M/s. Subh Builders & Developers, UDAIPUR V. DCIT, UDAIPUR

ITA 131/JODH/2014

• Counselvise Citation: 13123314 RSA 2014
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-07-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 05-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Keywords: Search and seizure; Commercial expediency
• Section: 40A(3); 37; 132

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JODHPUR BENCH: J ODHPUR ( BEFORE SHRI H ARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ) ITA NO. 131 TO 135 / JODH /201 4 (A.Y S . 2005 - 06 TO 2009 - 10 ) M/S. SUBH BUILDERS & DEVELOPERS, VS DCIT, C/O. R.K. POKHARNA, CHARTERED ACCOUNTANTS, CENTRAL CIRCLE - 1, 212, SHUBHAM COMPLEX, 11 - A, NEW FATEHPURA, UDAIPUR. UDAIPUR. PAN NO. AAXFS4085Q (APPELLANT) (RESPONDENT) ASSESSEE S BY : - SHRI AMIT KOTHARI , A.R. DEPARTMENT BY : - SHRI O.P. MEENA, CIT - D.R. DATE OF HEARING : 21 /0 7 /201 4 DATE OF PRONOUNCEMENT : 28 0 7 /2014 O R D E R P E R BENCH : THIS IS A BUNCH OF 5 APPEALS, ALL FILED BY THE ASSESSEE FOR A.YS. 2005 - 06 TO 2009 - 10. NO APPEAL(S) HAS BEEN FILED BY T HE REVENUE, AS PER LD. CIT(D.R.) IN ALL THESE APPEALS APART FROM THAT IN A.Y. 2008 - 09 THERE IS ONE OTHER ISSUE RELATING TO ADDITION MADE U/S 40 A(3) OF THE INCOME TAX ACT, 1961 [ THE ACT FOR SHORT ] . ALL THESE APPEALS WERE 2 SIMULTANEOUSLY HEARD. THEREFORE, F OR THE SAKE OF CONGRUENCE, BREVITY AND CONVENIENCE WE ARE PROCEEDING TO DECIDE THEM ALL BY THIS COMMON ORDER. 2. TO START WITH AND WITH A VIEW TO UNDERSTAND THE COMMON ISSUE RELATING TO ADDITIONS MADE U/S 36(I)(III) OF THE ACT, IN ALL THESE APPEALS, WE N ARRATE THE FACTS OBTAINING IN A.Y. 2005 - 06. 3. THE ASSESSEE IS A FIRM, WHICH CARRIED ON THE BUSINESS AS A BUILDERS AND DEVELOPER. A SEARCH AND SEIZURE ACTION WAS CARRIED OUT U/S 132 OF THE ACT ON 03.09.2008 AT THE BUSINESS PREMISES OF THE ASSESSEE 1, T OWN HALL LINK ROAD, UDAIPUR. DURING THIS SEARCH INCRIMINATING EVIDENCE IN THE FIRM OF CASH, BOOKS OF ACCOUNTS AND OTHER DOCUMENTS WERE FOUND AND SEIZED AS PER ANNEXURE ATTACHED TO THE PANCHNAMAS DATED 03.09.2008 AND 04.09.2008 . CONSEQUENTLY, NOTICE U/S 153 A OF THE ACT WAS ISSUED TO THE ASSESSEE ON 27.01.2009, REQUIRING IT TO PREPARE A TRUE AND CORRECT RETURN OF ITS TOTAL INCOME INCLUDING UNDISCLOSED INCOME IN RESPECT OF WHICH IS ASSESSABLE FOR A.Y. 2005 - 06. THE ASSESSEE - FIRM WAS REQUIRED TO PREPARE SUCH A R ETURN IN THE REQUISITE FORMAT AND TO BE DELIVERED WITHIN 30 DAYS OF SERVICE OF THIS NOTICE, DULY VERIFIED AND SIGNED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 140 OF 3 THE ACT. THE ASSESSEE - FIRM RESPONDED BY FILING RETURN DECLARING INCOME OF RS. 0/ - (NI L) ON 24.03.2010. THE ASSESSEE - FIRM HAD FI LED ORIGINAL RETURN DECLARING NI L INCOME FOR THIS YEAR ON 14.10.2005. THE ASSESSEE - FIRM CLAIMED THAT NO TRADING ACTIVITY HAD BEEN DONE DURING THE YEAR AND THEREFORE, NO PROFIT AND LOSS ACCOUNT HAD BEEN MADE. 4. DUR ING THE YEAR, THE ASSESSEE HAS SHOWN DEBTS IN THE NAME OF ITS SISTER CONCERNS AND HAS NOT CHARGED ANY INTEREST WHEREAS IT HAS PAID INTEREST AMOUNT OF RS. 4,44,379/ - TO CREDITORS. THE ASSESSEE HAS ADVANCE SUM AS UNDER : - TO M/S. JAI JINENDRA BUILDERS - RS. 4500000/ - ROHIT TYRES - RS. 1114775/ - SUBH MANGAL MARBLES & GRANITES - RS. 1581137 / - TOTAL - RS. 5771912 / - 5. THE A.O. HAS INVOKED PROVISIONS OF SECTION 36(1)(III) OF THE ACT. