Gangadhar Karbhari Jadhav, Nashik V. Deputy Commissioner of Income-tax,

ITA 1695/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9560 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-04-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 28-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT BOBDE JT
• Keywords: Business expenditure; Cost of acquisition
• Section: 40A(3); 143(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO.1695/PUN/2015 [ [ / ASSESSMENT YEAR : 2012-13 SHRI GANGADHAR KARBHARI JADHAV, 16, MORYA APARTMENT, PATIL LANE NO.1, COLLEGE ROAD, NASHIK 422001 . / APPELLANT PAN: ABKPJ4421H VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1, NASHIK . / RESPONDENT / APPELLANT BY : SHRI SANKET JOSHI / RESPONDENT BY : SHRI AMIT BOBDE JT. CIT / DATE OF HEARING : 19.04.2017 / DATE OF PRONOUNCEMENT: 21.04.2017 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)-1, NASHIK, DATED 08.10.2015 RELATING TO ASSESSMENT YEAR 2012-13 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). ITA NO.1695/PUN/2015 SHRI GANGADHAR KARBHARI JADHAV 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE U/S 40A(3) OF RS.12,94,500/- WITHOUT APPRECIATING THAT NO DISALLOWANCE WAS WARRANTED ON FACTS OF THE CASE. 2] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE CASH PAYMENTS OF RS.12,94,500/- MADE TOWARDS ACQUISITION OF LAND WERE NOT COVERED UNDER THE EXCEPTIONS PRESCRIBED U/R 6DD AND HENCE, THE SAID PAYMENTS WERE RIGHTLY DISALLOWED U/S 40A(3) BY THE LEARNED A.O. 3] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ABOVE PAYMENTS TOTALING TO RS.12,94,500/- WERE MADE IN CASH BY THE ASSESSEE OUT OF BUSINESS EXPEDIENCY AND HENCE, THE DISALLOWANCE MADE U/S 40A(3) IN RESPECT OF THE SAME WAS NOT JUSTIFIED ON FACTS OF THE CASE. 4] THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE GENUINENESS OF THE SAID PAYMENTS WAS ACCEPTED BY THE A.O. AND HENCE, CONSIDERING THE PECULIAR FACTS OF THE CASE, THE DISALLOWANCE MADE U/S 40A(3) WAS NOT JUSTIFIED. 5] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASSESSEE SUBMITS THAT THE ENTIRE CASH PAYMENTS WERE MADE TOWARDS ACQUISITION OF STOCK IN TRADE WHICH WAS NOT SOLD DURING THE YEAR AND SINCE THE COST OF THE SAID STOCK WAS NOT CLAIMED AS A DEDUCTION IN THIS YEAR, THERE WAS NO REASON TO MAKE ANY DISALLOWANCE U/S 40A(3) IN THIS YEAR. 3. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT AT RS.12,94,500/-. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FURNISHED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.24,47,090/-. THE ASSESSEE HAD RECEIVED SALARY FROM COMPANY AND WAS ALSO ENGAGED IN THE BUSINESS OF LAND DEALING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE PRODUCED THE DETAILS OF AGRICULTURAL LAND PURCHASED BY HIM AND ON VERIFICATION OF THE PURCHASE DEEDS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE PAYMENTS IN CASH MORE THAN RS.20,000/-. THE DETAILS OF CASH PAYMENTS ARE TABULATED AT PAGE 2 OF THE ASSESSMENT ORDER, UNDER PARA 3 TOTALING RS.12,94,500/-. THE ASSESSEE WAS SHOW CAUSED AS TO WHY THE SAME SHOULD NOT BE DISALLOWED ITA NO.1695/PUN/2015 SHRI GANGADHAR KARBHARI JADHAV 3 UNDER SECTION 40A(3) OF THE ACT. THE ASSESSEE CLAIMS THAT THE PAYMENTS IN CASH WERE GENUINE PAYMENTS, WHERE THE PAYMENTS WERE CONFIRMED BY THE RECIPIENT AND THE PURCHASE COST WAS NOT CLAIMED AS DEDUCTION DURING THE YEAR. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE PURCHASE EXPENSES WERE DEBITED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT, THEN FOR CALCULATING THE GROSS PROFIT, THE PURCHASE COST WAS CONSIDERED AND EVEN OTHERWISE, WHERE THE ASSESSEE HAD MADE CASH PAYMENTS MORE THAN RS.20,000/-. EVEN IF THE PAYMENTS WERE GENUINE, THE PROVISIONS OF SECTION 40A(3) OF THE ACT WERE ATTRACTED AND ACCORDINGLY, DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT WAS MADE AT RS.12,94,500/-. 