ACIT, CHENNAI V. Green House Promoters Private Ltd., CHENNAI

ITA 1796/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4195 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 07-08-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL IRS
• Keywords: Business income; Income from undisclosed sources; Cost of acquisition; Non-deduction of tax; Reasonable cause; Bad and doubtful debts; Competent authority; Commercial expediency
• Section: 40A(3); 194C; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHENNAI B B ENCH, CHENNAI , ! ' #! ' $ . %& , '() BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU R.L. REDDY, JUDICIAL MEMBER ./ ITA NOS. 1785, 1796 & 1828/MDS/2015 ' , !-, / ASSESSMENT YEARS :2010-11, 2011-12 & 2009-2010. THE ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE II(1) CHENNAI. VS . M/S. GREEN HOUSE PROMOTERS PVT. LTD, NO.4,RAMA RAO STREET, T. NAGAR, CHENNAI 600 017. [PAN AACCG 2333B] ( ./ /APPELLANT) ( 01./ /RESPONDENT) ./ 2 3 / APPELLANT BY : SHRI. SUPRIYO PAL, IRS, JCIT. 01./23 / RESPONDENT BY : SHRI. Y. SRIDHAR, C.A. ' !24 / DATE OF HEARING : 08.05.2017 56- 24 /DATE OF PRONOUNCEMENT : 21. 06.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER : THESE APPEALS FILED BY THE DEPARTMENT ARE DIREC TED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-6, CHENNAI FOR THE ASSESSMENT YEARS 2009-10, 2010-11 AND 2011- 2012. 2 ITA NOS.1785, 17 96 & 1828/MDS/15 2. FIRST WE TAKE UP ITA NO:-1828/MDS/2015 FOR ADJUDICA TION:- THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 2.1. THE ID. CIT(A) OUGHT TO HAVE APPRECIATED TH AT THE AO HAD MADE THE DISALLOWANCE ON ACCOUNT OF NON-DEDUCTI ON OF TDS ON THE ARCHITECT FEE AND THE ASSESSEE OUGHT TO HAVE COMPLIED WITH THE PROVISIONS OF SECTION 40(A)(IA) O F THE ACT. 2.2. THE ID. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAVING DEDUCTED TDS FOR A PORTION OF RENT, FAILED TO DEDUCT FOR ANOTHER PORTION ON THE SAME CLAIM. 2.3. THE ID. CIT(A) OUGHT TO HAVE APPRECIATED T HAT AS PER SECTION 40(A)(IA) OF THE ACT, THE TAX HAS TO BE DED UCTED BY THE ASSESSEE ON THE PAYMENTS MADE IRRESPECTIVE OF WHETH ER PAID OR PAYABLE AND THAT NON-DEDUCTION OF TAX WARRA NTS ACTION U/S 40(A)(IA) OF THE ACT. 2.4. THE ID. CIT(A) OUGHT TO HAVE APPRECIATED THAT IN THE CASE OF VECTOR SHIPPING SERVICES (P) LTD., 'ASSESSE E A SHIPPING COMPANY CLAIMED DEDUCTION OF SALARY PAID T O EMPLOYEES OF COMPANY M WHICH PERFORMED SHIP MANAGEMENT WORK ON ITS BEHALF - ASSESSING OFFICER DISALLOWED EXPENSES UNDER SECTION 40(A)(IA) ON GROU ND THAT TDS WAS NOT DEDUCTED ON SUCH EXPENSES - COMMISSIONE R (APPEALS) AND TRIBUNAL DELETED DISALLOWANCE BY RECO RDING FINDING THAT M HAD DEDUCTED TDS ON SALARIES PAID BY IT ON BEHALF OF ASSESSEE AND NO AMOUNT REMAINED PAYABLE A T YEAR END.' THE SLP FILED BY THE DEPARTMENT IN THE ABOVE CASE WAS DISMISSED BY THE HON'BLE SUPREME COURT IN LIMINE. 2.5 IN THE CASE ONHAND, THE PAYMENT WAS MADE TO LOR RY HIRE CHARGES BEFORE 31 ST MARCH, WITHOUT DEDUCTION OF TDS. THERE ARE DIFFERENCE DECISIONS OF VARIOUS HIGH COURTS TOR AND AGAINST THE ISSUE U/S 4U(A)(LA). HOWEVER, THE BOARD'S VIEW AS PER CIRCULAR NO.10/DV/2013 IN F.NO.279/MISC/M- 61/2012-IT J(VOL-II), DATED 16.12.2013 THAT THE PRO VISION OF SECTION 40(A)(IA) OF THE ACT WOULD COVER NOT ONLY T HE AMOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH OF THE PREVIOUS YEAR BUT ALSO AMOUNTS WHICH ARE PAYABLE AT ANY TIME DURING THE YE AR. THE STATUTORY PROVISIONS ARE AMPLY CLEAR AND IN THE CONTEXT OF SECTION 40(A)(IA) OF THE ACT, THE TERM 'PAYABLE' WOULD INCLUDE 'AMOUNTS WHICH ARE PAID DURING THE PREVIOUS YEAR'. 2.6. THE ISSUE INVOLVED IN CIT VS. VECTOR SHIPPING SERVICES (P) LTD. IS COMPLETELY DIFFERENT. THE TDS WAS DEDUCTED BY THE PERSON, WHO RECEIVED THE AMOUNT FRO M VECTOR SHIPPING SERVICES BEFORE DISBURSEMENT OF SAL ARY. 3 ITA NOS.1785, 17 96 & 1828/MDS/15 2.7. THE ID. CIT(A) OUGHT TO HAVE APPRECIATE THE R ECENT DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF P.M.S. DIESELS VS. CIT (ITA NOS.716 OF 2009 (O&M), 130 OF 2012 AND 171 & 188 OF 2014, DT.29.04.2015), WHEREIN IT WAS HELD THAT REQUIREMENT TO DEDUCT TAX AT SOURC E UNDER SECTION 194C IS MANDATORY AND IN CASE OF ASSESSEE'S FAILURE TO DO SO IN RESPECT OF CONTRACTUAL PAYMENTS, DISALL OWANCE HAS TO BE MADE U/S 40(A)(IA) IRRESPECTIVE OF FACT A S TO WHETHER ASSESSEE IS FOLLOWING CASH OR MERCANTILE SY STEM OF ACCOUNTING. 3.1 THE ID. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAD NOT SUBMITTED SUFFICIENT PROOF BEFORE THE AO REGARDING ITS CLAIM OF DEVELOPMENT EXPENSES WHICH I S IN THE NATURE OF OVER AND ABOVE THE GUIDELINE VALUE OF THE LANDS. 3.2 THE ID. CIT(A) OUGHT TO HAVE CALLED FOR R EMAND REPORT UNDER RULE 46A WHILE ADMITTING FRESH EVIDENCES THAT WHICH WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER. 3.3 THE ID. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE ALTHOUGH HAS CLAIMED TO HAVE PAID THE DIFF ERENCE OF MARKET VALUE AND THE GUIDELINE VALUE IN CHEQUE, THIS IS ONLY THE ON-MONEY THAT HAS BEEN PAID TO THE LANDOWN ERS. 3.4 THE ID. CIT(A) OUGHT TO HAVE APPRECIATED TH AT THE ON- MONEY PAID EVEN BY WAY OF CHEQUE CANNOT BE CONSIDER ED AS A LEGAL PAYMENT. 3.5 THE ID. CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE ASSESSEE OUGHT TO HAVE PROVED THE MARKET VALUE IN T HE LIGHT OF THE JURISDICTIONAL JUDGEMENT IN THE CASE OF J.V. K. RAO (131 TAXMAN 65)(MAD) WHEREIN IT WAS OBSERVED THAT FIXATION OF MARKET VALUE DEPENDS ON SEVERAL FACTORS INCLUSIV E OF THE AREA OF THE PROPERTY, LOCATION AND PROXIMITY OF THE AREA , COMPARATIVE GENUINE INSTANCES OF SALE, GUIDELINE VALUE, ANNUAL RENTAL VALUE IN CASE OF URBAN PROPERTIES, FUTURE POTENTIAL FOR D EVELOPMENT, ETC. 3. THE BRIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE DURING THE ASSESSMENT YEAR 2009-10, CLAIMED VARIOUS EXPENSES, LIKE ARCHITECT FEE ETC OF C17,70,000/- - WITHOUT DEDUCTI NG ANY TDS AND ALSO MADE SHORT DEDUCTION OF TDS ON EXPENSE S TO THE EXTENT OF C13,74,438/--. HENCE, THE ASSESSING O FFICER 4 ITA NOS.1785, 17 96 & 1828/MDS/15 INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DISALLOWED THE SAME. 4. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT ALL THE PA YMENTS CONSIDERED FOR DISALLOWANCE U/S. 40(A)(IA) OF THE ACT WERE ALR EADY PAID AS ON 31.03.2009, AND WERE NOT OUTSTANDING AS PAYABLE AT THE END OF THE FINANCIAL YEAR, HENCE THE PROVISION OF SEC. 40(A)(I A ) OF THE ACT HAS NO APPLICATION. LD. COMMISSIONER OF INCOME TAX (APPEAL S) OBSERVED THAT AS PER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, TH E EXPENSES MENTIONED U/S. 30 TO 38 OF THE ACT SHOULD NOT BE ALLOWED AS D EDUCTION WHILE COMPUTING THE TAXABLE INCOME UNDER THE HEAD INCOM E FROM BUSINESS/PROFESSION UNLESS NECESSARY TAX IS DEDUC TED AT SOURCE AND REMITTED INTO GOVT ACCOUNT WITHIN THE DUE DATE TO F ILE THE RETURN OF INCOME U/S. 139(1) OF THE ACT. LD. COMMISSIONER OF INCOME TAX (APPEALS) RELYING ON THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES P. LTD 357 ITR 642 HELD THAT THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT ARE APPLICABLE ONLY IF TH E AMOUNTS ARE PAYABLE AND OUTSTANDING AS ON 31 ST MARCH OF THE RELEVANT FINANCIAL YEAR. IN THE PRESENT CASE, SINCE THE ASSESSEE HAS ALREADY PAID T HE ABOVE AMOUNT, THE SAME CANNOT BE DISALLOWED. THE LD. COMMISSIONER OF INCOME TAX 5 ITA NOS.1785, 17 96 & 1828/MDS/15 (APPEALS) DELETED THE DISALLOWANCE. AGGRIEVED, THE REVENUE FILED AN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE ARE OF THE OPINION THAT THE ISSUE STANDS SETTLED AGAINST THE ASSESSEE BY THE JUDGMENT OF HONBLE SUPREME COURT I N THE CASE OF M/S. PALAM GAS SERVICE VS. CIT IN CIVIL APPEAL NO.5512 O F 2017, DATED 03.05.2017 WHEREIN IT WAS HELD AS UNDER:- 15 MS. DHUGGA INVITED OUR ATTENTION TO A JUDGMENT OF THE DIVISION BENCH OF MADRAS HIGH COURT IN TUBE INVESTMENTS OF INDIA LTD. V. ASSISTANT COMMISSI ONER OF INCOME-TAX (TDS), [2010] 325 ITR 610 (MAD). THE DIVISION BENCH REFERRED TO THE STATISTICS PLACED BE FORE IT BY THE DEPARTMENT WHICH DISCLOSED THAT TDS COLLEC TION HAD AUGMENTED THE REVENUE. THE GROSS COLLECTION OF ADVANCE TAX, SURCHARGE, ETC. WAS RS. 2,75,857.70 CRORES IN THE FINANCIAL YEAR 2008-09 OF WHICH THE TDS COMPONENT A LONE CONSTITUTED RS.1,30,470.80 CRORES. THE DIVISION BENCH OBSERVED THAT INTRODUCTION OF SECTION 40(A)(IA) HAD ACHIEVED THE OBJECTIVE OF AUGMENTING THE TDS TO A SUBSTANTIAL EXTENT. THE DIVISION BENCH ALSO O BSERVED THAT WHEN THE PROVISIONS AND PROCEDURES RELATING TO TDS ARE SCRUPULOUSLY APPLIED, IT ALSO ENSURED THE IDEN TIFICATION OF THE PAYEES THEREBY CONFIRMING THE NETWORK OF A SSESSEES AND THAT ONCE THE ASSESSEES ARE IDENTIFIED IT WOU LD ENABLE THE TAX COLLECTION MACHINERY TO BRING WITHIN ITS FO LD ALL SUCH PERSONS WHO ARE LIABLE TO COME WITHIN THE NETW ORK OF TAX PAYERS. THESE OBJECTS ALSO INDICATE THE LEG ISLATIVE INTENT THAT THE REQUIREMENT OF DEDUCTING TAX AT SOURCE IS MANDATORY. ACCORDINGLY, THIS GROUND OF THE APPEAL OF THE REVE NUE IS ALLOWED. 6 ITA NOS.1785, 17 96 & 1828/MDS/15 6. NEXT GROUND RAISED BY THE REVENUE IS THAT LD. COMMI SSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATE THAT THE ASSESSEE HAD NOT SUBMITTED SUFFICIENT PROOF BEFORE THE LD. ASSES SING OFFICER REGARDING ITS CLAIM OF DEVELOPMENT EXPENSES WHICH IS IN THE N ATURE OF OVER AND ABOVE GUIDELINE VALUE OF THE LANDS. 7. THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY IN ITS P&L ACCOUNT CLAIMED AN AMOUNT OF C1,27,95,950/-- BY WAY MRF PROJECT DEVELOPMENT EXPENSES, IN ADDITION TO TH E LAND PURCHASE COST OF C2,78,87,167/-. WHEN ASSESSEE WERE ASKED FOR DETAILS OF THE PROJECT DEVELOPMENT EXPENSES, TH E ASSESSEE BEFORE THE ASSESSING OFFICER EXPLAINED THA T THE AMOUNT OF C1,27,95,950/- REPRESENTS THE PAYMENTS TO THE LAND OWNERS OVER AND ABOVE THE GUIDELINE VALUE OF T HE LANDS. HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE AS SESSEE'S CONTENTIONS. OBSERVING THAT THE ASSESSEE HAS NOT PR OVED THE GENUINENESS OF THE PAYMENTS, THE ASSESSING OFFICER IN HIS ORDER DISALLOWED THE PAYMENTS OF CL,27,95,950/- WHI CH WERE SHOWN AS MRF PROJECT DEVELOPMENT EXPENSES, FOR THE WANT OF PROOF, AND ADDED TO THE TOTAL INCOME OF THE ASSE SSEE. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE LD. COMM ISSIONER OF INCOME TAX (APPEALS). 7 ITA NOS.1785, 17 96 & 1828/MDS/15 8. LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED T HAT THE ASSESSEE IS IN REAL ESTATE BUSINESS AND HAS UNDERTA KEN VARIOUS PROJECTS. ONE OF SUCH PROJECT IS MRF PROJEC T. DURING THE FINANCIAL YEAR 2008-09, THE ASSESSEE STA RTED ACQUIRING LANDS FOR THE MRF PROJECT. THE LANDS ACQU IRED FOR THIS PROJECT ARE BASICALLY AGRICULTURAL LANDS AND A LL THE LAND OWNERS ARE THE LOCAL AGRICULTURISTS. AS COULD BE SE EN FROM THE LEDGER EXTRACT (OF MRF - PROJECT PURCHASES A/C) , THE TOTAL PAYMENTS MADE BY THE ASSESSEE DURING THE YEAR ARE CS4,06,83,117/ -. HOWEVER, IN THE FINAL STATEMENTS, RS.2,78,87,167/-, BEING THE GUIDELINE VALUE OF THE AGRICULTURAL LANDS PURCHASED, WAS SHOWN AS 'PROJECT PURCHASE ACCOUNT TOWARDS COST OF LAND' AND THE BALA NCE OF RS.1,27,95,950/-, BEING THE AMOUNT PAID OVER AND ABOVE THE GUIDELINE VALUE, WAS ACCOUNTED AS 'DEVELOPMENT EXPENSES'. THIS FACTS IS FURTHER SUPPORTED BY THE F ACT THAT ALL THE PAYMENTS I.E. 'PROJECT PURCHASE ACCOUNT TOW ARDS COST OF LAND' OF RS.2,78,87,167/-, AS WELL AS THE 'DEVELOPMENT EXPENSES' OF RS.1,27,95,950/-, ARE PAI D BY ACCOUNT PAYEE CHEQUES TO THE SAME LAND OWNERS ON TH E SAME DATES. ALL THESE PAYMENTS ARE ALSO MADE FROM O NLY ONE BANK ACCOUNT OF THE ASSESSEE, I.E. CANARA BANK 8 ITA NOS.1785, 17 96 & 1828/MDS/15 PERAMBALUR BRANCH. THE DETAILS OF THE PURCHASES OF AGRICULTURAL LANDS FOR MRF PROJECT, NAMES AND THE ADDRESS OF THE LAND OWNERS AND THEIR PAYMENTS TOWARDS THE COST (GUIDELINES VALUE) AND TH E ADDITIONAL PAYMENTS BEING THE DIFFERENCE BETWEEN THE MARKET RA TE AND GUIDE LINE . THESE AMOUNTS ARE ALSO PAID BY ACCOUNT PAYEE CHEQUE S FROM THE SAME BANK ACCOUNT OF THE ASSESSEE, ON THE SAME DATES. IN FACT, ALL THE PAYMENTS I.E. PAYMENT OF GU IDELINE VALUE (AS COST) AND ALSO THE ADDITIONAL AMOUNT (AS DEVELOPMENT COST) ARE SHOWN IN THE LEDGER ACCOUNT O F THE 'MRF - PROJECT PURCHASES' IN THE BOOKS OF THE ASSES SEE. THIS ACCOUNT ALSO CONTAINS THE DETAILS OF CHEQUE NU MBERS AND THE AMOUNTS OF THE PAYMENTS MADE TO THE LAND OWNERS. THUS, THE PAYMENTS TO THE LAND OWNERS, OVER AND ABOVE THE GUIDELINE VALUE, ARE GENUINE. SINCE THE P AYMENTS ARE MADE TO THE LAND OWNERSHIP RELATION TO AND FOR THE PURPOSE OF PURCHASING THE LANDS, THESE EXPENSES FOR M PART AND PARCEL OF THE LAND COST AND ALLOWABLE AS DEDUCT ION. THEREFORE, IT WAS NOT PROBABLE TO HOLD THAT THE ASS ESSEE HAS NOT FURNISHED THE EVIDENCES/PROOF FOR THE PAYME NTS. CONSIDERING ALL THESE FACTS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE LD. ASSESSING OFFICER T O ALLOW 9 ITA NOS.1785, 17 96 & 1828/MDS/15 THE EXPENSES. AGAINST THIS, THE REVENUE IS IN APPE AL BEFORE US. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE BEFORE THE LD. COMMISSIONER O F INCOME TAX (APPEALS) ASSESSEE PRODUCED DETAILS REGARDING PURCH ASE OF LANDS FOR M/S. MRF (GUIDELINE) AND ADDITIONAL PAYMENTS AND ALSO DE TAILS OF THE CANARA BANK ACCOUNT. ON THIS BASIS, LD. COMMISSIONER OF I NCOME TAX (APPEALS) CAME TO THE CONCLUSION THAT PAYMENTS WAS MADE TO TH E LAND OWNERS OVER AND ABOVE GUIDELINE VALUE WHICH WAS MADE TOWARDS PURCHASE OF LANDS AND HENCE HE DELETED THE ADDITION. THESE FRESH EV IDENCE REQUIRED TO THE CONFRONTED TO THE LD. ASSESSING OFFICER FOR H IS COMMENTS WHICH WAS NOT DONE BY THE LD. COMMISSIONER OF INCOME TAX (APP EALS). HENCE, THERE IS VIOLATION OF RULE 46A. SO THE ISSUE IS REMITTED BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR FRESH CONSIDERATION. THE G ROUND OF THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURP OSE. 10. IN THE RESULT, APPEAL OF THE REVENUE IN ITA 1828/MD S/2015 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 11. NOW, WE TAKE UP ITA NOS.1785 & 1796/MDS/2015 FOR AS SESSMENT YEARS 2010-11 AND 2011-2012 FOR ADJUDICATION. 10 ITA NOS.1785, 1 796 & 1828/MDS/15 12. FIRST COMMON GROUND RAISED BY THE REVENUE IN THESE TWO APPEALS IS WITH REGARD TO DISALLOWANCE U/S.40A(3) O F THE ACT. WE ADJUDICATE THE FACTS AS NARRATED IN ITA NO.1785/MD S/2015. 13. FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF REAL ESTATE AND CONSTRUCTION ACTIVITIES. THE ASSESSING OFFICER DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE A SSESSEE HAD INCURRED EXPENSES IN CASH IN EXCESS OF RS.20,00 0/- AMOUNTING TO C42,91,739/-. THE ASSESSING OFFICER AS KED THE ASSESSEE FOR THE DETAILS AND REASONS FOR THE PAYMEN TS IN CASH. THE ASSESSEE, EXPLAINED THAT THESE AMOUNTS WE RE PAID TO VARIOUS LAND OWNERS WHO INSISTED OF CASH PAYMENT S ONLY AND THIS WAS A COMMON PRACTICE IN THE REAL ESTATE BUSINESS. HAVING NOT SATISFIED WITH EXPLANATIONS OF THE ASSES SEE, THE ASSESSING OFFICER DISALLOWED THE SAID CASH EXPENSES AMOUNTING TO C42,91,739/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE FILED AN APPEAL B EFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). 14. LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED T HAT THESE EXPENSES ARE IN RELATION TO PURCHASE OF LANDS REQUI RED FOR ASSESSEE'S BUSINESS AND THE RELATED EXPENSES LIKE 11 ITA NOS.1785, 1 796 & 1828/MDS/15 REGISTRATION/ STAMP DUTY EXPENSES PAID, DEVELOPMENT AL EXPENSES. THE MAJOR PORTION OF THE EXPENSES (TO THE EXTENT OF RS.33,60,000/-) INCLUDED THE PURCHASE COSTS OF T HE LANDS REQUIRED FOR THE ASSESSEE'S PROJECTS. IN MOST OF TH E REAL ESTATE BUSINESSES, ESPECIALLY IN THE RURAL AREAS/FA RMERS ETC, THE SELLERS OF THE LANDS DO INSIST FOR CASH PAYMENT S, WHICH IS AN UNAVOIDABLE SITUATION IN THE REAL ESTATE BUSINES S. AS HELD BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CA SE OF ASSISTANT COMMISSIONER OF INCOME TAX VS. JUBLIEE PL OT & HOUSING PRIVATE LIMITED -ITA NO.1097(MAD.)/2011 DAT ED 21.03.2103, PURCHASE COST OF THE LANDS IN A REAL ES TATE BUSINESS CAN BE TREATED AS EXEMPTED UNDER THE RULE 6DD AND HENCE CANNOT BE SUBJECTED TO THE PROVISIONS OF SECTION 40A(3) OF THE ACT . IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE ABOVE CASE, LD. COMMISSIONER OF INCOME TAX (AP PEALS) WAS OF THE OPINION THAT THE PAYMENTS TOWARDS THE PU RCHASE COST OF THE LAND OF RS.33,60,OOO/- CAN BE CONSIDERE D AS EXEMPT UNDER RULE 6DD AND HENCE THE SAME CANNOT BE SUBJECTED TO THE PROVISIONS OF SECTION 40A(3) OF TH E ACT. SIMILARLY, THE EXPENSES LIKE REGISTRATION/ STAMP DU TY EXPENSES PAID ETC, AMOUNTING TO RS.5,OO,935/- ARE ALSO COVER ED BY THE EXCEPTIONS UNDER RULE 6DD OF THE ACT AND HENCE FALL S OUTSIDE 12 ITA NOS.1785, 1 796 & 1828/MDS/15 THE PURVIEW OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE LAND DEVELOPMENTAL EXPENSES OF VARIOUS PROJECTS. TH E TOTAL AMOUNT INVOLVED HERE IS C4,30,804/- WHICH IS INCUR RED FOR VARIOUS PROJECTS. THESE EXPENSES ARE BASICALLY IN THE NATURE OF FENCING EXPENSES, LABOUR CHARGES ETC. MOST OF TH E EXPENSES ARE INDIVIDUAL EXPENSES INCURRED BY THE AS SESSEE UNDER THE CATEGORY OF STATUTORY LIMITS OF RS.20 ,OOO/- EACH. ONLY WHILE ACCOUNTING THE EXPENSES, THE ASSESSEE, I N ITS BOOKS, CONSOLIDATED THE EXPENSES AND ACCOUNTED TOGE THER. HENCE IN THE BOOKS IT APPEARED THAT THE EXPENSES AR E ABOVE RS.20,OOO/-. HENCE THE ABOVE EXPENSES DO NOT FALL U NDER THE PURVIEW OF SECTION 40A(3) OF THE ACT. HENCE, LD. C OMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSIN G OFFICER IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECT ION 40A(3) OF THE ACT AND DISALLOWING THE ABOVE EXPENSES. ACCORDI NGLY, HE DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER , IS DELETED. AGAINST THIS, THE REVENUE IS IN APPEAL BEF ORE US . 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE LD. AUTHORISED REPRESENTATIVE RELIED O N THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. K.M. VIDHYASAGAR IN ITA NOS.1339& 1340/MDS/2011, DATED 2 1.03.2014 , WHEREIN IT WAS HELD AS UNDER:- 13 ITA NOS.1785, 1 796 & 1828/MDS/15 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND DECISIONS RELIED ON. THE ASSESSING OFFICER DISALLOWED CASH PAYMENTS MADE BY THE ASSESSEE UNDER SECTION 40A(3) OF THE ACT. THERE IS NO DISPUTE THAT ALL THESE TRANSACTIONS ARE MADE IN THE COURSE OF ASSESSEES BUSINESS OF PURCHASE AND SALE OF PLOTS AND THE TRANSACTIONS ARE ALL GENUINE. THE QUE STION NOW FOR CONSIDERATION IS WHETHER ASSESSEE MADE THE SE PAYMENTS IN THE COURSE OF CARRYING ON THE BUSINESS OF PURCHASE AND SALE OF PLOTS AND CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE RELEVANT FOR THE PURPOSE OF SECTION 40A(3) OR NOT? 6. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ANUPAM TELE SERVICES (SUPRA) HELD THAT PROVISIONS O F RULE 6DD(J) ARE NOT EXHAUSTIVE AND CONSIDERATIONS O F BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED FROM THE PROVISIONS OF SECTION 40A(3) OF T HE ACT. THIS IS ALSO CLEAR ON READING FROM THE PROVIS IONS OF SECTION 40A(3) OF THE ACT. THE COMMISSIONER OF INCO ME TAX (APPEALS) ELABORATELY CONSIDERED THE SUBMISSION S OF THE ASSESSEE AS WELL AS CASE LAWS AND CAME TO TH E CONCLUSION THAT PROVISIONS OF SECTION 40A(3) ARE NO T ATTRACTED IN THE ASSESSEES CASE OBSERVING AS UNDER :- 5. THE MAIN ISSUE FOR RENDERING DECISION IN THIS A PPEAL IS WITH REFERENCE TO THE APPLICABILITY OF THE PROVISIO NS OF SECTION 40A(3) OF THE ACT TO THE FACTS OF THE CASE AND ACCORDING TO THE APPELLANT THE SAID PROVISIONS OF T HE ACT ARE WRONGLY APPLIED INASMUCH AS THE NATURE OF THE BUSINESS OF THE APPELLANT NECESSITATED HIM TO MAKE PAYMENTS IN CASH FOR PURCHASE OF LANDS AS LAND OWNE RS DID NOT BELIEVE IN RECEIVING CHEQUES AND WAIT FOR I TS ENCASHMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED THAT THE APPELLANT ON HIS PART SHOULD ALSO GET THE PROFIT REGISTERED IMMEDIAT ELY AS THE COMPETITORS WOULD SNATCH AWAY THE PROPERTY MEAN T FOR SALE. THEREFORE, IT WAS PLEADED BEFORE THE ASSE SSING OFFICER THAT CONSIDERING THE BUSINESS CARRIED ON B Y THE APPELLANT BEING A MARKETING AGENT FOR PLOTS AND FLA TS IN DERIVING BROKERAGE INCOME THE EXCEPTIONAL COMMERCIA L EXPEDIENCY WOULD JUSTIFY HIS PRAYER FOR NOT APPLYIN G THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 6. IN SO FAR AS THE PAYMENT BEING THE SALE CONSIDER ATION FOR 14 ITA NOS.1785, 1 796 & 1828/MDS/15 THE TRANSACTION OF PURCHASE OF PROPERTY IN HARRINGT ON NAGAR, THE ASSESSING OFFICER HAS ERRONEOUSLY APPLIE D THE PROVISIONS OF SECTION 40A(3) OF THE ACT TO MAKE THE DISALLOWANCE OF ` 4O,OOO/- BEING 20% OF RS.2,OO,OOO/- PAID TO MRS. DEVI MOHAN INASMUCH AS T HE TRANSACTION OF CASH PAYMENT TOWARDS SALE CONSIDERAT ION WAS EFFECTED ON 12.9.2005 BEING THE BEGINNING OF TH E WEEK, MONDAY AND CONSEQUENT TO THE COMMERCIAL EXPEDIENCY THE PAYMENT OF RS.2,OO,OOO/- BEING THE S ALE CONSIDERATION WAS MADE TO THE SELLER OF THE PROPERT Y. ACCORDING TO THE APPELLANT, THE SALE CONSIDERATION PAID FOR THE PURCHASE OF PROPERTY UNDER CONSIDERATION WOULD BE OUTSIDE THE PURVIEW OF THE PROVISIONS OF SECTION 40 A(3) OF THE ACT AND ON THE TOUCHSTONE OF PURPOSIVE THEORY, IT IS SUBMITTED THAT HAVING ACCEPTED THE PURCHASE OF LAND IN THE IDENTIFICATION OF THE SELLER OF THE PROPERTY AS WEL L AS THE IDENTIFICATION OF THE TRANSACTION OF PURCHASE OF LA ND IN THE HANDS OF REAL ESTATE OPERATOR/THE APPELLANT HEREIN, THE PROVISIONS OF SECTION 40A(3) OF THE ACT ARE ERRONEO USLY APPLIED. 7. IN THE DECISION RENDERED BY THE GAHUWATI HIGH COURT IN THE CASE REPORTED IN 240 ITR 902, IT WAS H ELD AS FOLLOWS: 'FROM A PERUSAL OF THE DECISIONS OF DIFFERENT HIGH COURTS REFERRED TO ABOVE, IT CLEARLY EMERGES THAT THE PURP OSE OF SECTION 40A(3) OF THE ACT IS NOT TO PENALIZE THE AS SESSEE FOR MAKING CASH PAYMENT OF AN AMOUNT OF RS2,5OO/- OR AB OVE. THE PURPOSE IS ONLY TO PREVENTIVE AND TO CHECK EVAS ION OF TAX AND FLOW OF UNACCOUNTED MONEY OR TO CHECK TRANS ACTION WHICH ARE NOT GENUINE AND MAY BE PUT AS CAMOUFLAGE TO EVADE TAX BY SHOWING FICTITIOUS OR FALSE TRANSACTIO NS' 8. THE APPELLATE TRIBUNAL IN THE CASE REPORTED IN 9 3 TT] 912 HAS HELD AFTER CONSIDERING THE DECISION OF THE APEX COURT REPORTED IN 191 ITR 667 AS FOLLOWS:- 'THE HON'BLE SUPREME COURT NOTED THAT THE INTENTIO N TO MAKE PAYMENT BY CROSSED CHEQUE OR CROSSED DD IS TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN THAT TH E PAYMENT IS GENUINE AND NOT OUT OF THE UNDISCLOSED SOURCE. IT IS ALSO NOTED THAT SECTION 40A(3) OF THE ACT IS INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONIES OR TO REDUCE THE CHAN CES OF USE OF BLACK MONEY FOR BUSINESS TRANSACTIONS. I N THE PRESENT CASE, IT IS SEEN THAT THE ASSESSEE FOR PURC HASE OF RICE, PAID THE AMOUNT DIRECTLY TO THE BANK ACCOUNT OF THE PAYEE. THE EFFECT OF ISSUE OF CROSSED CHEQUE/DD I S THAT THE PAYEE NAMED THEREIN RECEIVES THE PAYMENT THROU GH BANKING CHANNELS. THE PURPOSE IS DUAL. IN THE F IRST INSTANCE, IT IS TO SEE THAT PAYEE AND PAYEE ALONE RECEIVES THE PAYMENT AND TO ENSURE THAT THE PAYMENT IS R OUTED THROUGH BANK CHANNEL SO AS TO TRACE THE OR IGIN AND 15 ITA NOS.1785, 1 796 & 1828/MDS/15 CONCLUSION OF THE TRANSACTION. IN THE CASE BEFORE U S, IT IS SEEN THAT INSTEAD OF ISSUING CHEQUE/DD, THE ASSESSE E PREPARED A CHALLAN AND ALONG WITH THE CASH THE CHAL LAN WAS PRESENTED TO THE BANK OF THE PAYEE FOR THE CRED IT OF THE SAME IN THE ACCOUNT OF PAYEE. IN THE RESULT, IT IS ENSURED THAT THE PAYEE AND PAYEE ALONE RECEIVES THE PAYMENT AND THE ORIGIN AND CONCLUSION OF TRANSACTIO N IS TRACEABLE. THUS, PAYMENT OF SUM DIRECTLY IN THE BAN K ACCOUNT OF PAYEE FULFILS THE CRITERIA FOR ENSURING THE OBJECT OF INTRODUCTION OF SECTION 40A(3). THIS IS NOT A DI RECT PAYMENT TO THE PAYEE BUT ONLY TO THE CREDIT OF ITS BANK ACCOUNT WITHOUT THE PAYEE ACTUALLY RECEIVING THE CA SH . WE ACCORDINGLY HOLD THAT SUCH PAYMENT IS NOT IN VIOLAT ION OF PROVISION OF SECTION 40A(3) AND HENCE NO DISALLOWAN CE IS CALLED FOR.' 9 . IN THE CASE REPO R TED IN 274 ITR 534 THE GUJARAT HIGH COURT AS DISCUSSED THE ISSUE UNDER CONSIDERATION ESPECIALLY WHERE THE PRACTICALITY OF THE PAYMENT, SHOULD BE JUDGED FROM THE VIEW OF BUSINESSMEN AND NOT THE ASSESSING OFFICER IN FOLLOWING WORDS : HELD THAT SECTION 40A(3) WAS INTENDED TO SERVE TH E OBJECTIVE OF CHECKING TAX EVASION AND ENSURE THAT PAYMENTS EXCEEDING RS.2,500/- ARE MADE BY CROSSED CHEQUE OR BANK DRAFT SO THAT IT WILL BE EASIER TO ASCERTAIN, WHEN DEDUCTION IS CLAIMED, WHETHER THE PAYMENT WAS GENUINE AND WHETHER IT WAS MADE OUT OF INCOME FROM DISCLOSED SOURCES. THE SECTION IS MANDATORY AND THERE IS NO DISCRETION LEFT WITH THE TAXING AUTHORITY UNDER THIS SUB-SECTION TO ALL OW EXPENDITURE WHICH DOES NOT COMPLY WITH IT. THE RIG OUR OF THE RULE CONTAINED IN THIS SUB-SECTION IS, HOWEVER , RELAXED TO SOME EXTENT BY THE SECOND PROVISO TO THE SAID SUB-SECTION SHALL BE MADE WHERE ANY SUCH PAYMENT IS MADE OTHERWISE THAN BY A CROSSED CHEQUE OR A CROSSED BANK DRAFT, IN SUCH CASES AND U NDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUS INESS EXPEDIENCY AND OTHER RELEVANT FACTORS. THOSE GUIDE LINES WILL HAVE TO BE BORNE IN MIND WHILE INTERPRETING THE PROVISIONS OF THE RELEVANT RULES E NACTED BY THE COMPETENT AUTHORITY, SO THAT BY A CONSTRICTE D OR ARTIFICIAL CONSTRUCTION OF THOSE RULES, THE VERY O BJECT OF THE LEGISLATURE IS NOT FRUSTRATED.' THE PROVISIONS OF SECTION 40A(3) OF THE ACT ARE NOT ABSOLUTE I N ITS TERM AND ACCORDINGLY WHERE THERE IS A FINDING THAT THE SEL L ER HAS INS I STED ON CASH PAYMENT AND THE PAYMENT IS GENUINE, THEN THE 16 ITA NOS.1785, 1 796 & 1828/MDS/15 AMOUNT COULD NOT BE D I SALLOWED ON TECHNICAL GROUNDS. THE ABOVE VIEW IS FOR TI FIED AND TAKEN BY THE ALLAHABAD H I GH COURT I N THE CASE REPORTED IN 217 ITR 43 1 . 1 0. THE CALCUTTA H I GH COURT HAS HELD IN THE CASE REPORTED IN 247 ITR PAGE 13 THAT A PAYMENTS I N CASH REFLECTED IN BOOKS OF ACCOUN T S CANNOT BE DISALLOWED INVOK I NG SECTION 40A(3) OF THE ACT . 11 . SIMILARLY, THE DECISION REPORTED IN 251 ITR 640 AND ANOTHER DECISION REPORTED IN 250 ITR 738 HAVE REITERATED THAT LIBERAL VIEW SHOULD BE TAKEN IN THE CONSIDERATION OF RULE 6DD(J) WHERE THERE ARE COMPELLING OR MITIGATING CIRCUMSTANCES. 12. THE MEANING OF THE WORD PRACTICABLE IN THE ORDINARY PARLANCE MUST PREVAIL IN THE CONTEXT OF RU LE 6DD(J) AND IN THE OBJECT OF THE ENACTMENT NAMELY, TO RELAX THE RIGOUR OF SECTION 40A(3) OF THE ACT IN GENUINE AND BONAFIDE CASES TO AVOID HARDSHIP AND HARASSMENT IS BORNE IN MIND AND ACCORDING TO THE WORD 'PRACTICABLE' UNDER THE PRESENT SCENARIO MUST SIGNIFY WIDER SCOPE SO AS TO CAPABLE OF BEING PUT I NTO PRACTICE, DONE OR ACCOMPLISHED IN THE AVAILABLE MEANS AND RESOURCES. 13. IF WE ANALYSIS THE CRUX OF THE SECOND PROVISO T O SECTION 40A(3), THERE ARE THREE FACTORS (SHOWN IN BRACKETS AS (1), (2) AND (3) HEREUNDER) TO BE CONSIDERED BEFORE MAKING ANY DISALLOWANCE UNDER THIS SUB-SECTION. 14. THE SECOND PROVISO TO SECTION 40A(3) CLEARLY STATES AS FOLLOWS: ' PROVIDED FURTHER THAT NO DISALLOWANCES UNDER THIS SUB- SECTION SHALL BE MADE WHERE ANY PAYMENT IN A SUM EXCEEDING [TWENTY]THOUSAND RUPEES IS MADE OTHERWISE THAN BY [AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE DRAFT], IN SUCH CA SES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED (1), HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE (2), CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS(3).' 15. HENCE BEFORE MAKING ANY DISALLOWANCE U/S 40A(3) THE AO HAS TO TAKE IN TO CONSIDERATION OF THE ABOVE THREE FACTORS BEING 1 . CIRCUMSTANCES 17 ITA NOS.1785, 1 796 & 1828/MDS/15 SPECIFIED UNDER RULE 6DD, 2. EXTENT OF BANKING FACILITIES AVAILABLE AND 3. THE CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. 16. THE AO HAVING ACCEPTED THE PAYMENTS FOR PURCHASE OF LANDS WHICH ARE SUPPORTED BY THE DEEDS AND BOOKS OF ACCOUNTS OUGHT TO HAVE CONSIDERED THE BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS BEFORE MAKING SUCH DISALLOWANCES. 17. A VIEW HAS BEEN TAKEN THAT THE CIRCUMSTANCES SE T OUT IN RULE 6DD(J) ARE ILLUSTRATIVE AND NOT EXHAUST IVE AND THE ASSESSING OFFICER HAS TO TAKE INTO ACCOUNT THE SURROUNDING CIRCUMSTANCES AND CONSIDERATIONS OF BUSINESS EXPEDIENCY. 18. ANOTHER ACTIVITY OF THE APPELLANT IN THE REAL E STATE IS TO ACT AS A POA HOLDER FOR THE SELLERS (LAND OWN ERS) TO SELL THEIR PROPERTIES TO THEIR CUSTOMERS FOR EAR NING PROFIT THERE FROM. THE APPELLANT HAD ALSO ACTED AS A MEDIATOR/FACILITATOR/AGENT BETWEEN THE PURCHASERS A ND SELLERS OF THE LANDS FOR GETTING B R OKERAGE/COMMISS I ON WITHOUT INCORPORATING HIS NAME IN THE DEED OF SALE. 19. FOR THE PRESENT ASSESSMENT YEAR, THE APPELLANT HAD RETURNED AN INCOME FROM THESE ACTIVITIES TO THE EXTENT OF RS.54,54,944/- AND AFTER RECOMPUTATION TH E APPELLANT HAD SHOWN THE BROKERAGE INCOME AT A REVISED FIGURE OF RS.87,89,865/-, FOR WHICH A TABUL ATION IS GIVEN IN PAGE 8 OF THE IMPUGNED ORDER. CONSIDERI NG THE APPLICABILITY SECTION 40A(3) OF THE ACT THE ASSESSING OFFICER AT PAGE 9 OF THE IMPUGNED ORDER H AD ACCEPTED THE STAND OF THE APPELLANT ON THE NON- APPLICABILITY OF THE SAID PROVISION IN THE ACT . HOWEVER, FOR THE TRANSACTIONS TABULATED I N PAGES 9 & 10 OF THE IMPUGNED ORDER, THE ASSESSING OFFICER INVOKED SECT I ON 40A(3) OF THE ACT AND MADE DISALLOWANCE OF RS.79,663/ - . IN THE L I GHT OF THE DECISION OF THE MADRAS HIGH COURT REPORTED IN 282 ITR 117, IT IS SUBMITTED THAT THE PAYMENTS ON A SINGLE DAY WH I CH WERE BELOW RS.20,OOO/- WOULD NOT ATTRACT THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 20. THE ASSESSING OFFICER FURTHE R DISALLOWED RS.12,390/ - INVOKING SE CT ION 40A(3) OF THE ACT ON THE BROKERAGE PAID TO THE EXTENT OF RS.61,954/ - TO BASHEER AHMED AND R. MUTHU ON RS.79,663/- MADE U/S 40A(3) O F THE ACT IN T HE ACCEPTANCE OF G R OUNDS RAISED IN THE PRESENT PROCEEDINGS. THE ABOVE DECISION IS RENDERED 18 ITA NOS.1785, 1 796 & 1828/MDS/15 IN TUNE W I TH ORDER GIVEN ON THE SIMILAR I SSUES REFLECTED IN THE OTHER PART OF THIS ORDER. ON THE CONSIDERATI ON OF FACTS AND ARGUMENTS, THE PAYMENT MADE TO MRS.DEVI MOHAN FOR PURCHASE OF PROPERTY ON 12.9.2005 WOULD NOT ATTRACT THE PROV I SIONS OF SECTION 40A(3) OF THE ACT INASMUCH AS THE IDENTITY OF THE RECIPIENT AND SOURC E FOR THE SALE CONS I DE R ATION HAVING BEEN NOT DISPUTED, THE DISALLOWANCE UNDER CONSIDERATION IS NOT WARRANT ED ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE. 2 1 . WITH REGARD TO THE ADDITION OF RS . 40,000/ - BE I NG 20% OF RS. 2,00,000/ - , PAID TO MRS. DEVI MOHAN FOR PUCHASE OF PROPERTY ON 12.9 . 2005 WOULD NOT ATTRACT THE PROVISIONS OF SECT I ON 40A( 3 ) OF THE ACT INASMUCH AS THE IDENTITY OF THE RECIPIE N T AND SOURCE FOR THE SALE CONSIDERATION HAVING BEEN NOT DISPUTED . 2 2 . SIMILARLY THE ADDITION OF RS.2,20,OOO/- I NVOKING SECTION 40A(3) OF THE ACT, THE PURCHASE OF LANDS THROUGH THE EMPLOYEES OF THE APPELLANT HAVING BEEN NOT DISPUTED THE T R ANSACTION UNDER CONSIDERATION AND FURTHER NOT DISPUTED THE SOURCE FOR THE PAYMENTS, T HE PROVISIONS OF SECTION 40A(3) OF THE ACT ARE ERRONEO USLY INVOKED AND APPLIED TO THE FACTS OF THE CASE. 23. THE ASSESSING OFFICER DISALLOWED RS4,00,000/- INVOKING SECTION 40A(3) OF THE ACT RE L ATING TO THE PROPERTY PURCHASE TRANSACTION FROM A COMPANY CALLED S.A.K.DEVELOPERS. THE TRANSACTION TOOK PLACE ON 1 . 1 . 2006 AND THE APPELLANT PAID CASH OF RS.20 LAKHS. 24 . THE ASSESSING OFFICER DISALLOWED RS.10,OOO/- INVOKING SECTION 40A(3) OF THE ACT RELATING TO THE PROPERTY PURCHASE TRANSACTION WITH MR . DWARAKANATH REDDY. THE TRANSACTION TOOK PLACE ON 25.1 . 2006 AND THE APPELLANT PAID CASH OF RS.50,OOO/-. 25. THE ASSESSING OFFICER DISALLOWED RS.57,600/- INVOKING SECTION 40A(3) OF THE ACT RELATING TO THE PROPERTY PURCHASE TRANSACTION WITH R.SARAVANAN. THE TRANSACTION TOOK PLACE ON 8.3.2006 AND THE APPELLAN T PAID CASH OF RS.2,88,OOO/-. 26. THE ASSESSING OFFICER DISALLOWED RS . 57,600/ - INVOKING SECTION 40A(3) OF THE ACT RELATING TO THE 19 ITA NOS.1785, 1 796 & 1828/MDS/15 PROPERTY PURCHASE TRANSACTION WITH MRS.BABITHA BHANDARI . THE TRANSACTION TOOK PLACE ON 25.3.2006 AND THE APPELLANT PA I D CASH OF RS.2,88,OOO/-. 27. THE ASSESSING OFFICER DISALLOWED RS.5,39,OOO/- INVOKING SECTION 40A(3) OF THE ACT RELATING TO THE PROPERTY PURCHASE TRANSACTION WITH R.PARANTHAMAN. THE TRANSACTION TOOK PLACE ON 10.2.2006 AND THE APPELLANT PAID CASH OF RS.26,95,OOO/-. 