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, THE A.O. HAS OBSERVED THAT THE ONUS IS ON THE ASSESSEE TO SATISFY THE A.O. THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE WAS USED FOR ITS BUSINESS PURPOSE ONLY. THE A.O. HAS FOUND THAT THE ASSESSEE HAS NOT DISCHARGED ITS ONUS. SINCE THE ASSESSEE HAS PAID INT EREST TO CREDITORS AND HAS NOT CHARGED INTEREST FROM DEBTORS WHO ARE IT SISTER CONCERNS, IT HAS 4 DIVERTED FUNDS. HENCE, TO THAT EXTENT THE A.O. HAS DISALLOWED INTEREST PAID ON BORROWALS. ACCORDINGLY, HE HAS DISALLOWED INTEREST AMOUNT OF RS. 4,44,379/ - PAID, OUT OF TOTAL PAID, ON THE BORROWED CAPITAL BY TREATING IT TO HAVE BEEN UTILIZED FOR NON BUSINESS PURPOSE AND AHS ADDED THE SAME TO ASSESSEE - FIRMS TOTAL INCOME OF THE YEAR. 6. SIMILARLY, THE A.O. HAS COMPUTED SUCH NOTIONAL DISALLO WANCE IN OTHER YEARS AS UNDER: DISALLOWANCE U/S 36(1)(III) A.Y. 2006 - 07 - RS. 7,19,356/ - A.Y. 2007 - 08 - RS. 7,31,796/ - A.Y. 2008 - 09 - RS. 11,49,030/ - A.Y. 2009 - 10 - RS. 11,62,341/ - . 7. IN FIRST APPEAL ALSO THE ASSESSEE - FIRM HAS UNSUCCESSFUL AS THE ABOVE A DDITIONS HAVE BEEN CONFIRMED ON THE SIMILAR REASONING. 8. THE ASSESSEE IS FURTHER AGGRIEVED AND HAS FILED APPEAL(S) FOR ALL THESE YEARS. THE SAMPLE GROUND OF APPEAL RAISED READS AS UNDER : (FOR A.Y. 2005 - 06) : UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A), CENTRAL, JAIPUR HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR DISALLOWANCE OF INTER E ST U/S 36(1)(III) 5 ON INTEREST FREE ADVANCES OF RS. 56,14,775/ - . THE DISALLOWANCE UPHELD BY THE CIT(A) IS BAD IN LAW AND LIABLE TO BE DELETED. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE ENTIRE RECORD. THE SUBMISSIONS OF LD. A.R., IN NUTSHELL (TAKEN FROM W RITTEN SUBMISSIONS PAGE 3 ONWA R DS) ARE AS UNDER : - IN THIS REGARD IT IS SUBMITTED THAT WHI LE MAKING DISALLOWANCE U/'S 36(1 )(III) OF I.T. ACT OF INTEREST OF RS. 4,44,379/ - PAID ON UNSECURED LOANS THE A.O. HAS NOT CONSIDERED OUR SUBMISSIONS AND JUST STATED THAT CONTENTION OF THE ASSESSEE NOT FOUND SATISFACTORY. IT IS SUBMITTED THAT ASSESSEE IS THE PARTNERSHIP FIRM IN WHICH BABU LAI MOTAWAT, RAJNI MOTAWAT & ROHIT MOTAWAT ARE PARTNERS. LIKEWISE JAI JINENDRA BUILDERS IS ALSO PARTNERSHIP FIRM IN WHICH BABU LAI MOTAWAT IS PARTNERS, ROHIT TYRES IS THE PROPERIETARY CONCERN OF ONE OF THE PARTNER CMT. RAJNI MOTA.VAT & SHUBH MANGAL MA RBLES & GRANITES IS THE PROPRIETARY CONCERNS OF PARTNER SH. ROHIT MOTAWAT, AND THEREFORE ALL ARE INTERLINKED FOR BUSINESS TRANSACTIONS. THEREFORE SOME TIME PAYMENTS ARE MADE & RECEIVED IN INDIVIDUAL NAME AND FROM ONE ACCOUNT OR OTHER AS ALL THE CONCERNS AR E FROM SAME FAMILY