A) was an account of reasons beyond the control of the assessee. It was further submitted that Ld. CIT(A) wrongly confirmed the disallowance of Rs.1,54,97,974/- made by AO an account of cash payments invoking the provision of section 40A(3) of the Act despite the fact that the reason for cash payment was an account of one of the reasons provided in exceptional circumstances for these payments under Rule 6DD of the Act. It was the further contention that learned CIT(A) has wrongly confirmed the disallowance despite the payments having been made out of business expediency and also wrong in confirming the disallowance despite the fact that there being no doubt as to the genuineness of transactions and thus no disallowance u/s 40A(3) can be made. In the last, it was also submitted that the payment was made on 05.08.2012 i.e. Sunday is not disputed by the authorities below and Rule 6DD(j) specifically provides exception for disallowance under section 40A(3) on the day on which banks are closed. The payment were made to farmers for purchase of their agricultural land and the payments were duly supported by the various documentation in form of conveyance deed etc. Therefore, he stated that disallowance under section 40A(3) is uncalled for. To support his contention he filed another Paper Book containing pages 1-72 having the copies of following case laws on the issue when payment is made on the day on which banks are closed and the exception is covered under Rule 6DD and on the issue when genuineness of the transaction is not doubted by the AO, then no disallowance u/s. 40A(3) is called for.
– Hon’ble High Court of Madras decision in the case of Hotel Nagas (P) Ltd. vs. CIT, Salem (2016) 69 Taxmann.com 438 ( Madras)
– Hon’ble High Court of Andhra Pradesh decision in the case of Sri Laxmi Satyanarayana Oil Mill vs. CIT, AP, Hyderabad (2014) 49 taxmann.com 263 (Andhra Pradesh)
– Hon’ble High Court of Punjab and Haryana decision in the case of Gurdas Garg vs. CIT(A), Bathinda (2015) 63 taxmann.com 289 (P&H).
– ITAT, Jaipur decision passed in ITA No. 5170/Del/2014 in the case of ITO vs. Shyam Apparels Pvt. Ltd. and Viceversa.
– ITAT, Delhi decision dated 31.8.2016 passed in ITA No. 504/2016 in the case of ACIT, Faridabad vs. M/s Marigold Merchandies (P) Ltd.
– ITAT, Delhi decision in the case of Galaxy Dwellers P ltd. vs. CIT 2017 (11) TMI 112.
– Hon’ble Rajasthan High Court decision in the case of CIT vs. ACE India Abodes Ltd. 2017 (11) TMI 620.
– Hon’ble Rajasthan High Court decision in the case of Smt. Harshila Chordia vs. ITO 2006 (11) TMI 117.
4. On the other hand, Ld. Sr. DR relied upon the orders of the authorities below. He submitted that assessee company has purchased various land. From the sale deed it is revealed that that substantial cash amount has been utilized for purchase of inventory. Total cash amount that has been paid for the purchase of inventory of Rs. 1,54,97,974/-. He further submitted that that payments in cash to persons who are holding land in and around Delhi are not out of purview of taxation. There is substantial possibility that the persons selling the land are not filing their return of income or not disclosing the full income. Thus the act of the assessee by making payment in cash cannot be assumed to be bonafide, even though it is a complete violation of the provisions of section 40A(3) of the Income Tax Act. However, there was sufficient application of mind by AO while framing the assessment and the factual findings regarding violation of clause (j) of Rule 6DD have not been controverted by the assessee during appeal proceedings and in view of the continued non-compliance and non-prosecution of appeal by the assessee, Ld. CIT(A) has rightly upheld the assessment order, which does not need any interference on our part. In view of above, Ld. Sr. DR requested that the order of the Ld. CIT(A) may be upheld and appeal of the assessee may be dismissed.
5. We have heard both the parties and perused the records, especially the orders of the authorities below, Paper Book filed by the Assessee containing pages 1-68 having the copy of acknowledgement return of income alongwith computation of income; copy of Audited Financial Statements; copy of reply filed with the AO dated 18.2.2016 alongwith the copy of sale deeds of the property purchased; copy of reply filed by the assessee before AO on 22.2.2016 and copy of letter filed before AO dated 23.3.2016 enclosing affidavit from Real Estate Broker and the case laws cited by the Ld. Counsel of the assessee in shape of Paper Book and the copy of Calendar for the Year 2012. We find that assessee company is a real estate developer and major activities of the company is to launch new residential & commercial projects and during the year under consideration, Assessee Company had purchased various lands in Gurgaon from farmers for a residential project. Details of which are as under:
