M/s Virupa Townships, Visakhapatnam V. THE ACIT, Range - 2, Vijayawada

ITA 324/VIZ/2012

• Counselvise Citation: 32425314 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 10-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Capital asset; Additional evidence; Capital expenditure
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNAM BEFORE S/SHRI B. RAMAKOTAIAH (AM) & SAKTIJIT DEY (JM) I.T.A. NO.324/VIZ/2012: ASSESSMENT YEAR : 2008 - 09 VIRUPA TOWNSHIPS, C/O. C.SUBRAHMANYAM, CA, 102, LAKSHMI APARTMENT, FACOR LAYOUT, WALTAIR UPLANDS, VISAKHAPATNAM VS. ACIT, RANGE - 2, VIJAYAWADA. PAN/GIR NO. : AAGFV 0415 L ( APPELLANT ) .. ( RESPONDENT ) I.T.A. NO.384/VIZ/2012: ASSESSMENT YEAR : 2008 - 09 ACIT, RANGE - 2, VIJAYAWADA VS. VIRUPA TOWNSHIPS, C/O. C.SUBRAHMANYAM, CA, 102, LAKSHMI APARTMENT, FACOR LAYOUT, WALTAIR UPLANDS, VISAKHAPATNAM . PAN/GIR NO. : AAGFV 0415 L ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI G.V.N. HARI REVENUE BY : SHRI K.V.N.C HARYA DATE OF HEARING : 0 4/12/2013 DATE OF PRONOUNCEMENT : 11 /12/2013 O R D E R PER SAKTIJIT DEY, JM THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER DATED 17.5.2012 OF LD CIT(A) - VIJAYAWA DA , IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 2 1.0 THAT THE ORDERS PASSED UNDER THE PROVISIONS OF SECTION 143(3), TO THE EXTENT ADDITIONS CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(A), ARE AGAINST THE FACTS OF THE CASE AND PROVISIONS OF LAW. 1.1 THE LEARNED COMMISSIONER OF INCOME TAX(A) ERRED IN LAW IN UPHOLDING THE VALIDITY OF THE ASST. ORDER IN THE ABSENCE OF ISSUE OF NOTICE, UNDER THE PROVISIONS OF SECTION 1 43(2), WITHIN THE STATUTORY TIME PERIOD STIPULATED UNDER THE PROVISO TO THE SECTION. 1.2 THE LD CIT(A) IS NOT CORRECT IN UPHOLDING THE DISALLOWANCE U/S.40A(3) OF THE I.T.ACT IN AS MUCH AS THE CASH PAYMENTS MADE TOWARDS PURCHASE OF AGRICULTURAL LANDS SQUARELY COVERED UNDER EXCEPTION PROVIDED IN RULE 6DD (J) & (G) OF I.T.RULES, 1962. 1.3 THE DISALLOWANCE U/S.40A(3) OF I.T.ACT IS BAD IN LAW WHEN CASH PAYMENTS WERE MADE DUE TO BUSINESS EXPEDIENCY. THE LD CIT(A) OUGHT TO HAVE CONSIDERED THIS JUDICIALLY ACCEPTED PROPO SITION MORE SO WHEN THE GENUINENESS OF PAYMENTS WERE NOT DISPUTED. 1.4 THE LD CIT(A) FAILED TO CONSIDER THE VARIOUS CASE LAWS RELIED UPON WHILE DISPOSING OF THE SUBJECT DISPUTED ISSUE. 3. GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: THE OR DER OF THE CIT(A) IS ERRONEOUS BOTH IN LAW AND ON FACTS. 2. THE LD CIT(A) IS NOT CORRECT IN DELETING THE ADDITION BASING ON THE DETAILS OF PANS AND TDS PARTICULARS FURNISHED IN RESPECT OF THE LAND AGENTS WITHOUT VERIFYING WHEN PANS WERE OBTAINED AND WHEN THE TDS WAS MADE (BEFORE PASSING OF ASSESSMENT ORDER OR AFTER PASSING OF ASSESSMENT ORDER). 3. THE LD CIT(A) OUGHT TO HAVE AFFORDED AN OPPORTUNITY TO THE AO AS PER THE PROVISIONS OF RULE 46A OF I.T.RULES. 4. THE CIT(A) OUGHT NOT TO HAVE DELETED THE ADDITIO N WITHOUT COMING TO THE CONCLUSION THAT THE THIRD PARTIES ARE NOT EMPLOYEES OR AGENTS OF THE ASSESSEE FIRM, BASED ON THE ADDITIONAL EVIDENCE. 5. THE LD CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT IF THE THIRD PARTIES ARE NOT RELATED TO THE ASSESSEE, IT C OULD NOT HAVE FURNISHED THE BANK ACCOUNTS. 4. BRIEFLY STATED THE FACTS RELATING TO THE ISSUE IN DISPUTES ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEVELOPING AND SELLING OF RESIDENTIAL PLOTS. FOR THE IMPUGNED ASSESSMENT YEAR , ASSESSEE FILED ITS RETURN OF INCOME ON 28.9.2008 DECLARING TOTAL 3 INCOME OF RS.55,34,960/ - . DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO AFTER EXAMINING INFORMATION AVAILABLE ON RECORD NOTED THAT THE ASSESSEE FIRM DURING THE YEAR HAD PURCHASED LAND S FROM LANDLORDS BY ENTERING INTO UN - REGISTERED SALE AGREEMENTS. SUBSEQUENTLY, THE LANDLORDS REGISTERED THE LANDS IN FAVOUR OF THE ASSESSEE BY EXECUTING REGISTERED SALE AGREEMENT - CUM - GPA. HE FURTHER NOTED THAT AS PER THE UNREGISTERED SALE AGREEMENT, THE VALUE OF THE LANDS WAS RS.5,14,60,550/ - , WHEREAS AS PER THE REGISTERED DOCUMENTS, REGISTERED SALE CUM - GPA VALUE OF THE LAND WAS RS.75,11,500/ - . THEREFORE, THERE WAS A DIFFERENCE OF RS.4,39,49,050/ - BETWEEN THE UNREGISTERED SALE DOCUMENTS AND REGISTERED SA LE CUM - GPA SO FAR AS V ALUE OF THE LANDS ARE CONCERNED . HE FURTHER NOTED THAT ASSESSEE HAS PAID ENTIRE CONSIDERATION AS MENTIONED IN THE UNREGISTERED SALE DOCUMENT TO THE LANDLORDS EITHER THROUGH THEIR PARTNERS OR THROUGH LAND AGENTS. WHILE THE ENTIRE PAY MENT MADE THROUGH THE FIRMS PARTNERS WAS IN CASH TO THE LAND LORDS BUT IN CASE OF PAYMENTS MADE THROUGH THE LAND AGENTS, THE FIRM ISSUED CHEQUES IN THE NAME OF THE AGENTS, WHO IN TURN WITHDREW THE CASH ON THE SAME DAY AND PAID TO THE LAND LORDS IN CASH. IN SUPPORT OF ITS CLAIM THAT THE ENTIRE AMOUNT WAS PAID TO THE LANDLORDS, THE