AND WHATEVER AMOUNT SHOWN DEBIT OR CREDIT IS IN RESPECT OF CARRYING OUT BUSINESS & FOR THE PURPOSE OF BUSINESS. IT HAS BEEN OBSERVED BY HONBLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. V/S CIT(A) & ANR, 6 288 ITR 1 THAT THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT SOME OF IT TO ITS SISTER - CONCERN (A SUBSIDIARY) ON INTEREST - FREE LOAN. THE TEST IN SUCH A CASE IS REALLY WHETHER THIS WAS DONE AS MEASURE OF COMMERCIAL EXPEDIENCY. THE DECISION RELATING TO S. 37 WILL ALSO BE APPLIC ABLE TO S.36 (1) (III) BECAUSE IN S. 37 ALSO THE EXPRESSION USED IS FOR THE PURPOSE OF BUSINESS . IT HAS BEEN CONSISTENTLY HELD IN DECISION RELATING TO S. 37 THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY . THE ADVANCES OF RS. 45,00,000/ - MADE TO JAI JINENDRA BUILDERS IS IN RESPECT OF COMMERCIAL EXPENDIENCY AS M/S JAI JINENDRA BUILDERS IS ENGAGED IN CONSTRUCTION BUSINESS IN WHICH ONE OF THE PARTNER OF THE ASSESSEE FIRM IS ALSO PARTNER. THE BALANCE IN THE NAME OF ROHIT TYRES RS. 11,14,775/ - IS NOTHING BUT PROPRIETARY CONCERNS OF ONE OF THE PARTNER VIZ. SMT. RAJNI MOTAWAT. THE BALANCE WITH SHUBH MANGAL MARBLES & GRANITES RS. 1 ,58,137/ - REPRESENTS PROPRIETARY CONCERN OF SH. ROHIT MOTAWAT PARTNER OF THE ASSESSEE FIRM. FURTHER YOUR HONOUR WILL PLEASE OBSERVE THAT THERE IS CREDIT BALANCE OF 5,01,433/ - IN THE NAME OF BEST MINERALS WHICH IS ALSO PROPRIETARY CONCERN OF SH. ROHIT MOTAW AT. 7 THEREFORE CONSIDERING ABOVE AND IN TERM OF DECISION OF H ON BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. V/S CIT(A) & ANR 288 ITR 1, THE ABOVE ADVANCES ARE MADE AS MEASURE OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF BUSINESS. WITHOUT PREJUDICE T O THE ABOVE, IT IS FURTHER SUBMITTED MAT CAPITAL OF THE FIRM AND NON INTEREST BEING FUNDS IN THE NAME OF UNSECURED LOAN & ADVANCES FROM CUSTOMERS & CREDITORS WITH THE ASSESSEE ARE MORE THAN THE ABOVE REFERRED INTEREST FREE ADVANCES. THEREFORE INTEREST FREE ADVANCES AS DISCUSSED ABOVE ARE SUFFICIENTLY COVERED BY THE SUCH EXCESS FUND AVAILABLE TO THE FIRM. THE ASSESSEE FIRM HAD ITS CAPITAL & NONINTEREST BEARING FUNDS DURING THE YEAR AS UNDER: CAPITAL 37.19 UNSECURED LOAN (NON INTERE ST BEARING) 17.58 CREDITORS/ADVANCES 13.95 TOTAL 68.72 THEREFORE INTEREST FREE ADVANCES AS CONSIDERED BY A.O. IS COVERED BY NON INTEREST BEARING FUNDS AVAILABLE WITH THE FIRM. HENCE INTEREST DISALLOWED IS BASICALLY WRONG & UNJUSTIFIED. 8 RELIANCE MAY PLEASE BE PLACED ON I) COMMISSIONER OF INCOME TAX VS. TIN BOX CO. (2003) 260 ITR 637 (DEL). WHERE THE CAPITAL AND INTEREST - FREE UNSECURED LOAN WITH THE ASSESSED FAR EXCEEDED THE INTEREST - FREE AMOUNT ADVANCED TO THE SISTER CONCERN, DISALLOWANCE OF PART OF IN TEREST OUT OF THE TOTAL INTEREST PAID BY THE ASSESSEE. II) COMMISSIONER OF INCOME TAX VS. PREM HEAVY ENGINEERING WORKS (P) LTD. (2006) 285 1TR 554 (ALL) INTEREST PAID BY THE ASSESSEE ON BANK OVERDRAFT CO UL D NOT BE PARTLY DISALLOWED ON THE GROUND THAT IT HAD MADE INTEREST - FREE ADVANCES TO ITS SISTER - CONCERN