5. THE CIT(A) CONSIDERED THE PROVISIONS OF RULE 6DD OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) AND OBSERVED THAT THE CASH PAYMENTS MADE BY THE ASSESSEE WERE NOT COVERED BY RULE 6DD OF THE RULES. HE FURTHER NOTED THAT THE ASSESSEE HAD MADE BOTH CHEQUE AND CASH PAYMENTS TO THE SAME PARTY AND THERE WAS NO REASON FOR MAKING THE SAID CASH PAYMENTS. EVEN IF ANY ENHANCED AMOUNT HAD TO BE PAID, THE SAME COULD HAVE BEEN PAID BY CHEQUE. THE PLEA OF BUSINESS EXPEDIENCY RAISED BY THE ASSESSEE WAS REJECTED AND WHERE THE ASSESSEE HAD FAILED TO PROVE THAT ON THE DATE OF PAYMENT, THE BANKS WERE CLOSED, THEN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS UPHELD IN THE HANDS OF ASSESSEE. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAD MADE THE AFORESAID CASH PAYMENTS TO DIFFERENT PERSONS ON ITA NO.1695/PUN/2015 SHRI GANGADHAR KARBHARI JADHAV 4 THE DAY OF EXECUTION OF CONVEYANCE DEEDS. HE POINTED OUT THAT THE ASSESSEE HAD ENTERED INTO THE AGREEMENT TO PURCHASE VARIOUS PIECES OF LAND AT RATES WHICH WERE MUCH LESSER THAN THE GOVERNMENT VALUATION RATES AND ON THE DATE OF REGISTRATION OF SALE DEEDS, THE SAID PERSONS DEMANDED EXCESS PAYMENT AND BECAUSE OF BUSINESS EXPEDIENCY, THE CASH PAYMENT HAD TO BE MADE TOTALING RS.11,96,500/-. IN RESPECT OF ANOTHER DEAL WITH HIRABAI GANPAT GAIKAR (SELLER), CASH OF RS.98,000/- WAS PAID AT HER REQUEST SINCE SHE WAS STAYING IN KHAMGAON AND WAS IN URGENT NEED OF CASH. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED ON THE PROVISO TO SECTION 40A(3) OF THE ACT AND ALSO THE DECISION OF HIGH COURT OF GUJARAT IN ANUPAM TELE SERVICES VS. ITO (2014) 268 CTR 121 (GUJ). RELIANCE WAS PLACED ON SEVERAL OTHER DECISIONS OF BENCHES OF TRIBUNAL AND THE PUNE BENCH OF TRIBUNAL IN DNYANESHWAR JAGANNATH DHAMNE VS. ITO IN ITA NO.202/PN/2016, ORDER DATED 08.07.2016. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW AND POINTED OUT THAT THE ASSESSEE DOES NOT FULFILL ANY OF THE EXCEPTIONS AND THAT THE AMOUNT IS TO BE DISALLOWED IN THE HANDS OF ASSESSEE. HE PLACED RELIANCE ON THE DECISION OF PUNE BENCH OF TRIBUNAL IN T.G. MUTHA VS. ITO (1995) 54 ITD 460 (ITAT) (PUNE) AND THE HONBLE PATNA HIGH COURT IN CIT VS. GYANCHAND BEDI (1987) 163 ITR 693 (PAT). 9. ON PERUSAL OF RECORD AND AFTER HEARING RIVAL CONTENTIONS, THE ISSUE WHICH IS TO BE ADJUDICATED IN THE PRESENT APPEAL IS IN RELATION TO THE CASH PAYMENTS MADE BY THE ASSESSEE AGAINST PURCHASE OF AGRICULTURAL LAND. THE ASSESSEE ITA NO.1695/PUN/2015 SHRI GANGADHAR KARBHARI JADHAV 5 WAS ENGAGED IN PURCHASE AND SALE OF LAND AND HAD PURCHASED SEVERAL PIECES OF AGRICULTURAL LAND DURING THE YEAR, AGAINST WHICH MAJORLY THE AMOUNTS WERE PAID IN CHEQUE BUT CERTAIN AMOUNTS WERE PAID IN CASH. THE CASH PAYMENTS ADMITTEDLY, WERE PAID BEFORE THE SUB-REGISTRAR OFFICE I.E. STATE AUTHORITY, AT THE TIME OF EXECUTION OF SALE DEED. THE SAID CONSIDERATION HAD TO BE PAID SINCE THE SELLERS OF THE PLOTS OF LAND DEMANDED EXTRA CONSIDERATION. THE ASSESSEE CLAIMS THAT IT HAD NEGOTIATED TO PURCHASE THE LAND AT LESSER PRICE THAN THE GOVERNMENT VALUATION AND BECAUSE OF BUSINESS EXPEDIENCY AND THE BENEFITS ARISING FROM THE TRANSACTION, HE WAS COMPELLED TO PAY THIS ADDITIONAL COST IN CASH AS THE CONVEYANCE DEED WAS BEING EXECUTED. THE ASSESSEE HAD FURNISHED THE DETAILS IN RESPECT OF CASH PAYMENTS WHICH ARE TABULATED HEREUNDER:- PARTICULARS OF LAND ACTUAL CONSIDERATION GOVERNMENT VALUATION