ASSESSEE FIRM PRODUCED COPIES OF SALE AGREEMENTS, ON WHICH THE LAND LORDS SIGNATURES WERE AVAILABLE IN TOKEN OF ACKNOWLEDGING THE RECEIPT OF THE CASH PAYMENTS FROM THE PARTNERS OF THE FIRM AND FROM THE LAND AGENTS ON THE DATES AS MENTIONED IN THE BOOKS OF ACCOUNT. THE AO NOTED THAT AS PER THE DETAILS ENTERED IN THE BOOKS OF ACCOUNT, THE AMOUNT PAID TO THE LANDLORDS THROUGH PARTNERS IN CASH WAS AT RS.2,70,40,050/ - AND THROUGH OTH ER AGENTS AT RS.2,32,20,500/ - , APART FROM AMOUNT OF RS.12,00,000/ - PAID THROUGH CHEQUE TO ONE LANDLORD NAMELY SHRI MANDAVA VENKATESWARA RAO. AO ON THE BASIS OF ABOVE FACTS ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN AS TO WHY SALE CONSIDERATION PAID IN CASH TOTALING TO RS.5,02,60,550/ - SHOULD NOT BE DISALLOWED UNDER SECTION 40A(3) OF THE ACT. IN RESPONSE TO SHOW CAUSE NOTICE, ASSESSEE REPLIED THAT AT NO POINT OF TIME THE POSSESSION IS GIVEN TO THE ASSESSEE NOR THE ASSESSEE PURCHASES THE 4 AGRICUL TURAL LAND IN QUESTION. IT WAS SUBMITTED THAT THESE TYPES OF ARRANGEMENTS WITH THE LAND OWNERS ARE MADE T HROUGH MIDDLEMEN BROKERS AND BROKERAGE EXPENDITURE IS INCURRED BY THE ASSESSEE. IT WAS SUBMITTED THAT THE LAND OWNER AS PER AGREEMENT WERE PAID SUBST ANTIAL ADVANCE BY THE ASSESSEE IN ORDER TO SAFEGUARD THEIR INTERESTS. IN TURN, THE LAND LORDS EXECUTE A SALE AGREEMENT IN FAVOUR OF THE ASSAESSEE IN ORDER TO SAFEGUARD THE ASSESSEES INVESTMENT IN DEVELOPMENT OF LAND. THE EXCESS PRICE REALIZED FROM THE P URCHASERS OF HOUSING PLOTS OVER AND ABOVE THE EXPENDITURE INCURRED BY THE ASSESSEE AFTER REIMBURSEMEN T OF ADVANCE OF PURCHASE IS CONSIDERED AS ASSESSEES PROFIT. HENCE, IT WAS CONTENDED THAT THE LAND IN QUESTION IS NOT PURCHASED BY THE ASSESSEE. IT WAS S UBMITTED THAT THE COST INCURRED BY THE ASSESSEE IN PURCHASE OF AGRICULTURAL LANDS REPRESENTING PART OF TRANSACTIONS UNDERTAKEN BY THE ASSESSEE IS CAPITAL EXPENDITURE AT THE INCEPTION AND THUS THE AGRICULTURAL LANDS SO PURCHASED WILL BE THE CAPITAL ASSET TO THE ASSESSEE. THEREFORE, THE VALUATION OF INVENTORY WILL ARISE ONLY IN CASE OF GOODS AND NOT IN CASE OF IMMOVABLE PROPERTY AS IN THE CASE OF THE ASSESSEE. THEREFORE, THE AGRICULTURAL LAND CONSIDERED TO HAVE BEEN PURCHASED BY THE ASSESSEE CANNOT BE ST OCK IN TRADE OR INVENTORY. ASSESSEE FURTHER SUBMITTED THAT AT NO POINT OF TIME, THE POSSESSION WAS GIVEN TO THE ASSESSEE BY THE LAND OWNER HENCE, IT CANNOT BE SAID THAT SALE WAS COMPLETE. AO, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND DIS ALLOWED THE ENTIRE CASH PAYMENT OF RS.5,02,60,550/ - AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR. BEING AGGRIEVED OF SUCH ADDITION, ASSESSEE PREFERRED APPEAL BEFORE LD CIT(A). 5. IN THE COURSE OF HE ARING BEFORE THE CI T(A), DETAIL SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE ORALLY AS WELL AS IN WRITING. SO FAR AS AMOUNT OF RS.2,32,20,5000/ - OUT OF TOTAL AMOUNT OF RS.5,02,60,550/ - IS CONCERNED, LD CIT(A) OBSERVED THAT THE SAID PAYMENT WAS MADE 5 TO LANDLORDS THROUGH M EDIUM OF OTHER PERSONS OTHER THAN THE PARTNERS, FIRM OR EMPLOYEES OF THE FIRM. HE FURTHER NOTED THAT THE ENTIRE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUE TO THE THIRD PARTIES AND THEY HAVE WITHDRAWN THE AMOUNT FROM BANK ACCOUNT AND PAID IN CASH TO T HE LANDLORDS. HE FURTHER NOTED THE FACT THAT ASSESSEE HAD ALSO FURNISHED BANK ACCOUNT COPIES , TDS PARTICULARS AND PAN OF THIRD PARTIES TO WHOM PAYMENTS WERE MADE. LD CIT(A) THEREFORE CONSIDERING THE FACT THAT THE AO HAS NOT MADE OUT ANY CASE TO PROVE TH AT THE SAID PERSONS WERE EMPLOYEES OR AGENTS OF THE ASSESSEE, IT CANNOT BE SAID THAT PAYMENTS WERE MADE IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. THE CIT(A) HAVING FOUND THE FACT THAT PAYMENTS WERE MADE THROUGH BANKING CHANNELS BY THE ASSES SEE TO THE THIRD PARTIES HELD THAT PROVISIONS OF SECTION 40A(3) WOULD NOT BE ATTRACTED TO SUCH PAYMENTS. LD CIT(A) FURTHER OBSERVED THAT IN ABSENCE OF ANY AGREEMENT OF AGENCY OR EMPLOYER - EMPLOYEE RELATIONSHIP WITH THE ASSESSEE , SUCH THIRD PARTIES HAVE TO B E REGARDED AS INDEPENDENT ENTITIES AND THEIR ACTION S IN PAYMENT OF CASH TO THE LANDLORDS CAN NOT BE EQUATED AS PAYMENTS MADE BY THE ASSESSEE ITSELF IN CASH TO THE LANDLORDS. THEREFORE, HE DELETED THE ADDITION OF RS.2,32,20,500 / - . 