SINCE ASSESSEE HAD SUFFICIENT AMOUNT OF OWN FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND SURPLUS AND INTEREST - FREE BORROWINGS TO COVER THE INTEREST - FREE ADVANCES MADE BY IT. III) COMMISSIONER OF INCOME TA X VS. RELIANCE UTILITIES & POWER LTD. (2009) 3131TR340. TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST - FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE RELEVANT FINANCIAL YEAR, APART FROM SUBSTANTIA L SHAREHOLDER FUND, PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENTS IN 9 SISTER CONCERN WERE MADE BY THE ASSESSEE OUT OF INTEREST - FREE FUNDS AND THEREFORE NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. IV) COMMISSIONER OF INCOME TAX VS. PHIL CORPORATION LTD. & ANR. (2011) 61 DTR 15. INVESTMENT MADE BY THE ASSESSEE COMPANY OUT OF BANK OVERDRAFT IN THE SHARES OF ITS SUBSIDIARY COMPANY TO HAVE CONTROL OVER THAT COMPANY BEING AN INT EGRAL PART OF ITS BUSINESS, INTEREST PAID BY THE ASSESSEE WHICH IS ATTRIBUTABLE TO SAID BORROWINGS IS ALLOWABLE AS DEDUCTION UNDER S. 36 (1) (III) . THEREFORE CONSIDERING ABOVE FACTS & CIRCUMSTANCES OF THE CASE YOUR HONOUR IS REQUESTED TO PLEASE DELETE TH E ADDITION OF RS. 1,51,600/ - MADE BY A. O. U/S 40A (3) & OBLIGE. THEREFORE WE REQUEST YOUR HONOUR TO PLEASE CONSIDER THE ADVANCES AS IN REGULAR COURSE OF BUSINESS AS OTHER ADVANCES TO OTHER PARTIES AND NO ADVERSE INFERENCE MAY PLEASE BE DRAWN. 10. PER CONTRA THE LD. CIT(DR) HAS REPEATED THE REASONS GIVEN BY LD. CIT(A) TO DENY THIS CLAIM OF THE ASSESSEE. THE RELEVANT PORTION OF CIT(A)S ORDER READS AS UNDER : - 10 4.3 I HAVE CAREFULLY PERUSED THE ORDER OF THE AO AND SUBMISSIONS OF THE AR OF THE APPELLANT A ND ONLY PARTLY AGREE WITH THE SUBMISSIONS OF THE AR ON THE FOLLOWING GROUNDS: I) THE AO ON PAGE - 3, PARA 8.3 OF HIS ASSESSMENT ORDER HAS CATEGORICALLY NOTED AS FOLLOWS: 'ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION IN THE BOOKS OF ACCOUNT, THE ONUS WILL BE ON THE ASSESSEE TO SATISFY THE AO THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE, THE SAME WERE USED FOR BUSINESS PURPOSES. IN THE INSTANT CASE, THE ONUS LIES UPON THE ASSESSEE HAS NOT BEEN ATTEMPTED TO BE DISCHARGED. THE HON. PUNJAB & HARYANA HIGH COURT H AS OBSERVED IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. (2006) 156 TAXMAN 257: THE STAND THAT THE ONUS OF PROVING THE NEXUS OF FUNDS AVAILABLE WITH THE ASSESSEE WITH THE FUNDS ADVANCED TO THE SISTER CONCERNS WITHOUT INTEREST IS ON THE REVENUE, IS NOT CORRECT. SEC. 36(L)(III) PROVIDES FOR DEDUCTION OF INTEREST ON THE LOANS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION IN THE BOOKS OF ACCOUNT, THE ONUS WILL BE ON THE ASSESSEE TO SATISFY THE AO THAT WHATEVER LOANS WERE RAISED B Y THE ASSESSEE, THE SAME WERE USED FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINATION OF GENUINENESS OF SUCH A DEDUCTION , IT TRANSPIRES THAT 11 THE ASSESSEE HAD ADVANCED CERTAIN FUNDS TO SISTER CONCERNS OR DISCHARGED BEFORE THE AO TO THE EFFECT THAT IN S PITE OF PENDING TERM LOAN AND