The Dy. Commissioner of Income-tax, Bathinda V. Sh. Gurdass Garg, Bathinda

ITA 456/ASR/2013

• Counselvise Citation: 45620914 RSA 2013
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 19-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Deemed to accrue or arise in india; Commercial expediency
• Section: 69C; 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.456(ASR)/2013 ASSESSMENT YEAR:2009-10 PAN :ADUPG2359M DEPUTY COMMISSIONER OF INCOME TAX, VS. SH. GURDAS G ARG, CIRCLE-1, BATHINDA. AMRIK SINGH ROAD, BATHINDA. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. MAHAVIR SINGH, DR RESPONDENT BY:SH.VINEET KRISHAN, ADVOCATE DATE OF HEARING: 22/01/2014 DATE OF PRONOUNCEMENT:28/02/2014 ORDER PER BENCH ; THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER OF CIT(A), BATHINDA DATED 19.03.2013 FOR THE ASSESSMENT YEAR 2009-10.TH E REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THE CIT(A) ERRED BOTH IN LAW AND FACTS IN DELET ING THE DISALLOWANCE OF INTEREST PAID TO BANKS WHEN NO INTE REST WAS BEING CHARGED ON NON-BUSINESS ADVANCES, PROPORTIONA TELY AT RS.7,76,043/- AND IN NOT APPRECIATING THAT THE ADVA NCES WERE NOT BEING MADE IN COMMERCIAL EXPEDIENCY AND THE F ACT THAT THESE ADVANCES WERE MADE TO SUCH PERSONS AS HAD NO BUSINESS ITA NO.456(ASR)/2013 2 DEALINGS WITH THE ASSESSEE, NOTICEABLY FOR SHORT PE RIODS DURING THE YEAR, SO THAT THE ADVANCES WERE ALL SQUARED UP DURING THE YEAR AND DID NOT FIND ANY PLACED IN THE ASSET SIDE OF THE BALANCE SHEET OF THE ASSESSEE, SO THAT IT CAN BE REASONABLY CONSTRUED THAT THE ASSESSEE LENT THE MONEYES FOR BENEFITS WHICH C AN ONLY BE CALLED PERSONAL AND THE WANT OF FUNDS FOR BUSINESS DUE TO SUCH ADHOC LENDING, HAS OBVIOUSLY BEEN MET OUT OF INTER EST BEING LOANS (OVER DRAFTS) WHICH WERE UTILIZED EVEN DURING THE PERIOD THE SAME FUNDS WERE LENT OUT OF THE CASH KITTY OF T HE BUSINESS OF THE ASSESSEE. 2. THE CIT(A) ERRED BOTH IN LAW AND FACTS IN DELETI NG THE DISALLOWANCE U/S 40A(3) MADE AT RS.33,71,275/- BY F AILING TO APPRECIATE THAT THE ASSESSEE HAD MADE PAYMENT OF RS.33,71,275/- IN CASH FOR PURCHASE OF PROPERTY WHI CH WAS HIS STOCK IN TRADE, AND WAS THUS STRUCK BY THE PROVISI ONS OF SECTION 40A(3) OF THE ACT AND THAT THE ASSESSEE CANNOT TAKE SHELTER OF THE PROVISO TO SECTION 40A(3) WHICH PROVIDES THAT N O DISALLOWANCE IS TO BE MADE WHERE THE EXPENDITURE HA S BEEN UNDER CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OT HER RELEVANT FACTORS.. BY MIS-INTERPRETING THE PROVISI ONS OF SECTION 40A(3) IN SO FAR AS IT MANDATES THAT IT IS NOT THAT ANY BUSINESS EXPEDIENCY WOULD BE SUFFICIENT TO CIRCUMVENT THE R IGORS OF SECTION 40A(3) AS ONLY THE PRESCRIBED CASES AND CIR CUMSTANCES WERE TO BE TREATED AS BUSINESS EXPEDIENCY AS MAND ATED ONLY IN RULE 6DD (A) TO 6DD(I) OF THE I.T. RULES, 1962 W HILE THE CASE OR CIRCUMSTANCE OF THE ASSESSEES IMPUGNED TRA NSACTION IS NOT FOUND COVERED IN ANY OF THE INSTANCES CLEARLY D ETAILED IN RULE 6DD(A) TO (I). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS DOING BUSINESS OF TRADING IN PROPERTIES IN HIS INDIVIDUAL NAME AND TR ADING OF CLOTHES UNDER THE NAME AND STYLE OF M/S. GURDAS EXPORTS AS PROPRIETO RY CONCERN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED TH AT THE ASSESSEE WAS AVAILING LIMIT/LOAN FACILITY FROM ALLAHABAD BANK OF RS.10,00,000/- AND FROM ITA NO.456(ASR)/2013 3 INDIABULLS FINANCIAL SERVICES LIMITED OF RS.61,00,0 00/- BY PLEDGING IMMOVABLE ASSETS. THE LOAN/LIMIT FACILITY HAS BEEN AVAILED BY PAYING INTEREST @ 