28. I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WEL L AS THE SUBMISSIONS GIVEN BY THE AR OF THE APPELLANT AND ALSO THE CASE LAWS RELIED BY THE APPELLANT . THE AO IS OF THE OPINION THAT SINCE THE CASH PAYMENTS WERE MADE AND ACCORDINGLY HE DISALLOWED 20% OF THE EXPENSES U/S.40A(3). HOWEVER, THE AR OF THE APPELLA NT PLEADED THAT FOR THE NATURE OF THE BUSINESS THE APPELLANT INVOLVED I . E. REAL ESTATE ON THE SECOND PROVISO TO SECTION 40A(3) SECTION 40A(3) IS CLEARLY APPLICABLE TO THIS CASE AND FURTHER HE HAS FILED TH E ADDITIONAL SUBMISSIONS AS UNDER :- 'JANUARY 1 ST WAS A HOLIDAY AND HENCE THE PAYMENT OF 20 LAKHS TO SAK DEVELOPERS IN ANY EVENT WOULD NOT BE HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE REAL ESTATE SECTOR WAS DOING REALLY WELL DURING 2005 TO 2007 AND THE OWNERS WERE WILLING TO SELL ONLY ON IMMEDIATE CASH PAYMENTS. MOST OF THE PROPERTIES DEALT BY THE APPELLANT WERE SITUATED AT VILLAGES WHICH DID NOT HAVE ANY BANKING FACILITIES. EVEN IF THE OWNERS WERE IN SOME CASES AT CHENNAI, THE APPELLANT HAD PAID CASH BASICALLY ON THE TRADE PRACTICE AND CONSIDERATION OF THE BUSINESS EXPEDIENCY AS EXPLAINED BELOW IN THIS SECTOR: IN PRACTICAL SITUATION, THE AGENT/MIDDLE MAN BRINGS THE PROPERTY DOCUMENTS ALONG WITH POA COPY ETC AND REPRESENTS THE OWNER. THE REAL OWNER IN MOST OF THE CASES WILL NOT COME AND DEAL THE PROPERTY. THE AGENT TAKES THE PURCHASER / APPELLANT TO THE SITE VERIFICATION, COORDINATES WITH THE LEGAL TEAM ETC AND ACCEPTS THE CASH OR CHEQUE ON OWNER'S BEHALF AND IN MANY CASES SIGNS THE SALE DEED AS A POA HOLDER. 20 ITA NOS.1785, 1 796 & 1828/MDS/15 THE ABOVE PRACTICE WAS FOLLOWED CONSISTENTLY IN THIS TRADE AS THE AGENT/MIDDLE MAN FIXES AN 'X' RAT E WITH THE PURCHASE/APPELLANT AND MAY GIVE IN MANY CASES TO THE LAND OWNERS 'X MINUS Y', THE 'Y' BEING HIS MARGIN. BY THIS WAY THE MIDDLE MAN MAKES MORE MONEY AS A PROJECT INCOME RATHER THAN A TRADITIONAL TYPE OF CHARGING A REGULAR 2% COMMISSION. THIS PRACTICE WAS ALSO FOLLOWED BY THE APPELLANT HIMSELF AND HAD OFFERED THE MARGIN BY HIM AS 'PROJECT INCOME'. IN THIS METHOD THE APPELLANT FIXE S A PRICE WITH THE PROPOSED SELLER AND A DIFFERENT PRICE WITH THE PROPOSED BUYER AND RETAIN THE DIFFERENCE WITH HIM, SHOWING THE SAME AS 'PROJECT INCOME'.' 29. FURTHER I HAVE ALSO GONE THROUGH THE DECISION I N THE CASE OF COMMISSIONER OF INCOME TAX VS. P.PRAVIN AND CO. 274 ITR 534 WHEREIN IT IS HELD THAT THE RIGOUR OF THE RULE MAY BE RELAXED IN CONSIDERATION WITH THE BUSINESS EXPEDIENCY AND O THER RELEVANT FACTORS. THE APPELLANT DEALS IN REAL ESTAT E BUSINESS WHERE THE COMPETITION IS VERY HIGH AND THE ELEMENT OF CASH PAYMENT IS VERY MUCH IN VOGUE. RESPECTFULLY FOLLOWING THE RATIO FOLLOWED IN CIT VS . P.PRAVIN AND CO. 274 ITR 534 THE PROVISION U/S 40A( 3) MAY NOT ATTRACT IN THE APPELLANT CASE AND ACCORDING LY THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 14,16, 253/- ( RS. 13,24,000 + 79,663 + 12,390). 30. IN THE RESULT, THE APPEAL IS ALLOWED. 7. ON GOING THROUGH THE ABOVE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WE FIND THAT ASSESSEE HAS MADE PAYMENTS TO VARIOUS PARTIES FOR PURCHASE OF PLOTS / PAID BROKERAGE IN THE COURSE OF CARRYING ON ITS BUSINESS OF PURCHASE & SALE OF PLOT S/FLATS. ALL THESE PAYMENTS WERE MADE IN VIEW OF BUSINESS EXPEDIENCY AND TRANSACTIONS ARE GENUINE. 8. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ANUPAM TELE SERVICES VS. ITO (SUPRA) HELD AS UNDER :- IT COULD BE APPRECIATED THAT SECTION 40A AND IN PARTICULAR SUB-CLAUSE (3) THEREOF AIMS AT CURBING T HE POSSIBILITY OF ON MONEY TRANSACTIONS BY INSISTING T HAT ALL PAYMENTS WHERE EXPENDITURE IN EXCESS OF A CERTAIN S UM 21 ITA NOS.1785, 1 796 & 1828/MDS/15 [IN THE PRESENT CASE TWENTY THOUSAND RUPEES] MUST B E MADE BY WAY OF ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT. AS HELD BY THE APEX CO URT IN CASE OF ATTAR SINGH GURMUKH SINGH [SUPRA], '. IN OUR OPINION, THERE IS LITTLE MERIT IN THIS CONTENTION. SECTION 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCL USION OF RULE 600. THE SECTION MUST BE READ ALONG WITH THE RULE. IF READ TOGETHER, IT WILL BE CLEAR THAT THE P ROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIE S. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRAD ING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSESS ING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MAD E BY CROSSED CHEQUE OR CROSSED BANK DRAFT. THE PAYMEN T BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHET HER THE PAYMENT WAS GENUINE OR WHETHER IT WAS OUT OF TH E INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTI ON 40A(3) ARE NOT ABSOLUTE. CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLU DED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OU T OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSE E TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICE R THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A (3) WAS NOT PRACTICABLE O R WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASSESSEE TO IDENTIFY THE PERSON WH O HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT I N THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RUL E 6DD THAT THEY ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE T HE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTION S. THE HONBLE HIGH COURT OBSERVED THAT THE HONBE SU PREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO (191 ITR 667) HELD THAT THE PROVISIONS OF SECTION 40A(3 ) ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE ON HIS TRADING ACTIVITI ES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. THE GENUI NE AND BONAFIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEE P OF THE SECTION AND CONSIDERATIONS OF BUSINESS EXPEDIENCY A ND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD ARE INTENDED TO REGULATE BUSINE SS TRANSACTIONS AND THE PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINE SS TRANSACTIONS. 9. HERE IN THE PRESENT CASE, IT IS NOT THE CONTENTI ON OF THE REVENUE THAT TRANSACTIONS ARE NOT GENUINE AND PAYME NTS 22 ITA NOS.1785, 1 796 & 1828/MDS/15 WERE ALL UNDISCLOSED MONEY. IT IS NOT THE CASE OF R EVENUE THAT PAYEE WAS NOT IDENTIFIED OR PAYEE DENIED THE R ECEIPT OF MONEY. THEREFORE, TAKING TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE INTO CONSIDERATION AND TH E CASE LAWS, WE ARE OF THE VIEW THAT COMMISSIONER OF INCOM E TAX (APPEALS) HAS RIGHTLY DELETED THE DISALLOWANCE FOLL OWING VARIOUS DECISIONS. WE SUSTAIN THE ORDER OF THE COMM ISSIONER OF INCOME TAX (APPEALS) AND DISMISS THE GROUNDS RAI SED IN BOTH THE APPEALS OF THE REVENUE . 