WORKING CAPITAL LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, THERE WAS JUSTIFICATION TO ADVANCE LOANS TO SISTER CONCERNS FOR NON - BUSINESS PURPOSES WITHOUT ANY INTEREST. IN THIS CASE THE APPELLANT HAS NOT DISCHARGED ITS ONUS EITHER DURING THE ASSESSMENT PROCEEDINGS OR DURING APPELLATE PROCEEDINGS TO ESTABLISH THAT THERE WAS NO NEXUS BETWEEN BORROWED FUND AND INTEREST FREE ADVANCES MADE BY IT TO ITS SISTER CONCERNS. THE MERE AVAILABILITY OF FUNDS BY WAY OF CAPITAL AND INTEREST FREE BORROWINGS CANNOT BE TAKEN AS CONCLUSIVE EVIDENCE THAT IT WERE THESE FUNDS THAT WERE ADVANCED INTEREST FREE. THE ONUS WAS ON THE APPELLANT TO SPECIFICALLY BRING ON RECORD THAT INTEREST FREE FUNDS WERE USED TO MAKE THESE ADVANCE S. THIS HAS NOT BEEN DONE TO THIS EXTENT THE APPELLANT FAILED TO DISCHARGE ITS ONUS. RELIANCE IS ALSO PLACED ON K. SOMASUNDARAM & BROS. VS. CIT (1999) 238 ITR 939 (MAD). II) THE MERE FACT THAT PARTNERS OF THE FIRM WERE ALSO PARTNERS OR PROPRIETORS OF THE FIRMS / CONCERNS TO WHOM INTEREST FREE LOANS WERE ADVANCED DOES NOT AUTOMATICALLY PROVE THAT THERE WERE BUSINESS TRANSACTIONS BETWEEN THE APPELLANT FIRM AND THESE CONCERNS. NOWHERE IN THE 12 SUBMISSIONS HAS IT BEEN BROUGHT ON RECORD THE NATURE OF TRADE/ BUSINESS TR ANSACTIONS OF THE APPELLANT AND SISTER CONCERNS. IN ABSENCE OF ANY EVIDENCE TO THIS EFFECT THE OBSERVATIONS OF THE HON. APEX COURT IN S. A. BUILDERS LTD. VS. CIT (2007) 158 TAXMAN 74 ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT. FOR EXAMPLE , THERE IS NO EXPLANATION/ JUSTIFICATION REGARDING THE TRADE/ BUSINESS TRANSACTION BETWEEN THE ASSESSEE WHO IS ENGAGED IN BUSINESS OF REAL ESTATE AND M/S ROHIT TYERS PROPRIETARY CONCERN OF SRAT. RAJNI MOTAWAT. IN FACT THE AO HAS NOTED THAT THE ASSESSEE CLA IMED THAT NO TRADING ACTIVITY HAD BEEN UNDERTAKEN DURING THE YEAR BY THE FIRM. III) EXCEPT IN THE CASE OF M/S SHUBH MANGAL MARBLE & GRANITE WHERE THERE WAS A CREDIT BALANCE OF RS. 5,01,433/ - DISALLOWANCE OF INTEREST ON ADVANCES TO M/S JAI JINENDRA BUILDERS (RS. 45 LAKH) AND ROHIT TYRES (RS. 11,14,775/ - ) IS UPHELD. THE AO IS DIRECTED TO CALCULATE THE DISALLOWANCE OF INTEREST U/S 36(1 )(III) ON INTEREST FREE ADVANCES OF RS. 56,14,775/ - . 11. AFTER COGITATING THE RIVAL SUBMISSIONS VIS - - VIS THE ENTIRE RECORD, WE AR E OF THE CONSIDERED OPINION THAT THE DECISION OF THE HONBLE P&H HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. (2006) 156 13 TAXMANN 257 HAS BEEN REVERSED BY THE HONBLE APEX COURT AND IT IS NO LONGER A GOOD LAW. THE HONBLE APEX COURT HAS HELD I N THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 295 (SC) THAT REAL INCOME AND NOT HYPOTHETICAL INCOME CAN BE ASSESSED. FURTHERMORE, WE HAVE NOTICED THAT THE ASSESSEE HAD MADE SUBMISSIONS AGAINST THE IMPUGNED ADDITION BUT THEY HAVE NOT BEEN CORRECTLY AP PRECIATED. THE REASONS GIVEN ABOVE AND EXTRACTED BY US, CLEARLY SHOW THAT THE ASSESSEE - FIRM HAD COMMERCIAL EXPEDIENCY FOR THE BENEFIT OF BUSINESS. IT IS ALSO NOTICED THAT CAPITAL OF THE FIRM NON - INTEREST