6. HOWEVER, SO FAR AS AMOUNT OF RS.2,70,40,050/ - IS CONCERNED, LD CIT(A) DID NOT ACCEPT ANY OF THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO THE CLAIM THAT ASSESSEE HAS NOT PURCHASED THE LAND IN QUESTION SO AS TO ATTRACT PROVISIONS OF SECTION 40A(3) OR THE CONTENTION OF THE ASSESSEE THAT THE AGRICULTURAL LANDS ARE CAPITAL ASSETS. SO FAR AS THE CONTENTION OF THE ASSESSEE WITH REG ARD TO APPLICATION OF RULE 6DD(G ) AND 6DD(J) ARE CONCERNED, THE CIT(A) OBSERVED THAT ASSESSEES CONTENTION IN THAT REGARD ALSO CANNOT BE ACCEPTED AS NEITHER CLAUSE (G) OR CLAUSE(J) OF RULE 6DD IS APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. LD CIT(A) HELD THAT CLAUSE (G) WOULD NOT BE APPLICABLE AS VIJAYAWADA CITY AS WELL AS THE ADJACENT AREAS INCLUDING KANCHIKACHERIA ARE COVERED BY BANKING FACILITIES. HE WAS FURTHER OF THE VIEW THAT IT IS IMPROBABLE THAT THE LANDLORDS, WHO HAVE RECEIVED A SUBSTANTIAL AMOUNT AS SALE CONSIDERATION 6 AND ARE PERSONS OF SIGNIFICANT MEANS, WOULD NOT HAVE BANK ACCOUNTS AND OTHERWISE ALSO, ASSES SEE DID NOT PRODUCE ANY EVIDENCE IN THAT REGARD. SO FAR AS ASSESSES CLAIM OF APPLICATION OF RULE 6DD(J) IS CONCERNED, THE CIT(A) HELD THAT THE EXCEPTION PROVIDED IN CLAUSE (J) WOULD ONLY APPLY ON EXCEPTIONAL CIRCUMSTANCES UNDER WHICH PAYMENTS OTHER THAN BY WAY OF ACCOUNT PAYEE CHEQUE OR DD WOULD BE PERMITTED, WHICH WAS EARLIER IN THE STATUTE HAS BEEN REPLACED W.E.F. 27.5.1995. AS PER AMENDED CLAUSE (J) OF RULE 6DD, IT WILL BE ONLY APPLICABLE IF THE PAYMENTS MADE ON SUNDAY AND HOLIDAY ON THE INSISTENCE OF LANDLORDS. SINCE AS PER THE SAID PROVISION ONLY CASH PAYMENTS WHICH WERE REQUIRED TO BE MADE WILL COME WITHIN THE EXCEPTION. T HE CIT(A) HELD THAT THE LANDLORDS BEING LOCALS, COULD HAVE RECEIVED THE AMOUNTS ON ANY DATE AND IT IS IMPROBABLE TO ASSUME THAT THEY WOULD SELL THE LAND ONLY ON SUNDAYS AND HOLIDAYS. HE FURTHER HELD THAT ASSESSE HAS ALSO NOT FURNISHED ANY EVIDENCE TO SHOW THAT THERE WERE EXCEPTIONAL CIRCUMSTANCES REQUIRING SUCH PAYMENTS ON SUNDAYS AND HOLIDAYS. HE, THEREFORE, HELD THAT EXCEP TION IN CLAUSE (J) OF RULE 6DD IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. THE CIT(A) ULTIMATELY HELD THAT THOUGH A SSESSEE HAS CLAIMED TO HAVE MADE CASH PAYMENT THROUGH PARTNERS OR THROUGH OTHER BROKE RS BUT SINCE IN CASE OF PARTNERSHIP FIRM, PARTN ERS ARE BOUND BY THE ACTIONS OF THE FIRM AND THE FIRM IS BOUND BY THE ACTIONS OF THE PARTNERS, CARRIED OUT IN CONDUCT OF THE BUSINESS OF THE FIRM, HENCE PROVISIONS OF SECTION 40A(3) ARE CLEARLY ATTRACTED. HE THEREFORE UPHELD THE ADDITION TO THE EXTENT OF RS.2,70,40,050/ - UNDER SECTION 40A(3) OUT OF TOTAL ADDITION OF RS.5,02,60,550/ - . AGGRIEVED BY THIS ORDER OF THE ASSESSING OFFICER, BOTH THE SIDES ARE IN APPEAL BEFORE US. 7. AT THE TIME OF HEARING, LD A.R. MOSTLY REITERATING THE SUBMISSIONS MADE BEFORE TH E CIT(A) CONTENDED THAT SO FAR AS THE AMOUNT OF RS.2,70,40,050 SUSTAINED BY LD CIT(A) IS CONCERNED, IT REPRESENTS PAYMENTS MADE THROUGH PARTNERS TO LAND LORDS. LD A.R. SUBMITTED THAT SINCE THESE PAYMENTS WERE MADE BY PARTNERS TO LANDLORDS ON BEHALF OF FIR M A RELATIONSHIP OF 7 PRINCIPAL AND AGENT EXIST BETWEEN THE ASSESSEE FIRM AND ITS PARTNER. HENCE, PAYMENTS MADE IN CASH COME WITHIN THE EXCE PTION PROVIDED UNDER SUB - RULE (K ) OF RULE 6DD. LD AR SUBMITTED THAT ASSESSEE HAS MADE QUITE SUBSTANTIAL PAYMENT IN C ASH ON SUNDAYS AND HOLIDAYS TO THE LANDLORDS WHICH CLEARLY COME WITHIN THE EXCEPTION PROVIDED UNDER SUB - RULE (J) OF RULE 6DD. IN THIS CONTEXT, LD A.R. DREW OUR ATTENTION TO THE DETAILS OF CASH PAYMENTS WHICH ARE MADE TO LANDLORDS PLACED AT PAGES 197 TO 20 3 OF PB. SPECIFICALLY DRAWING OUR ATTENTION TO PAGE 197,200 & 203 OF PB, LD A.R. SUBMITTED THAT THE TOTAL CASH PAYMENTS MADE THROUGH THREE PARTNERS ARE OF RS.73,06,500, RS.69,03,000 AND RS.48,46,550/ - . LD A.R. SUBMITTED THAT ATLEAST THESE PAYMENTS SHOUL D HAVE BEEN HELD TO BE NOT IN VIOLATION OF SECTION 40A(3) AS THEY CLEARLY COME WITHIN THE EXCEPTION OF SUB - RULE (J) OF RULE 6DD. LD A.R. SUBMITTED THAT THE EXPRESSION REQUIRED TO BE MADE AS FIND PLACE IN SUB - RULE (J) OF RULE 6DD CANNOT BE INTERPRETED IN A MANNER AS HAS BEEN DONE BY THE CIT(A) TO SUGGEST THAT REQUIREMENT MUST BE ON ACCOUNT OF INSISTENCE BY THE PAYEE. LD A.R. SUBMITTED THAT PROVISO TO SECTION 40A(3) OF THE ACT MAKES THE INTENTION OF THE LEGISLATURE CLEAR BY PROVIDING THAT NO DISALLOWANCE SHALL BE MADE UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED HAVING REGARD TO THE NATURE OF EXISTENCE OF BANKING FACILITIES AVAILABLE CONSIDERING BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. LD A.R. SUBMITTED THAT THE PROVISO MAKES IT CLEAR THAT IN CASH PAYMENT AUTOMATICALLY CAN NOT ATTRACT PROVISIONS OF SECTION 40A(3) BUT IT HAS TO BE CONSIDERED IN THE CONTEXT OF BUSINESS EXPEDIENCY , AVAILABILITY OF BANKING FACILITIES AND OTHER FACTORS WHICH COMPELS SUCH CASH PAYMENTS. LD A.R. SUBMITTED THAT IN ASSESSEE S CASE, SO FAR AS GENUINENESS OF PAYMENTS ARE CONCERNED, IT IS NOT DOUBTED AS ASSESSEE HAS PROVED THE IDENTITY OF THE RECIPIENTS WHICH HAS NOT BEEN DISPUTED BY THE AO. THE FACT THAT THE TRANSACTIONS ARE GENUINE HAS NOT AT ALL BEEN DISPUTED AT ANY STAGE. THEREFORE, THE OBJECT FOR WHICH SECTION 40A(3) WAS BROUGHT TO THE STATUTE IS ABSENT IN ASSESSEES CASE. IT WAS SUBMITTED BY THE LD AR THAT EXPRESSION REQUIRES