15.1 IN THE PRESENT CASE, AN AMOUNT OF C33,60,000/ - WAS SAID TO BE PAID FOR THE PURCHASE OF LANDS. LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION ON THE REASON THAT A SSESSEE WAS IN REAL ESTATE BUSINESS AND PAYMENTS WERE MADE TO THE FARME RS IN THE RURAL AREA NAMELY PUDHUPATTINAM. HOWEVER, IT IS NOT CLEA R TO WHOM THE AMOUNTS WERE PAID AND WHETHER THEY HAVE BANK ACCOU NT OR NOT. IF THE PAYMENTS WERE MADE TO THE FARMERS AND THEY HAVE NO BANK ACCOUNT, THE PROVISIONS OF SEC. 40A(3) OF THE ACT CANNOT BE APPLIED. ANOTHER PAYMENT OF C5,00,935/- WAS MADE TOWARDS REGISTRATI ON EXPENSES. LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT IT FELL UNDER EXEMPTION UNDER RULE 6DD OF THE ACT, HOWEVER, HERE ALSO NAMES OF THE PERSONS TO WHOM IT WAS PAID WAS NOT MENTIONED. ANO THER PAYMENT OF C4,30,804/- WHICH WERE INCURRED TOWARDS VARIOUS PR OJECTS LIKE FENCING, LABOUR CHARGES, METAL PURCHASE ETC. THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) DELETED THE SAME SINCE THE PAYMENTS W ERE LESS THAN C20,000/- AND CONSOLIDATED PAYMENTS WAS C4,30,804/- . HOWEVER, THE FINDINGS OF THE LD. ASSESSING OFFICER IS CONTRARY TO HIS FACTS. HENCE, IN 23 ITA NOS.1785, 1 796 & 1828/MDS/15 THE INTEREST OF JUSTICE, WE REMIT THE ENTIRE ISS UE TO THE FILE OF THE LD. ASSESSING OFFICER TO SEE TO WHOM IT WAS PAID AND AN Y REASONABLE CAUSE FOR MAKING PAYMENTS IN VIOLATION OF THE ACT. SIMIL ARLY IS THE POSITION IN ITA NO.1796/MDS/2015 ON THIS ISSUE. ACCORDINGLY, T HE ISSUE RELATING TO DISALLOWANCE U/S. 40A(3) OF THE ACT IN BOTH THE YEA RS IS REMITTED BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR FRESH CO NSIDERATION. 16. NEXT GROUND RAISED BY THE REVENUE IN ITA NO.1796/MD S/2015 IS WITH REGARD TO DISALLOWANCE OF BAD DEBTS CLAIMED BY THE ASSESSEE AT C50,00,000/-. 17. FACTS OF THE CASE ARE THAT DURING THE RELEVANT ASSE SSMENT YEAR 2011-2012, THE ASSESSEE DEBITED IN ITS PROFIT AND LOSS ACCOUNT A SUM OF C50,00,000/- BY WAY OF BAD DEBTS WRITTEN OFF. THE L D. ASSESSING OFFICER DISALLOWED THE BAD DEBTS CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE AMOUNT WAS ONLY AN ADVANCE GIVEN FOR THE PURPOSE OF PURCHASE OF LAND AND HENCE DID NOT SATISFY THE CONDITIONS LAID DOWN U/S. 36(2) OF THE ACT. HE ADDED A SUM OF C50,00,000/- TO THE TOTAL INCOME OF THE ASSESSEE 18. LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED T HAT THE AMOUNT, WHICH IS CLAIMED AS A BAD DEBT, WAS AN ADVA NCE GIVEN FOR PURCHASE OF PROPERTY AT ANNA NAGAR, CHENN AI. THE PROPERTY WAS FOR THE ASSESSEE'S BUSINESS PURPOSES, AND AS 24 ITA NOS.1785, 1 796 & 1828/MDS/15 MENTIONED ABOVE, THE ASSESSEE IS ENGAGED IN THE BUS INESS OF REAL ESTATE AND CONSTRUCTION ACTIVITIES. THE ASS ESSEE HAS BEEN ACQUIRING PROPERTIES REGULARLY FROM SEVERAL PE RSONS, FOR THE PURPOSE OF ITS REAL ESTATE BUSINESS. IN MOST OF THE CASES, THE PURCHASE TRANSACTIONS ARE MATERIALIZING. HOWEVE R, IN SOME CASES, THE TRANSACTIONS ARE NOT MATERIALIZING AND IN FEW CASES THE ADVANCES ARE NOT RECEIVED BACK BY THE ASSESSEE. THEREFORE THE ADVANCE OF C50,00,000/- WAS GIVEN FOR THE PURPOSE OF BUSINESS AND DURING THE ORDINARY COURSE OF BUSINESS. NORMALLY WHEN A DEBTOR BECOMES BAD, I T CAN BE WRITTEN OFF IN THE BOOKS AS A BAD DEBT AND CAN B E CLAIMED AS AN ALLOWABLE DEDUCTION WHILE COMPUTING T HE TAXABLE INCOME UNDER THE HEAD BUSINESS INCOME. NORMALLY, THE DEBTS COULD BE EITHER TRADE DEBTS OR LOAN/ADVANCE DEBTS. THE FORMER DEBTS ARE ON ACCOUN T OF THE TRADING TRANSACTIONS LIKE SALE OF MATERIAL/ GOODS, RENDERING OF SERVICES, ETC. WHEN THESE AMOUNTS BECO ME BAD, THEY CAN BE WRITTEN OFF AS BAD DEBTS AND THE SAME A RE ALLOWABLE U/S.36(1)(VII) OF THE ACT. IN THESE CASES , THE CONDITION IS THAT THESE AMOUNTS SHOULD HAVE BEEN OF FERED TO TAX IN THE EARLIER YEARS. THE OTHER TYPES OF DEBTS ARE ON ACCOUNT OF LOANS AND ADVANCES MADE BY THE 25 ITA NOS.1785, 1 796 & 1828/MDS/15 ASSESSEE. THESE LOANS/ADVANCES COULD BE OF TWO TYPE S, I.E. (I) THOSE ADVANCED DURING THE ORDINARY COURSE OF BU SINESS AND FOR THE PURPOSE OF BUSINESS, AND (II) OTHER LOA NS AND ADVANCES. THE LOANS AND ADVANCES GIVEN IN THE ORDIN ARY COURSE OF BUSINESS AND FOR THE PURPOSE OF BUSINESS, WHEN BECOMES BAD, CAN BE CLAIMED AS BAD DEBTS WRITTEN OF F. SUCH BAD DEBTS WRITTEN OFF IN THE BOOKS ARE ALLOWABLE U/S. .28 ITSELF AND NOT U/S.36(1) (VII) OF THE ACT. FOR EXAMPLE, AD VANCE GIVEN TO A SUPPLIER OF RAW MATERIAL, IF BECOMES BAD, CAN BE CLAIMED AS BAD DEBT U/S.28 OF T HE ACT. WHEREAS THE OTHER TYPES OF LOANS, WHICH ARE NOT CON NECTED TO THE BUSINESS, CANNOT BE WRITTEN OFF AS BAD DEBTS WHEN BECOMES NON-RECOVERABLE. IT CAN CLEARLY BE SEEN THA T THE ADVANCE UNDER CONSIDERATION OF WRITE OFF AS 'BAD DE BT' IS THE ADVANCE GIVEN TO THE LANDLORD FOR THE PURPOSE OF PU RCHASING THE PROPERTY. THERE ARE NO DISPUTES IN THIS REGARD. THE LAND ADVANCES ARE FOR THE PURPOSE OF ACQUIRING PROPERTIE S FOR THE ASSESSEE'S REAL ESTATE BUSINESS AND HENCE CLEARLY F ORMS AN 'ADVANCE FOR THE PURPOSE OF BUSINESS'. THUS, THESE PROPERTY ADVANCES TO THE LAND OWNERS ARE FOR THE PURPOSE OF BUSINESS AND DURING THE ORDINARY COURSE OF CARRYING ON THE B USINESS. SUBSEQUENTLY, THE LAND OWNER, WHOM THE ADVANCE WAS GIVEN, 26 ITA NOS.1785, 1 796 & 1828/MDS/15 HAS NEITHER GIVEN (SOLD) THE PROPERTY TO THE ASSESS EE, WHERE THE ADVANCE COULD BE ADJUSTED AGAINST THE SALE CONS IDERATION TO BE PAID, NOR RETURNED THE MONEY (ADVANCE). FURTH ER, THE ASSESSEE HAS ALSO UNDERTAKEN VARIOUS STEPS BUT FAIL ED IN RECOVERING THE AMOUNT. ONLY WHEN THE CHANCES OF REC OVERING THE AMOUNTS HAVE BECOME DIFFICULT, THE ASSESSEE HAD WRITTEN OFF THESE PROPERTY ADVANCE, THAT TOO AFTER WAITING FOR PERIODS OF SEVERAL YEARS. IT IS ALSO IMPORTANT TO MENTION H ERE THAT THE SAID LANDLORD HAS ALSO WRITTEN BACK THE SAID AMOUNT AND OFFERED TO TAX IN HIS HANDS IN HIS RETURN OF INCOME FILED FOR A.Y.2012-13.FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT AS HELD BY THE APEX COURT I N THE CASE OF CIT V. ABDULLABHAI ABDULKADAR (1961) 41 ITR 545 (SC), IN EVERY CASE THE TEST IS, WAS THE DEBT DUE AS AN INCIDENT TO THE BUSINESS; IF IT IS NOT OF THAT CHAR ACTER IT WILL BE A CAPITAL LOSS. THE HIGH COURT OF MADRAS IN THE CAS E OF CIT V. DHANALAKSHMI