BEARING FUNDS (LOANS) WITH THE ASSESSEE ARE MORE THA N THE INTEREST FREE ADVANCES. THEREFORE, THE INTEREST FREE ADVANCES AR E SUFFICIENTLY COVERED AGAINST EXCESS FUNDS AVAILABLE WITH THE FIRM. HENCE, SUCH NOTIONAL DISALLOWANCE S ARE NOT JUSTIFIED. THESE ARE SEARCH CASES AND NO INCRIMINATING EVIDENCE W AS FOUND IN THIS REGARD FROM THE POSSESSION OF THE ASSESSEE DURING THIS SEARCH. THEREFORE, THE CUMULATIVE EFFECT OF THE FACTUAL FACTS MENTIONED ABOVE WAY US TOWARDS ACCEPTING THE GROUND RAISED BY THE APPELLANT. ACCORDINGLY, WE ALLOW THIS COMMON ISSUE IN THE FAVOUR OF THE ASSESSEE AND ORDER DELETION OF THIS ADDITION MADE U/S 36(1)(III) OF THE ACT. 14 12. SIMILAR ARGUMENTS HAVE BEEN RAISED IN OTHER YEARS FROM BOTH SIDES. EXCEPT FOR THE AMOUNTS OF ADDITIONS OTHER FACTUAL MATRIX HAS REMAINED SAME AND SIMILAR. THEREFORE, IN ALL OTHER YEARS ALSO WE ALLOW THIS GROUND AND ORDER DELETION OF CONFIRMED ADDITION MADE U/S 36(1)(III) OF THE ACT. 13. IN A.Y. 2008 - 09, THE ASSESSEE HAS RAISED ONE MORE GROUND, AS GROUND NO. (2) WHICH READS AS UNDER : - UNDER THE FACTS AND CIRCUMSTAN CES OF THE CASE, THE LD. CIT(A), CENTRAL, JAIPUR HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE AO U/S 40A(3) OF THE ACT RS. 1,51,600/ - ON PAYMENTS MADE TO VARIOUS LAND KHATEDARS FROM PURCHASE OF LAND. THE DISALLOWANCE UPHELD BY THE CIT(A) CENTRAL IS BA D IN LAW AND LIABLE TO BE DELETED. 14. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE - FIRM HAS MADE CASH PAYMENTS EXCEEDING RS. 20,000/ - TO THE SALES WHILE PURCHASING VARIOUS PROPERTIES. THEREFORE, HE HAS INVOKED SECTION 40A(3) OF THE ACT QUA TOTAL SUCH PAYMENT OF RS. 1,51,600/ - . THE A.O. HAS REJECTED THE SUBMISSIONS OF THE ASSESSEE THAT MOST OF THE SELLERS WERE VILLAGERS AND NO BANKING FACILITY WAS AVAILABLE IN THOSE VILLAGES. HENCE, 15 THE A.O. HAS DISALLOWED THE ENTIRE AMOUNT OF RS. 1,51,600/ - . BEFOR E LD. CIT(A) THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS: WITH REGARD TO ABOVE, IT IS SUBMITTED THAT ID. A.O. HAS DISALLOWED 100% OF CASH PAYMENT OF RS. 1,51,600/ - IN RESPECT OF CASH PAYMENT FOR PURCHASE OF LAND. FROM THE PARA 8.1 OF ASST, ORDER YOUR HO NOUR MAY PLEASE OBSERVE THAT CASH PAYMENT MENTIONED BY A.O. IS NOT RELATED TO THE YEAR, UNDER CONSIDERATION AND THE ADDITION MADE BY A.O. U/S 40A(3) IS BASICALLY WRONG & LIABLE TO BE DELETED. WITHOUT PREJUDICE, TO THE ABOVE IT IS SUBMITTED THAT ASSESSEE IS CA RR YING OUT BUSINESS OF REAL ESTATE AND IN WHICH ASSESSEE PURCHASED VARIOUS AGRICULTURE LANDS FROM VILLAGERS AROUND NEARBY AREAS OF UDAIPUR. IN THE PROCESS OF LAND PURCHASE AND ITS CONVERSION THERE ARE SO MANY FORMALITIES OF GOVT, RULES AND ACCORDINGLY T HE WHOLE PROCESS TAKES LONG TIME. IN THE REAL ESTATE BUSINESS IT IS THE TRADE PRACTICE WHILE MAKING AGREEMENT TO SALE PART PAYMENTS ARE MADE FROM TIME TO TIME I. E. CALLED FARDAN AND FIGURES ARE MENTIONED IN THE AGREEMENT/SALE DEED. BEFORE REGISTRY DOCUMEN TS SUB - REGISTRAR CONFIRM ABOUT IDENTITY OF PERSON & CONFIRM FROM THE SELLER THAT WHETHER