APPELLANT (S) SHARE AMOUNT OF PAYMENT BY CHEQUES DATE OF PAYMENT BY CHEQUE AMOUNT OF CASH PAYMENT DATE OF CASH PAYMENT DATE OF EXECUTION OF DEED LAND AT GANGAPUR NASHIK S.NO.340 56,00,000 1,00,52,000 42,00,000 38,25,000 01/08/11 3,75,000 01/08/11 01/08/11 LAND AT VADAVALI, MANGAON S.NO.106/4 & OTHERS 6,48,000 12,52,300 6,48,000 3,24,000 16/12/11 3,24,000 19/12/11 19/12/11 LAND AT VADAVALI, MANGAON S.NO.131/1 & OTHERS 1,47,500 4,00,000 1,47,500 75,000 20/03/12 72,500 20/03/12 20/03/12 LAND AT VADAVALI, MANGAON S.NO.152/35B & OTHERS 9,25,000 10,18,000 9,25,000 5,00,000 20/03/12 4,25,000 (2,12,500 + 2,12,500) 20/03/12 20/03/12 TOTAL --- --- --- --- --- 11,96,500 10. IN ADDITION TO THE ABOVE CASH PAYMENTS, ONE PLOT OF LAND WAS PURCHASED FROM A LADY WHO INSISTED ON CASH PAYMENT AND THE ASSESSEE PAID RS.98,000/- IN CASH. THE QUESTION WHICH ARISES IN THE PRESENT APPEAL IS IN RELATION TO SUCH CASH PAYMENTS AND THE SAME BEING HIT BY PROVISIONS OF SECTION 40A(3) OF THE ACT. THE FIRST ISSUE WHICH ARISES IS WHETHER SUCH CASH PAYMENTS ARE TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE HANDS OF ASSESSEE. THE EXPLANATION OF ITA NO.1695/PUN/2015 SHRI GANGADHAR KARBHARI JADHAV 6 THE ASSESSEE THAT THE PAYMENT HAS BEEN MADE BEFORE THE SUB-REGISTRAR AT THE TIME OF REGISTRATION OF SALE DEEDS IN STATE GOVERNMENT OFFICE HAS NOT BEEN REFUTED BY THE REVENUE. WHERE SUCH A PAYMENT IS MADE BEFORE THE STATE GOVERNMENT OFFICER AND WHERE THE CASH IS PART AND PARCEL OF TOTAL CONSIDERATION PAID FOR THE PURCHASE OF DIFFERENT PLOTS OF LAND, THEN IT IS NOT HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT. IN THIS REGARD, I FIND SUPPORT FROM THE RATIO LAID DOWN BY THE TRIBUNAL IN DNYANESHWAR JAGANNATH DHAMNE VS. ITO (SUPRA). 11. THE SECOND ASPECT OF THE ISSUE IS THE PROVISIONS OF THE ACT, WHEREIN THE PROVISO UNDER SECTION 40A(3) OF THE ACT PROVIDES THAT NO DISALLOWANCE SHALL BE MADE UNDER THE SAID SECTION, WHERE ANY PAYMENT IS MADE EXCEEDING RS.20,000/- OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR BANK DRAFT, IN SUCH CASES AND CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXPENDITURE OF BANKING FACILITIES AVAILABLE, CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. THE CIRCUMSTANCES ARE PRESCRIBED BY WAY OF RULE 6DD OF THE RULES BUT THE CONDITIONS PRESCRIBED THEREUNDER ARE NOT EXHAUSTIVE. THE BUSINESS EXPEDIENCY CONSIDERATIONS HAVE TO BE KEPT IN MIND ESPECIALLY IN CASE WHERE THE IDENTITY OF THE PERSONS TO WHOM SUCH CASH PAYMENT IS MADE IS WELL ESTABLISHED AND IT IS NOT ISOLATED CASE OF CASH PAYMENT ABOVE RS.20,000/-. THE CASH WHICH HAS BEEN PAID BY THE ASSESSEE IS PART AND PARCEL OF AN AGREEMENT TO PURCHASE DIFFERENT PIECES OF LAND AND HAS BEEN PAID IN ADDITION TO THE CHEQUE PAYMENTS. ACCORDINGLY, THE SAID CASH PAYMENT IS NOT HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT. IN RESPECT OF SOLITARY CASH PAYMENT OF RS.98,000/- TO THE LADY WHICH WAS MADE AT HER REQUEST AS SHE WAS STAYING IN REMOTE AREA AND DID NOT HAVE PROPER ACCESS TO THE BANK, THEN THE SAME IS COVERED BY THE RULE 6DD OF THE RULES AND THE SAME MERITS TO BE ITA NO.1695/PUN/2015 SHRI GANGADHAR KARBHARI JADHAV 7 ALLOWED IN THE HANDS OF ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 12. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 21 ST DAY OF APRIL, 2017. SD/- (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 21 ST APRIL, 2017 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. () / THE CIT(A)-1, NASHIK; 4. / THE PR.CIT-1, NASHIK ; 5. 6. , , , - / DR SMC, ITAT, PUNE; [ / GUARD FILE. / BY ORDER , // TRUE COPY // / ASSISTANT REGISTRAR, , / ITAT, PUNE