CORPORATION [1962] (46 ITR 1031)(MAD. ) ALSO HELD THAT THE ADVANCES MADE IN THE COURSE OF THE NO RMAL TRADING ACTIVITY, ARE ELIGIBLE FOR WRITE OFF AS BAD DEBTS. FURTHER, AS HELD BY THE SUPREME COURT IN THE CASE OF CIT V. MYSORE SUGAR CO. LTD. [1962] (46 ITR 649)(SC) , TO FIND OUT WHETHER AN EXPENDITURE IS ON THE CAPITAL ACCOUNT OR ON 27 ITA NOS.1785, 1 796 & 1828/MDS/15 REVENUE, ONE MUST CONSIDER THE EXPENDITURE IN RELAT ION TO THE BUSINESS. SINCE ALL PAYMENTS REDUCE CAPITAL IN THE ULTIMATE ANALYSIS, ONE IS OPT TO CONSIDER A LOSS AS AMOUNTING TO A LOSS OF CAPITAL. BUT THIS IS NOT TRU E OF ALL LOSSES, BECAUSE LOSSES IN THE RUNNING OF THE BUSINE SS CANNOT BE SAID TO BE OF CAPITAL. THE QUESTIONS TO C ONSIDER IN THIS CONNECTION ARE FOR WHAT PURPOSE WAS THE MON EY LAID OUT? WAS IT TO ACQUIRE AN ASSET OF AN ENDURING NATU RE FOR THE BENEFIT OF THE BUSINESS, OR WAS IT AN OUTGOING IN THE DOING OF THE BUSINESS? IF MONEY BE LOST IN THE FIRS T CIRCUMSTANCES, IT IS A LOSS OF CAPITAL, BUT IF LOST IN THE SECOND CIRCUMSTANCE, IT IS A REVENUE LOSS. IN THE F IRST, IT BEARS THE CHARACTER OF AN INVESTMENT, BUT IN THE SE COND, TO USE A COMMONLY UNDERSTOOD PHRASE, IT BEARS THE CHAR ACTER OF CURRENT EXPENSES. SIMILAR VIEWS WERE ALSO EXPRESSED BY THE HIGH COURT OF J&K IN THE CASE OF CHENAB FOREST CO V. CIT [1974](96 ITR 568)(J&K ). IN THE INSTANT CASE THE ASSESSEE'S PROPERTY ADVANCE TO THE LANDLORDS IS A COMMON PRACT ICE IN THE CASE OF REAL ESTATE BUSINESS. THE ADVANCES TO L AND OWNERS IS A ROUTINE AND COMMON PHENOMENON IN THE CA SES OF REAL ESTATE BUSINESS AND ACCORDINGLY BECOMES INCIDE NTAL TO THE CARRYING OF THE BUSINESS. SUCH BUSINESS ADVANCE S, WHEN 28 ITA NOS.1785, 1 796 & 1828/MDS/15 BECOMES BAD AND IRRECOVERABLE, BECOMES ELIGIBLE FOR DEDUCTION, AS 'BAD DEBTS WRITTEN OFF. IN FACT, THES E ADVANCES, WHICH ARE WRITTEN OFF IN THE BOOKS, CAN BE CLAIMED AS REVENUE EXPENSES U/S.37(1) OF THE ACT ITSELF, AS HELD BY TH E APEX COURT IN THE CASE OF CIT V. MYSORE SUGAR CO. LTD. [1962] 46 ITR 649 (SC). FURTHER, ACCORDING TO LD. COMMISSIONER OF INCOME TAX (APPEALS) THE WRITING OFF THE BAD DEBTS , EITHER U/S.28 OR U/S.37(1), IS AKIN TO THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, EXCEPT THAT THERE IS NO REQU IREMENT OF INCLUDING THE AMOUNTS IN COMPUTING THE INCOME OF TH E ASSESSEE IN THE EARLIER YEARS (FOR WRITE OFF U/S.28). THE PROVISIONS OF SEC.36(1)(VII) OF THE ACT DEALS WITH THE WRITING OFF THE BAD DEBTS, SUBJECT TO THE CONDITIONS STIPUL ATED IN THE SUB-SECTION (2) OF SEC.36. AS PER THE PROVISIONS OF SEC.36(2), ONLY THE DEBTS WHICH HAVE BEEN TAKEN INTO ACCOUNT W HILE RECKONING THE INCOME IN ANY OF THE EARLIER YEARS, A RE ELIGIBLE FOR ALLOWANCE U/S.36(1)(VII) OF THE ACT. THUS, IT I S CLEAR THAT ONLY THE AMOUNTS WHICH ARE INCLUDED IN THE COMPUTAT ION OF INCOME IN THE EARLIER YEARS IS ELIGIBLE FOR DEDUCTI ON AS BAD DEBTS. FURTHER, WITH THE CHANGE IN THE PROVISIONS O F 36(1)(VII) OF THE ACT, THE ONLY REQUIREMENT WAS TO WRITE OFF T HE BAD DEBTS IN THE BOOKS OF ACCOUNTS. IT MAKES NO DIFFERE NCE 29 ITA NOS.1785, 1 796 & 1828/MDS/15 WHETHER THE ASSESSEE HAS TAKEN SUFFICIENT STEPS TO RECOVER THE DEBTS OR NOT. EVEN PENDENCY OF THE CASES BEFORE THE COURTS IS NOT A BAR TO WRITE OFF THE BAD DEBTS. FUR THER, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF TRF VS CIT (323 ITR 397) (SC) , ONCE AN AMOUNT IS WRITTEN OFF AS BAD DEBT IN THE BOOKS OF ACCOUNTS THE SAME HAS TO BE ALLOWED U/S.36(1)(VII). ACCORDINGLY, LD. COMMISSIONER OF I NCOME TAX (APPEALS) ALLOWED THE ASSESSEES CLAIM OF BAD DEBTS WRITTEN OFF AND DIRECTED THE LD. ASSESSING OFFICER TO ALL OW THE ASSESSEE S CALIM OF BAD DEBTS OF C50,00,000/-. AG GRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE CLAIM OF THE ASSESSEE WAS THAT ASSESSE E IS IN THE BUSINESS OF REAL ESTATE. AN AMOUNT OF C50,00,000/- WAS ADVANCE D FOR PURCHASE OF LAND AT ANNA NAGAR, CHENNAI. SINCE THE DEAL WAS NO T MATERIALIZED THE SAID SUM WAS CLAIMED AS BAD DEBTS. FOR CLAIMING BA D DEBTS, THE FOLLOWING CONDITIONS HAS TO BE FULFILLED U/S. 36(1) (VII) OF THE ACT. VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRI TTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FO R THE PREVIOUS YEAR : PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH C LAUSE (VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATIN G TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE A MOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE 30 ITA NOS.1785, 1 796 & 1828/MDS/15 IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE : EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, ANY BA D DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE ; THE ASSESSEE SHALL WRITTEN OFF THE DEBTS AS IT IS I RRECOVERABLE AND SUCH DEBTS HAS BEEN TAKEN INTO ACCOUNT WHICH COMPUTING INCOME OF THE ASSESSEE FOR THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBTS OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVI OUS YEAR, OR REPRESENT MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS O F BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE, IF WAS LENT IN THE ORDINARY COURSE OF BUSINESS, THE ASSESSEE HAS TO PROVE THE A BOVE FACTS. FIRST OF ALL, NOTHING HAS BEEN PROVED BY THE ASSESSEE BEFORE THE LD. ASSESSING OFFICER. HOWEVER, THE LD. COMMISSIONER OF INCOME T AX (APPEALS) OBSERVED THAT ASSESSEE HAS FULFILLED THE CONDITION S LAID DOWN U/S. 36(1) (VII ) OF THE ACT R.W.S 36(2) OF THE ACT. HE HAS N OT MENTIONED ON WHAT BASIS HE CAME TO THAT CONCLUSION. IN OUR OPINION, THE MATTER REQUIRES A RE-EXAMINATION FROM THE END OF THE LD. ASSESSING OF FICER, WHETHER ASSESSEE ACTUALLY LENT MONEY TOWARDS PURCHASE OF T HE LAND. IF IT IS ADVANCED TOWARDS PURCHASE OF LAND IN THE ASSESSEE S REAL ESTATE BUSINESS THEN ONLY WRITING OFF THE SAME IS ALLOWE D AS BAD DEBTS. WITH THESE FINDINGS, WE REMIT THE ISSUE BACK TO THE FILE OF THE LD. ASSESSING 31 ITA NOS.1785, 1 796 & 1828/MDS/15 OFFICER FOR FRESH CONSIDERATION. 20. IN THE RESULT, THE APPEALS OF THE REVENUE IN ITA N OS. 1785, 1796 AND 1828/MDS/2015 ARE PARTLY ALLOWED FOR STATISTICA L PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 21ST DAY OF JUNE, 2017. SD/- SD/- ( ' #! ' $ . %& ) (DUVVURU R.L. REDDY) ' /JUDICIAL MEMBER ( ) (CHANDRA POOJARI) /ACCOUNTANT MEMBER /CHENNAI, J /DATED, THE 21ST JUNE, 2017 KV K 2 0'4LM NM-4 / COPY TO: 1. ./ / APPELLANT 3. ' O4 () / CIT(A) 5. M!PQ 0'4' / DR 2. 01./ / RESPONDENT 4. ' O4 / CIT 6. Q&, R / GF