AMOUNT MENTIONED WAS RECEIVED. THE CASH PAYMENT WAS NECESSITY TO CARRY OUT BUSINESS AS THE VILLAGERS FROM WHOM LAND IS BEING PURCHASED DO NOT HAVE BANK ACCOUNTS AND T HEY ARE AGRICULTURIST NON 16 LITERATE AND THEY DO NOT ACCEPT CHEQUE S AND IF YOU INSI S T UPON CHEQUE PAYMENTS THEY WILL STRAIGHT AWAY REFUSE TO SALE THEIR LAND AND SAYS THAT ( BABU LAI JI) YOUR HONOUR MAY PLEASE OBSERVE THAT WHY ASSESSEE WILL PAY CASH WHEN HE I S HAVING BALANCE IN BANK BUT THAT WAS BUSINESS NECESSITY THAT LEAD US TO MAKE CASH PAYMENTS. THE PAYMENTS WERE MADE AT THEIR RESIDENCE IN VILLAGES NOT SERVED BY BANKS AND ABOVE ALL THEY WERE NOT ACCEPTING CHEQUES IN ANY CONDITION. THEREFORE SUCH CASH PAYME NTS ARE COVERED BY CLAUSE G OF RULE 6DD. SIMILAR VIEW HAS BEEN EX PRESSED BY THE TRIBUNAL IN CASE OF PACL INDIA LTD., 38 DTR 7 (JP) ALSO WHEREIN IT HAS BEEN HELD AS UNDER: - CLAUSE (H) OR R. 6DD TAKES OUT OF THE PURVIEW OF S. 40A(3) SUCH CASH PAYMENT WHICH IS MADE IN A VILLAGE OR TOWN WHICH IN NOT SERVED BY ANY BANK TO ANY PERSON WHO ORDINARILY RESIDES OR IS CARRYING ON ANY BUSINESS IN SUCH VILLAGE OR TOWN. THERE IS NO DISPUTE THAT THE SELLERS OF THE LAND ARE VILLAGERS ENGAGED IN FARMING ACTIVITIES AND ARE RESIDING AT PLACES AND ARE CA RR YING ON FARMING ACTIVITIES AT PLACES WHICH ARE NOT SERVED BY ANY BANK AND SUCH SELLERS HAVE NO BANK ACCOUNTS ANYWHERE. IT HAS BEEN EMPHATICALLY ARGUED ON BEHALF OF THE APPELLANT - COMPANY THAT ALL PAYMENTS WERE MADE AT THE VI LLAGES PRIOR TO REGISTRATION OF THE SALE. THIS SUBMISSION CANNOT BE OUT RIGHTLY REJECTED. NORMALLY, ILLITERATE POOR 17 FARMERS WOULD INSIST ON CASH PAYMENTS, ESPECIALLY WHEN SUCH PAYMENTS INVOLVE HUGE AMOUNTS, AT THE PLACE OF THEIR RESIDENCE FOR THE SIMPLE RE ASON THAT THEY WOU L D LIKE TO AVOID THE RISK OF RECEIVING CASH AT THE TOWN WHERE THE SALE IS TO BE REGISTERED AND WHICH MAY BE FAR A WA Y FROM THE - VILL AGE AND SUCH CASH HAS TO BE CARRIED BACK BY THEM TO THE VILLAGE. IT IS COMMON KNOWLEDGE THAT THE SELLER HAS TO CONFIRM BEFORE THE SUB - REGISTRAR THAT FULL PAYMENT HAS BEEN RECEIVED BY HIM: AT THE SAME TIME, THE SUB - REGISTRAR SATISFIES HIMSELF ABOUT THE IDENTITY OF THE SELLER TO ENSURE THAT THE PAYMENT HAS BEEN MADE TO THE RIGHT PERSON . FOR THE SAKE OF CONVENIENC E, IN THE RECEIPT THE PLACE IS MENTIONED AS THE TOWN WHERE THE DOCUMENT IS REGISTERED. THE AO HAS NOT MADE ANY EFFORT TO EXAMINE ANY OF THE SELLERS TO VERIFY AS TO WHETHER THE PAYMENTS WERE RECEIVED AT THE' VILLAGES OR AT THE TOWN. CONSIDERING - THE ENTIRE FACTS THE PROPOSITION THAT THE PAYMENTS WERE MADE AT VILLAGES WHERE BANKING FACILITIES DID NOT EXIST IS ACCEPTED. EVEN IF IT IS ASSUMED THAT PAYMENTS WERE MADE AT A TOWN WHERE BANKING FACILITIES WERE AVAILABLE, THE CASE OF THE APPELLANT - COMPANY WOULD STIL L FALL UNDER THE EXCEPTION OF R. 6DD. RULE 6DD(H) HAS TO BE INTERPRETED LIBERALLY SO AS NOT TO FRUSTRATE THE OBJECT OF THE LEGISLATURE. THE OBJECT OF S. 40A (3) IS NOT TO DISALLOW GENUINE PAYMENTS AND THE R. 18 6DD HAS TO BE INTERPRETED KEEPING