AS APPEARS IN SUB - RULE (J) OF RULE 6DD ALSO 8 APPEARS IN CLAUSE (K) OF SAID RULE. IT WAS SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF R.C.GOEL VS CIT, 259 CTR (DEL) 5, WHILE INTERPRETING THE MEANING OF THE EXPRESSION REQUIRED AS APPEARS IN RULE 6DD(K) HELD THAT IT HAS TO BE UNDERSTOOD TO MEAN THAT REQUIREMENT OF CASH PAYMENT IS T O SUB SERVE THE PURPOSE OF BUSINESS AND NOT TO STIFLE IT . RELYING UPON ANOTHER JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF BASU DISTRIBUTOR (P) LTD VS. ACIT, 19 TAXMANN.COM 111 (DELHI) , LD A.R. SUBMITTED THAT THE HONBLE HIGH COURT AFTER LOOKING INTO THE OBJECT AND PURPOSE FOR WHICH SECTION 40A(3) AND RULE 6DD(J) HAVE BEEN INTRODUCED IN THE STATUTE BOOK AND CONSIDERING THE FACT THAT IF THE ASSESSEE WOULD NOT HAVE MADE CASH PAYMENT THEY WOULD HAVE MISSED OUT ON THE BUSINESS OPPORTUNITY AND, THEREF ORE, CASH PAYMENT WAS FOR BUSINESS EXPEDIENCY, HELD THAT NO DISALLOWANCE CAN BE MADE U/S. 40A(3) OF THE ACT. FURTHER RELYING ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. KISHOR PROJECT (P) LTD., 36 TAXMANN.COM 94 (GUJ), LD A.R. S UBMITTED THAT THE HONBLE HIGH COURT TAKING INTO CONSIDERATION THE FACT THAT THE PAYMENTS WERE MADE AT A PLACE WHERE IT WAS NOT FEASIBLE TO MAKE THE PAYMENT BY WAY OF CHEQUE OR DEMAND DRAFT, DELETED THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT. LD A.R. ALSO RELIED UPON THE DECISION OF ITAT JAIPUR BENCH IN THE CASE OF PACL INDIA LTD VS. ACIT, (2010) 38 DTR (JP)(TRIB) 1, WHEREIN, THE TRIBUNAL AFTER INTERPRETING THE INTENT ION OF LEGISLATURE AS EXPRESSED IN THE PROVISO TO SECTION 40A(3) OF THE ACT HELD THAT THE OBJECT OF THE LEGISLATURE IS NOT TO MAKE 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. LD AR SUBMITTED THAT THE JAIPUR BENCH OF THE TRI BUNAL CONSIDERING SOMEWHAT IDENTICAL FACTS OF PURCHASE OF LAND AND CONSIDERING THE NATURE OF TRANSACTION INVOLVING ILLITERATE FARMERS FROM VILLAGES WHO INSISTED FOR CASH PAYMENT, HAS DELETED THE DISALLOWANCE MADE U/S.40A(3) OF THE ACT. LD A.R. THEREFORE S UBMITTED THAT THE DISALLOWANCE TO THE EXTENT OF 9 RS.2,70,40,050/ - SUSTAINED BY LD CIT(A) HAS TO BE DELETED CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. ON THE OTHER HAND, LD D,R. STRONGLY SUPPORTING THE ORDER OF LD CIT(A) IN THIS REGARD SUBMITTE D THAT THE PROVISIONS OF SECTION 40A(3) R.W. RULE 6DD HAVE UNDERGONE CHANGES FROM TIME TO TIME KEEPING IN VIEW THE CHANGING CIRCUMSTANCES AND THERE IS NO AMBIGUITY IN THE PROVISIONS. LD D.R. SUBMITTED THAT ASSESSEE HAVING NOT EXPLAINED WITH CLARITY WHY PA YMENTS WERE REQUIRED TO BE MADE ON SUNDAYS AND HOLIDAYS, THE DISALLOWANCE WAS JUSTIFIED. HE FURTHER SUBMITTED THAT THE PAYMENTS MADE AS REVEALED FROM THE CHART SUBMITTED BY THE ASSESSEE PLACED AT PAGES 197,200 & 202 WOULD SHOW THAT THE PAYMENTS MADE ON S UNDAYS AND HOLIDAYS ARE MUCH MORE THAN OTHER DAYS. HENCE, IT IS A MATTER OF PRACTICE BY THE ASSESSEE TO MAKE PAYMENTS ON SUNDAYS AND HOLIDAYS RATHER THAN NECESSARY REQUIR EMENTS EITHER BY WAY OF INSISTENCE BY THE LANDLORD OR ANY OTHER BUSINESS EXPEDIENCY. LD D.R. SUBMITTED THAT ASSESSAEE HAS NOT AT ALL EXPLAINED AT ANY STAGE, WHAT IS THE REQUIREMENT OF PAYMENT BEING MADE ON SUNDAYS AND HOLIDAYS. LD D.R. SUBMITTED THAT SO FA R AS APPLICABILITY OF RULE 6DD(G ) IS CONCERNED, ASSESSEE HAS NEVER RAISED THIS ISSU E BEFORE THE AO, LD D.R. SUBMITTED THAT ASSESEE HAVING ALSO FAILED TO SUBSTANTIATE BUSINESS EXPEDIENCY IN MAKING SUCH PAYMENT, THE DISALLOWANCE IS JUSTIFIED. IN SUPPORT OF THIS CONTENTION, LD D.R. RELIED UPON THE FOLLOWING DECISIONS: I) CIT VS. KESHRICH AND JAISUKHAL, 221 ITR 571(GAU) II) AGGARWAL STEEL TRADERS VS CIT & ANR, 250 ITR 758(P&H) 9. IN THE REJOINDER, LD A.R. SUBMITTED THAT ASSESSEE IN FACT DURING THE APPELLATE PROCEEDINGS BEFORE THE CIT(A) HAS SUBMITTED A DETAILED EXPLANATION EXPLAINING THE CIRCUMSTANCES UNDER 10 WHICH PAYMENTS WERE MADE , WHICH IS VERY MUCH REFLECTED IN THE ORDER OF THE CIT(A) ITSELF. IT WAS SUBMITTED BY LD A.R. THAT THE ASSESSEE FIRM IS FORMED BY THE EX - EMPLOYEES OF A REAL ESTATE CONCERN. SINCE IT WAS A START UP PERIOD, LOO KING INTO THE BUSINESS EXPEDIENCY, THEY HAD PAID ADVANCE IN CASH TO THE LANDLORDS; WHO ARE AGRICULTURALISTS IN VILLAGES SINCE ASSESSEE IS ONLY DEALING IN AGRICULTURAL LANDS. IT WAS SUBMITTED THAT SINCE OTHER DEVELOPERS WERE AL SO EXPLORING TO PURCHASE LAND ON PAYMENT OF CASH, ASSESSEE FOR THE PURPOSE OF BUSINESS INTEREST HAD TO PAY CASH ON SUNDAYS AND HOLIDAYS AS WELL AS ON OTHER DAYS ALSO KEEPING IN VIEW THE BUSINESS NECESSITY OF THE FIRM. IT WAS SUBMITTED THAT SINCE SEVERAL OTHER DEVELOPERS AND BUILDERS WERE WILLING TO PURCHASE THE LAND ON PAYMENT OF CASH, VILLAGERS WOULD NOT HAVE AGREED TO SALE THE LAND TO THE ASSESSEE UNLESS ASSESSEE PAID THE AMOUNT EVEN ON SUNDAYS AND HOLIDAYS. THEREFORE, IN THE BUSINESS INTERESTS AND LOOKING INTO THE URGENCY OF THE SITUATION, ASSESSEE HAD TO PAY THE AMOUNT IN C ASH TO THE LANDLORDS FOR SECURING THE RIGHT OVER THE LAND. 10. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE DECISIONS RELIED UPON BY BOTH THE SIDES. 11. BEFORE VENTURING INTO THE MERITS OF THE ISSUE, LET US FIRST EXAMINE THE RELEVANT PROVISIONS OF THE ACTS AND RULES. SECTION 40A: EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES: (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE.: 12. A PLAIN REA DING OF THE AFORESAID PROVISION MAKES IT CLEAR THAT THE EXPENDITURE INCURRED BY THE ASSESSEE EXCEEDING THE AMOUNT OF RUPEES TWENTY THOUSAND, IF MADE IN CASH, THEN SUCH EXPENDITURE SHALL NOT BE ALLOWED. HOWEVER, PROVI SO TO SAID SECTION MAKES AN EXCEPTION BY PROVIDING THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS 11 AND GAINS OF BUSINESS OR PROFESSION UNDER SUB - SECTION(3 ) IN SUCH A CASE AND UNDER SUCH CIRCUMSTANCES, AS MAY BE PRESCRIBE D, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. THEREFORE, ADDITION TO BE MADE UNDER SECTION 40A(3) ON PAYMENT OF CASH IS NOT AUTOMATIC OR MANDATORY. IF SITUATIO N EXISTS AS PROVIDED IN THE PROVISO TO SUB - SECTION (3) OF SECTION 40A R.W. RULE 6DD , THEN DISALLOWANCE CANNOT BE MADE UNDER SECTION 40A(3) OF THE ACT. NOW REVERTING BACK TO THE FACTS OF THE PRESENT CASE, SO FAR AS THE CONTENTION OF THE ASSESSEE WITH REGA RD TO NON - APPLICABILITY OF PROVISIONS OF SECTION 40A(3) OF THE ACT ON ACCOUNT OF PRINCIPAL AGENT RELATIONSHIP BETWEEN THE FIRM AND THE PARTNERS , THERE IS NO PURCHASE OF LAND AND THE ISSUE OF CAPITAL ASSET IS CONCERNED, WE ARE NOT INCLINED TO ACCEPT SUCH CONTENTION OF THE ASSESSEE DUE TO THE REASON S DISCUSSED IN DETAIL BY THE CIT(A). HOWEVER, SO FAR AS APPLICABILITY OF EXCEPTION PROVIDED UNDER RULE 6DD IS CONCERNED, IN OUR VIEW THE CONTENTION OF LD A.R. DESERVES TO BE CONSIDERED. AS CAN BE SEEN FROM THE DETAILS PROVIDED OF PAYMENTS MADE THROUGH THREE PARTNERS, ASSESSEE HAD PAID QUITE SUBSTANTIAL AMOUNT ON SUNDAYS AND HOLIDAYS. THEREFORE, IT IS THE CONTENTION OF THE ASSESSEE THAT EXCEPTION PROVIDED UNDER SUB - RULE (J) OF RULE 6DD SQUARELY APPLIES TO THESE PAYMENTS. THE CIT(A) HAS HOWEVER REJECTED SUCH CONTENTION OF THE ASSESSEE BY HOLDING THAT THE CONDITIONS OF SUB - RULE (J) OF RULE 6DD HAS NOT BEEN SATISFIED AS ASSESSEE HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT CASH PAYMENTS ARE REQUIRED TO BE MA DE. HOWEVER, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT PAYMENTS MADE ON SUNDAYS AND HOLIDAYS ARE COMING WITHIN THE EXCEPTION PROVIDED UNDER SUB - RULE(J) OF RULE 6DD DUE TO THE FOLLOWING REASONS: (I) SO FAR AS PAYMENTS BY THE ASSESSEE TO THE LANDLORDS ARE CONCERNED, IT IS NOT DISPUTED. (II) IT IS ALSO A FACT THAT ASSESSEE HAS IDENTIFIED RECIPIENTS TO WHOM PAYMENTS HAVE BEEN MADE. 12 (III) IT IS ALSO A FACT ON RECORD THAT THE LANDLORDS ARE AGRICULTURIST STAYING IN VILLAGES AND LANDS ARE AGRICULTURAL LAND. 13. THEREFORE, CONSIDERING THE FACT THAT THERE ARE OTHER PURCHASERS AVAILABLE TO PURCHASE THE LAND ON PAYMENT OF CASH, ASSESSEE COULD NOT HAVE POSTPONED THE DATE OF PURCHASE OR INSISTED FOR PAYMENT THROUGH CHE QUE ON SUNDAYS AND HOLIDAYS, WHICH OTHERWISE WOULD HAVE RESULTED IN A LOSS OF BUSINESS OPPORTUNITY BECAUSE THE LANDLORDS WOULD HAVE SOLD THE LAND TO MANY OTHER PROSPECTIVE BUYERS WHO ARE AVAILABLE. THEREFORE, THE EXPRESSION REQUIRE D TO BE MADE AS APPEAR S IN SUB - RULE (J) OF RULE 6DD HAS TO BE UNDERSTOOD IN THE CONTEXT OF INTENTION OF THE LEGISLATURE IN BRINGING SECTION 40A(3) ALONGWITH ITS PROVISO INTO THE ACT. ON GOING THROUGH THE OBJECT OF INTRODUCING THE AFORESAID PROVISO, IT CANNOT BE DISPUTED THAT T HE SAID PROVISO HAS BEEN BROUGHT TO THE STATUTE BOOK FOR CURBING THE CIRCULATION OF BLACK MONEY. IN THE CASE AT HAND, THERE IS NO ALLEGATION WITH REGA RD TO THE FACT THAT PAYMENTS H A VE BEEN MADE TO THE LANDLORDS FOR PURCHASE OF LAND TO WHOM ASSESSEE HAS IDENTIFIED. 14. THE HONBLE DELHI HIGH COURT IN THE CASE OF R.C.GOEL(SUPRA) WHILE INTERPRETING THE SIMILAR PROVISION AS CONTAINED IN SUB - RULE (K) OF RULE 6DD, WHERE THE EXPRESSION REQUIRED FIND PLACE, HELD AS UNDER: IN THE PRESEN T CASE, THE PREVIOUSLY NOTED DISCUSSION WOULD REVEAL THAT THE ASSESSEE ENGAGES ITSELF IN EXECUTING CATERING CONTRACTS FOR RAILWAYS IN RESPECT OF TWO TRAINS. IN THOSE TRAINS, ITS PERSONNEL ARE DEPLOYED FOR SALE OF SMALL ARTICLES OF DAILY NECESSITY AND USE T O THE PASSENGERS. PER FORCE, THE PAYMENTS RECEIVED BY THEM ARE NECESSARILY IN CASH. THESE AMOUNTS ARE COLLECTED AND IN TURN HANDED OVER TO THE ASSESSEE. THE ASSESSEE IN TERMS OF ITS CONTRACT IS BOUND TO MAINTAIN CONSTANT SUPPLIES IN THE TRAINS AND ENSURE T HAT AT NO POINT IN TIME CAN THE PASSENGERS BE DEPRIVED OF THESE ARTICLES (WHICH ARE FOOD