IN VIEW THE OB JECT OF THE MAIN PROVISION. THE SECOND PROVIS I ON TO S. 40A (3) REFERS TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDI ENCY AND OTHER RELEVANT FACTORS , WHICH MEANS THAT THE OBJECT OF THE LEGISLATURE IS NOT TO MAK E DISALLOWANCE OF SUCH CASH PAYMENTS WHICH HAVE TO BE COMPULSORILY MADE BY THE ASSESSEE IN VIEW OF ABSENCE OF BANKING FACILITIES AT THE PLACE OF PAYMENT. IN THE PRESENT CASE, EVEN IF IT IS ASSUMED THAT THE PAYMENT WAS MADE AT THE DISTRICT HEADQUARTER, THE ADMITTED POSITION IS THAT THE SELLERS DID NOT HAVE ANY BANK ACCOUNTS AT SYNCH T OWN AND THEY DID NOT RESIDE OR C AR R Y ON ANY 'BUSINESS OR FARMING ACTIVITY AT SUCH TOWN. IT WOULD BE TOO MUCH TO EXPECT THAT THE APPELLANT COMPANY WOULD BE ABLE TO COMPEL THE VIL LAGERS TO OPEN BANK ACCOUNTS AT THE TOWN WHICH ULTIMATELY THEY WILL NOT BE ABLE TO OPERATE AS THEY DO NOT RESIDE AT SUCH TOWN. IF SUCH A MYOPIC VIEW IS TAKEN REGARDING THE INTERPRETATION OF R. 6DD(H), THE VERY OBJECT OF THE LEGISLATURE WOULD BE FRUSTRATED. THERE IS NO DISPUTE REGARDING THE IDENTITY OF THE PAYEES AND THE GENUINENESS OF THE LAND TRANSACTIONS IN RESPECT OF WHICH PAYMENTS HAVE BEEN MADE. IT IS NOTABLE THAT R. 6DD(K) PROVIDES AN EXCEPTION IN RESPECT OF CASH PAYMENT WHICH IS MADE ON A DAY ON WHIC H THE BANKS WERE CLOSED. THIS PROVES THAT THE OBJECT OF THE LEGISLATURE IS TO PROVIDE EXCEPTION IN RESPECT OF SUCH PAYMENT WHICH IS REQUIRED TO BE MADE IN CASH OR ABSENCE OF BANKING FACILITIES. RULE 19 6DD(H) MUST BE INTERPRETED KEEPING IN VIEW THIS OBJECT AN D PURPOSE. COPY OF ORDER OF HON BLE ITAT, JAIPUR IN THE CASE OF ACE INDIA ABODES LTD. ITA NO. 79/JP/2011 IS ENCLOSED. WHILE HOLDINGS SO, THE TRIBUNAL HAS TAKEN INTO CONSIDERATION CASES OF M/S. P. PRAVIN & CO., 274 ITR (GUJ.) HASANAND PINJOMAL, 112 ITR 134 (GUJ.), VENKATA SATYANARAYANA TIMBER DEPOT, 165 ITR 253 (AP) AND CHAUDHARY & CO., 217 ITR 431 (ALL.). THEREFORE CONSIDERING ABOVE FACTS & CIRCUMSTANCES OF THE CASE YOUR HONOUR IS REQUESTED TO PLEASE DELETE THE ADDITION OF RS. 1,51,600/ - MADE BY A. O. U/S 4 0A (3) & OBLIGE. THEREFORE WE REQUEST YOUR HONOUR TO PLEASE CONSIDER THE ADVANCES AS IN REGULAR COURSE OF BUSINESS AS OTHER ADVANCES TO OTHER PARTIES AND NO ADVERSE INFERENCE MAY PLEASE BE DRAWN. 15. HOWEVER, THE LD. CIT(A) WAS NOT AGREEABLE. 16. BEFO RE US BOTH LD. A.R. AND CIT(DR) HAVE REPEATED THEIR ARGUMENTS. AFTER CONSIDERING THE SAME WE ARE OF THE CONSIDERED OPINION THAT THESE PAYMENTS ARE SAVED BY THE PRECINCTS OF RULE 6DD, AS SELLER ARE VILLAGERS HAVING NO BANK ACCOUNTS. ACCORDINGLY, WE ORDER TO 20 DELETE THIS ENTIRE ADDITION AND ALLOW GROUND NO. (2) OF THE APPEAL IN ITA NO. 134/JODH/2014 A.Y. 2008 - 09. 17. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE - FIRM STAND ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JULY, 2014.) SD/ - SD/ - (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH JULY, 2014. VL/ - COPY TO: THE APPELLANT THE RESPONDENT THE CIT BY ORDER THE CIT(A) THE DR SENIOR PERSONAL SECRETARY ITAT, JODHPUR