ARTICLES, SOFT DRINKS AND OTHER ITEMS NECESSARY FOR TRAVEL). IN THE COURSE OF SUCH TRANSACTIONS, IT SOURCES THESE ARTICLES FROM M/S SHRUTI ENTERPRISES. APPARENTLY, THA T CONCERN IS ALSO A SMALL TIME ONE AND INSISTS ON CASH PAYMENTS FOR ENSURING CONTINUITY 13 AND TIMELY SUPPLIES. WHILST, THE COURT IS CONSCIOUS AND DOES NOT IN ANY MANNER WISH TO COMMENT ADVERSELY ON THE LARGER PUBLIC INTEREST ELEMENT EMBEDDED IN SECTION 40A AND THE UNDERLYING PRINCIPLE, AT THE SAME TIME, THE COURT ALSO NOTES THAT THE PROVISO SEEKS TO RELIEVE TO A CERTAIN EXTENT, THE MEASURE OF HARDSHIP WHICH MIGHT BE IMPOSED UPON SMALL BUSINESSES AND PROFESSION ALS WHO ARE ENGAGED IN ACTIVITIES AND ARE DEPENDENT ENTIRELY ON TIMELY CASH FLOW. IT IS IN SUCH CASES THAT RULE 6DD WHICH WAS FORMULATED AS A PROVISO TO SECTION 40A (3) - STEPS IN TO AID SUCH ASSESSES AND CONCERNS. IN THIS CONTEXT, THE STATUTORY MANDATE IN SECTION 6DD (K), AT LEAST IN THE C IRCUMSTANCES OF THE CASE, HAS TO BE SO CONSTRUED AS TO MEAN THAT BUT FOR THE CASH PAYMENT, THE ASSESSEE WOULD HAVE BEEN DEPRIVED THE BENEFIT OF SUPPLIES ITSELF. THIS COURT CLARIFIES THAT THE INTERPRETATION OF THE EXPRESSION 'WHO IS REQUIRED TO MAKE PAYMENT IN CASH' HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE IS FACT DEPENDENT, AT LEAST IN THE PRESENT CASE. THE CONSEQUENCE OF INSTANCES OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES IN SMALL BUSINESS WHICH ARE D EPENDENT ON SUCH SUPPLIES WOULD BE TO COMPLETELY STIFLE, IF NOT STOP, THE BUSINESS ACTIVITIES. IT IS IN THAT SENSE THAT THE EXPRESSION HAVE TO BE CONSTRUED. 15. THE HONBLE DELHI HIGH COURT ALSO IN THE CASE OF BASU DISTRIBUTORS (SUPRA) WHILE INTERPRETING THE PROVISIONS OF SECTION 40A(3) R.W.RULE 6DD(J), HELD AS UNDER: 8. IN THE PRESENT CASE, THE APPELLANT ASSESSEE HAD FILED BEFORE THE TRIBUNAL A COPY OF THEIR BANK ACCOUNT STATEMENTS AS WELL AS LEDGER ACCOUNT OF THE PARTIES TO WHOM THE PAYMENT WAS REQUIRE D TO BE MADE. IT IS APPARENT THAT THE APPELLANT - ASSESSEE WAS NOT DOING WELL IN ITS BUSINESS AND WAS FACING LIQUIDITY AND FINANCIAL CRUNCH. AN EXAMINATION OF THE BANK ACCOUNT STATEMENT SHOWS THAT WHENEVER CASH DEPOSIT WAS MADE IN THE BANK ACCOUNT, IT WAS IM MEDIATELY THEREAFTER UTILIZED TO ISSUE CHEQUES TOWARDS THE EXPENDITURE. THE EXPLANATION OF THE APPELLANT - ASSESSEE WAS THAT PAYMENTS WERE MADE IN CASH, AS PREPARATION OF A BANK INSTRUMENT OR ISSUE OF CHEQUE WOULD HAVE RESULTED IN A MISSED OPPORTUNITY OR FAI LURE OF A FAVOURABLE OR GOOD BUSINESS DEAL WITH THE THIRD PARTIES. THE PROVISIONS OF SECTION 40A (3) AND RULE 6 DD(J) HAVE BEEN INCORPORATED BY THE ACT IN ORDER TO CHECK THE THE INCURRING OF BOGUS AND FICTITIOUS EXPENSES TO NON EXISTING PARTIES. IN THE PR ESENT CASE, THE APPELLANT - ASSESSEE HAS FURNISHED EXPLANATIONS ON THE BASIS OF THE BANK STATEMENTS AS WELL AS THE LEDGER ACCOUNTS OF THE PAYEES TO SHOW THAT THE APPELLANT - ASSESSEE DID NOT HAVE SUFFICIENT CASH BALANCE. THIS POSITION IS CLEAR AND CANNOT BE DO UBTED. THE APPELLANT - ASSESSEE HAD SUBMITTED THAT IF THEY HAD FAILED TO MAKE CASH PAYMENTS, THEY WOULD HAVE BREACHED TERMS OF THE AGREEMENTS ENTERED INTO WITH THE THIRD PARTIES OR WOULD HAVE MISSED OUT ON THE BUSINESS OPPORTUNITY. IN CASES OF EARLIER BOUNCE D CHEQUES AND WHEN A PARTY IS FACING LIQUIDITY PROBLEM, IT CAN GET DIFFICULT AS THIRD PARTIES ARE RELUCTANT TO ACCEPT 14 CHEQUES AND INSIST ON CASH PAYMENTS. ARRANGING FUNDS IS ALSO A PROBLEM AND NOT EASY. IT IS SUBMITTED THAT THE ASSESSING OFFICER DID NOT DO UBT THE FUNDS AND NO ADDITION ON THIS GROUND AND REASON WAS MADE. THE STAND OF THE APPELLANT WAS THAT THE CASH WAS MADE AVAILABLE SINCE M/S. RITZ THEATRES (P) LTD. WAS HOLDING THE CASH COLLECTION OUT OF THE HIRE CHARGES. ON THE SAID ASPECT AN ORDER OF REMI T WAS PASSED BY THE TRIBUNAL AND NO ADDITION OR ADVERSE OBSERVATION WAS MADE BY THE ASSESSING OFFICER. THESE WERE RELEVANT AND MATERIAL ASPECTS WHICH WERE REQUIRED TO BE CONSIDERED AND EXAMINED BY THE TRIBUNAL BUT HAVE BEEN OVERLOOKED. KEEPING IN VIEW THE QUANTUM OF THE TOTAL AMOUNT WE WERE INITIALLY INCLINED TO REMIT THE MATTER. HOWEVER, LOOKING AT THE AVERMENTS MADE, THE ASSESSMENT YEARS IN QUESTION AND EXPLANATION GIVEN, WE REFRAIN FROM ISSUING THE SAID DIRECTION AND ACCEPT THE CONTENTION OF THE APPELLAN T. 16. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF KISHOR PROJECT (P) LTD (SUPRA) TAKING INTO CONSIDERATION THAT THE CONDITIONS EXISTS TO MAKE THE PAYMENT BY WAY OF CHEQUE OR DRAFTS NOT FEASIBLE, DELETED THE ADDITION BY APPLYING PROVISIONS CONTAINED UNDER SUB - RULE(G) OF RULE 6DD. 17. THE ITAT JAIPUR BENCH IN THE CASE OF PACL INDIA LTD (SUPRA) ON CONSIDERING THE OBJECT BEHIND SECTION 40A(3) AND RULE 6DD(J) AS WELL AS THE INTENTION OF THE LEGISLATURE IN BRINING SUCH PROVISION IN A CASE INVOLVING PURCHAS E OF LAND FROM VILLAGERS WHICH IS SOMEWHAT AKIN TO THE FACTS OF THE ASSESSEES CASE HELD AS UNDER: 29 . THE ISSUE WHICH IS BEING DISPUTED BEFORE US HAS TO BE CONSIDERED AND DECIDED IN THE LIGHT OF THE RELEVANT FACTS AND THE LEGAL POSITION WHICH EMERGES FROM THE ABOVE MENTIONED CASES. THERE IS NO GAINSAYING THAT R. 6DD(J) HAD BEEN DELETED AND THEREFORE THE BENEFIT OF THIS RULE IS NOT AVAILABLE TO THE APPELLANT - COMPANY FOR THE ASSESSMENT YEAR UNDER APPEAL. THE CLAIM OF THE APPELLANT - COMPANY RESTS ON CL. (H) OF R. 6DD WHICH HAS BEEN REPRODUCED ABOVE. THE AFORESAID CLAUSE TAKES OUT OF THE PURVIEW OF S. 40A(3) SUCH CASH PAYMENT WHICH IS MADE IN A VILLAGE OR TOWN WHICH IS NOT SERVED BY ANY BANK TO ANY PERSON WHO ORDINARILY RESIDES OR IS CARRYING ON ANY BUSINESS IN SUCH VILLAGE OR TOWN. IN THE PRESENT CASE, WHILE THE APPELLANT - COMPANY AVERS THAT PAYMENTS WERE MADE AT VILLAGES WHICH DID NOT HAVE BANKING FACILITIES, THE DEPARTMENT INSISTS THAT PAYMENTS WERE MADE AT A TOWN WHERE THE OFFICE OF THE SUB - REGISTRAR WAS LOCATED AND SUCH TOWN HAD BANKING FACILITIES. THIS INFERENCE IS ON THE BASIS OF THE FORMAT OF THE RECEIPT . THERE IS NO DISPUTE THAT THE SELLERS OF THE LAND ARE VILLAGERS ENGAGED IN FARMING ACTIVITIES AND ARE RESIDING AT PLACES AND ARE CARRYING 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 VILLAGES PRIOR TO REGISTRATION OF THE SALE. IN OUR VIEW THIS SUBMISSION CANNOT BE OUT RIGHTLY REJECTED. NORMALLY, ILLITERATE POOR FARMERS WOULD INSIST ON CAS H PAYMENTS, ESPECIALLY WHEN SUCH PAYMENTS INVOLVE HUGE AMOUNTS, AT THE PLACE OF THEIR RESIDENCE FOR THE SIMPLE REASON 15 THAT THEY WOULD LIKE TO AVOID THE RISK OF RECEIVING CASH AT THE TOWN WHERE THE SALE IS TO BE REGISTERED AND WHICH MAY BE FAR AWAY FROM THE VILLAGE 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 CONVENIENCE, IN THE RECEIPT THE PLACE IS MENTIONED AS THE TOWN WHERE THE DOCUMENT IS REGISTERED. THE AO HAS NOT MADE ANY EFFOR T 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 WE ARE INCLINED TO ACCEPT THE PROPOSITION THAT THE PAYMENTS WERE MADE AT VILLAGES WHERE BANKING FACILITIES DID N OT EXIST. 30. EVEN IF IT IS ASSUMED THAT PAYMENTS WERE MADE AT A TOWN WHERE BANKING FACILITIES WERE AVAILABLE, IN OUR VIEW, THE CASE OF THE APPELLANT - COMPANY WOULD STILL 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. AS HELD IN SEVERAL CASES REFERRED TO ABOVE, THE OBJECT OF S. 40A(3) IS NOT TO DISALLOW GENUINE PAYMENTS AND THE R. 6DD HAS TO BE INTERPRETED KEEPING IN VIEW THE OBJECT OF THE MAIN PROVISION. THE SECOND PROVIS O TO S. 40A(3) REFERS TO 'THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS', WHICH MEANS THAT THE OBJECT OF THE LEGISLATURE IS NOT TO MAKE 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 THE 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 N OT HAVE ANY BANK ACCOUNTS AT SUCH TOWN AND THEY DID NOT RESIDE OR CARRY ON ANY BUSINESS OR FARMING ACTIVITY AT SUCH TOWN. THE AO AND THE LEARNED CIT(A) HAVE OBSERVED THAT THE APPELLANT - COMPANY COULD HAVE OPENED BANK ACCOUNTS AT SUCH TOWN IN THE NAME OF THE SELLERS. IN OUR VIEW, IT WOULD BE TOO MUCH TO EXPECT THAT THE APPELLANT - COMPANY WOULD BE ABLE TO COMPEL THE VILLAGERS 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), IN OUR VIEW 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 HAD BEEN MADE. IT IS NOTABLE THAT R.6DD(K) PROVIDES AN EXCEPTION IN RESPECT OF CASH PAYMENT WHICH IS MADE ON A DAY ON WHICH 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 FOR ABSENCE OF BANKING FACILITIES. RULE 6DD(H) MUST BE INTERPRETED KEEPING IN VIEW THIS OBJECT AND PURPOSE. 16 18. IN THE PRESENT CASE, THERE IS NO DENYING THE FACT THAT PERSONS TO WHOM PAYMENTS WERE MADE IN CASH ARE VILL AGERS A ND MAY NOT BE HAVING BANK ACCOUNTS. IT IS ALSO A FACT THAT PAYMENT HAS TO BE MADE TO THEM IMMEDIATELY TO SECURE THE LANDS IN QUESTION WHICH MAY REQUIRE THE PAYMENTS TO BE MADE IN CASH ON HOLIDAYS AND SUNDAYS, OTHERWISE, THEY WOULD HAVE SOLD THE LANDS TO SOME OTHER PERSONS. IN THESE CIRCUMSTANCES, IF THE ASSESSEE WOULD HAVE INSISTED FOR PAYMENT BY WAY OF CHEQUE OR DD OR HAVE DEFERRED IT , IT MIGHT HAVE RESULTED IN A LOSS OF BUSINESS OPPORTUNITIES AS THE LAND OWNERS WOULD NOT HAVE AGREED TO SALE THE LANDS TO THE ASSESSEE. THEREFORE, THE EXPRESSION REQUIRED TO BE MADE UNDERSTOOD IN THIS CONTEXT AND KEEPING THE INTENTION OF LEGISLATURE IN MIND CAN BE CONSTRUED TO MEAN THAT PAYMENTS REQUIRED TO BE MADE FOR THE PURPOSE OF THE BU S IN E SS OF THE ASSESSEE. IN THESE CIRCUMSTANCES , PAYMENTS MADE ON SUNDAYS AND HOLIDAYS HAVE TO BE HELD TO BE COMING WITHIN THE AMBIT OF RULE 6DD(J), HENCE PROVISIONS OF SECTION 40A(3) WILL NOT APPLY TO SUCH PAYMENTS. THEREFORE, PAYMENTS MADE IN CASH ATLEAST TO THE EXTENT MADE ON SUNDAYS AND HOLIDAYS CANNOT BE DISALLOWED U/S.40A(3) OF THE ACT. WE, THERE FORE, DIRECT THE AO TO VERIFY SUCH PAYMENTS MADE ON SUNDAYS AND HOLIDAYS AND DELETE THE ADDITION OF THESE AMOUNTS. 19. SO FAR AS ADDITION OF THE REST OF THE AMOUNT SUSTAINED BY THE CIT(A) IS CONCERNED, THOUGH ASSESSEE HAS STATED THAT SUCH PAYMENTS COME WITHIN THE AMBIT OF SUB - RULE(G) OF RULE 6DD, HOWEVER, ASSESSEE IS REQUIRED TO SUBSTANTIATE THE FACT BY PRODUCING CREDIBLE EVIDENCE THAT THERE IS NO BANKING FACILITIES AVAILABLE IN THOSE AREAS TO WHOM PAYMENTS WERE MADE, ORDINARILY RESIDES OR NOT CARRYING ON ANY BUSINESS OR PROFESSION. THEREFORE, TO THAT EXTENT WE REMIT THE MATTER BACK TO THE FILE OF THE AO WHO SHALL VERIFY THIS ASPECT AND DECIDE THE ISSUE ACCORDINGLY. THE RATIO LA ID DOWN IN THE DECISIONS RELIED UPON BY THE LD D.R. DO NOT APPLY TO THE FACTS OF THE PRESENT CASE. IN THE CIRCUMSTANCES, GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 17 20. SO FAR AS DEPARTMENTS APPEAL IS CONCERNED, ON PERUSAL OF FACTS ON RECORD, IT I S REVEALED THAT THE CIT(A) HAS DELETED THE ADDITION SINCE PAYMENTS WERE FOUND TO BE MADE THROUGH ACCOUNT PAYEE CHEQUES TO THE PERSONS CONCERNED, WHO IN TURN HAVE WITHDRAWN FROM THEIR BANK AND PAID TO THE LANDLORDS IN CASH. IT IS RELEVANT TO NOTE THE OBSER VATIONS MADE BY THE CIT(A) IN THIS REGARD , WHICH IS AS UNDER: 6.8.8. WITH REGARD TO THE PAYMENTS OF RS.2,32,20,500/ - , MADE TO THE LANDLORDS THROUGH THE MEDIUM OF OTHER PERSONS, OTHER THAN THE PARTNERS, FIRM OR EMPLOYEES OF THE FIRM, IT IS SEEN THAT CHEQUE PAYMENTS HAVE BEEN MADE BY THE APPELLANT THROUGH BANKING CHANNELS AND THE SAME HAVE BEEN WITHDRAWN AND PAID IN CASH TO THE LANDLORDS. IT IS SEEN THAT THE APPELLANT HAS FURNISHED BANK ACCOUNT COPIES, TDS PARTICULARS AND PERMANENT ACCOUNT NUMBERS [PANS) OF THE THIRD PARTIES. FURTHER, IN RESPECT OF SUCH THIRD PARTIES, NO CASE HAS BEEN MADE BY THE ASSESSING OFFICER TO EITHER PROVE THAT THE SAID PERSONS WERE EMPLOYEES OR AGENTS OF THE APPELLANT THE AMOUNTS HAVE BEEN PAID THROUGH THE BANKING CHANNELS BY THE APPE LLANT TO SUCH OTHER PERSONS AND HAVE BEEN SUBSEQUENTLY, WITHDRAWN IN CASH AND PAID TO THE LANDLORDS BY THEM. AS FAR AS SUCH PAYMENTS ARE CONCERNED, I HOLD THAT THE PROVISIONS OF SECTION 40A[3] OF THE ACT, WOULD NOT BE ATTRACTED AS PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNELS BY WAY OF CHEQUE TO THIRD PARTIES. THE APPELLANT CANNOT BE FAULTED, IF SUCH THIRD PARTIES WITHDRAW THE AMOUNTS AND PAY THE SAME BY WAY OF CASH TO THE LANDLORDS. IN ABSENCE OF ANY AGREEMENT OF AGENCY OR EMPLOYER - EMPLOYEE R ELATIONSHIP WITH THE APPELLANT, SUCH THIRD PARTIES HAVE TO BE REGARDED AS INDEPENDENT ENTITIES AND THERE ACTIONS IN PAYMENT OF CASH TO THE LANDLORDS CANNOT BE EQUATED AS PAYMENTS MADE BY THE APPELLANT ITSELF IN CASH TO THE LANDLORDS. IN VIEW OF THE SAME, A DDITION TO THE EXTENT OF RS.2,32,20,500/ - , RELATING TO SUCH PAYMENTS IS HEREBY DELETED. 21. ON GOING THROUGH THE FINDINGS OF THE CIT(A), AS EXTRACTED HEREINABOVE, WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER TO INTERFERE WITH THE SAME . IT IS NOT O NLY A FACT THAT ASSESSEE HAS PAID THE AMOUNT OF RS.2,32,20,500/ - TO THIRD PARTIES BUT SUCH PAYMENTS HAVE ALSO BEEN MADE THROUGH CHEQUES. THE ASSESSEE HAS ALSO FURNISHED BACK ACCOUNT COPIES, TDS PARTICULARS, PAN OF THE SAID PARTIES. THEREFORE, THE ENTIRE TRANSACTIONS HAVING BEEN MADE THROUGH PROPER BANKING CHANNEL IS TRANSPARENT. O NLY BECAUSE THIRD PARTIES HAVE WITHDRAWN THE AMOUNT AND PAID THE SAME IN CASH TO LANDLORDS, ASSESSEE CANNOT BE BROUGHT WITHIN THE MISCHIEF OF SECTION 40A(3) OF THE ACT. ACCORDI NGLY, WE CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. 22. WITH REGARD TO THE DEPARTMENTS CONTENTION THAT THE AO HAS NOT BEEN AFFORDED AN OPPORTUNITY AS PER PROVISIONS OF RULE 46A OF I.T.RULES, ON PERUSAL OF THE IMPUGNED ORDER, WE OBSERVE THAT LD CIT(A) A FTER TAKING INTO CONSIDERATION THE BANK ACCOUNT COPIES, TDS PARTICULARS 18 AND PAN OF THE THIRD PARTIES, WHICH WERE ALSO SUBMITTED BEFORE THE AO, HAS COME TO THE CONCLUSION THAT THE AMOUNTS HAVE BEEN PAID THROUGH THE BANKING CHANNELS BY THE ASSESSEE AND DELET ED THE ADDITION MADE TO THAT EXTENT. IN VIEW OF THIS, WE DO NOT FIND ANY SUBSTANCE IN THE CONTENTIONS OF THE DEPARTMENT. ACCORDINGLY, THE GROUND RAISED IS DISMISSED. . 23 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 /12/2013 . SD/ - S D/ - (B.RAMAKOTAIAH ) ( SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER VISHAKH APATNAM DATED 11 / 12/2013 PARIDA , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE: VIRUPA TOWNSHIPS, C/O. C.SUBRAHMANYAM, CA, 102, LAKSHMI APARTMENT, FACOR LAYOUT, WALTAIR UPLANDS, VISAKHAPATNAM 2. THE RE VENUE: ACIT, RANGE - 2, VIJAYAWADA. 3. THE CIT(A) - VIJAYWADA 4. CIT CONCERNED 5. DR, ITAT, VISHAKHAPATNAM 6. GUARD FILE. BY ORDER SR.PS, ITAT, VISHAKHAPATNAM //TRUE COPY//