15.75% FROM ALLAHABAD BANK AND @ 22.25% FROM INDI ABULLS FINANCIAL SERVICES LTD. DURING THE YEAR, INTEREST PAYMENTS HA VE BEEN MADE TO THE TUNE OF RS.14,19,629/- IN TRADING OF REAL ESTATE BUSINES S AND RS.2,41,996/- IN CLOTH TRADING BUSINESS BUT INTERESTINGLY THE ASSESSEE DID NOT CHARGE ANY INTEREST ON THE FOLLOWING LOANS ADVANCED: SL.NO. NAME OF THE PERSON AMOUNT DATE OF ADVANCE DATE ON WHICH PAYMENT WAS RECEIVED BACK 1. SH.SUNIL KUMAR BANSAL S/O SH. GIRDHARI LAL, BATHINDA, 18,00,000 27,00,000 03.12.2008 04.12.2008 24.03.2009 24.03.2009 2. SH. SUBHASH GOYAL C/O M/S. SUBHASH AUTO HOME, BATHINDA 11,00,000 05.09.2008 30.03.2009 3 M/S. NEHA ENTERPRISES PROP. SH. TARLOCHAN KUMAR S/O SH.RAJ KUMAR, BATHINDA. 5,00,000 01.04.2008 16.04.2008 4. SMT. SEEMA MITTAL 5,00,000 15.09.2008 19.03.2009 5. SMT. ANU 1,79,200/- 01.04.2008 06.03.2009 6. M/S. SAREE PALACE 30,00,000/- 01.04.2008 06.03.2 009 THE ASSESSEE WAS SHOW CAUSE VIDE LETTERS DATED 13.0 9.2011 AND 10.10.2011 AS TO WHY THE RATIO OF JUDGMENT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1 AND JUDGMENT OF HONBLE SUPREME CO URT IN THE CASE OF S. A. BUILDERS LTD. VS. CIT 288 ITR 1 BE NOT APPLIED A ND DEDUCTION CLAIMED TOWARDS INTEREST PAYMENT IS DISALLOWED PROPORT IONATELY. ITA NO.456(ASR)/2013 4 THE ASSESSEE FILED REPLY ON 19.10.2011 WHICH IS RE PRODUCED IN AOS ORDER AT PAGES 2 TO 5. THE AO OBSERVED THAT THE REPLY OF THE ASSESSEE IS NOT TENABLE AS THE ASSESSEE HAS FAILED TO ESTABLISH BUS INESS RELATION WITH THE DEBTORS. THEREFORE, THE ISSUE UNDER EXAMINATION HAS BEEN DECIDED BY BANKING UPON THE VERDICT OF HONBLE SUPREME COURT I N THE CASE OF S.A. BUILDERS VS. CIT AND ANOTHER (SC) [2007] 288 ITR 1 WHEREIN IT WAS HELD THAT INTEREST ON BORROWED CAPITAL CAN BE PROPORTIONATELY DISALLOWED IN CASE INTEREST FREE LOANS ARE GIVEN TO THE PERSONS WITHOU T COMMERCIAL EXPEDIENCY . THE APEX COURT HAS MADE A REFERENCE OF THE CASE OF MADHAV PARSAD JANTIA VS. CIT UP REPORTED IN AIR 1979 SC 1291 WHERE IT WA S HELD THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS OCCURRING UNDER THE PROVISION IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOS E OF EARNING INCOME, PROFITS OR GAINS, AND THIS HAS BEEN THE CONSISTENT VIEW OF THE COURT. IT IS, THEREFORE, EXTREMELY IMPORTANT THAT THE BORROWED AM OUNT IS ADVANCED TO ANY PERSON INCLUDING A SISTER CONCERN FOR THE PURPOSE O F BUSINESS. FURTHER, THE COURT HAS HELD THAT THE ELEMENT OF COMMERCIAL EXPED IENCY IS OF PARAMOUNT IMPORTANCE AND IF THERE IS NO BUSINESS CONNECTION O R NO TRANSACTIONAL CONNECTION WITH THE PERSON TO WHOM THE LOAN HAS BE EN ADVANCED WITHOUT CHARGING ANY INTEREST, IT CANNOT BE SAID THAT THE A SSESSEE HAS USED THE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS. THE INT EREST PAID TO THE PERSON ITA NO.456(ASR)/2013 5 FROM WHOM THE LOANS WERE BORROWED CANNOT BE TREATE D AS AN EXPENDITURE FOR THE PURPOSE OF BUSINESS BEING ON A WEAK FOOTING. IN THE INSTANT CASE THE ASSESSEE TOOK LOANS FROM ALLAHABAD BANK (RS.10 LACS ) AND INDIA BULLS FINANCIAL SERVICES LTD. (RS.61 LACS ) AND PAID INTE REST @ 15.75% AND 22.25% RESPECTIVELY. OUT OF THIS MONEY AND THE MONE Y AVAILABLE WITH THE ASSESSEE, HE ADVANCED LOANS TO SUCH PERSONS WITH WH OM HE DID NOT HAVE REGULAR BUSINESS CONNECTION NOR THERE WAS ANYTHING TO SHOW THE COMMERCIAL EXPEDIENCY OR URGENCY. THE APEX COURT HAS STRESSED ON THE TERM COMMERCIAL EXPEDIENCY WHICH HAS TO BE UNDERSTOOD I N COMMON PARLANCE. THE WORD COMMERCE RELATES TO SOME ADVENTURE OF EX CHANGE OF GOODS FOR A PRICE WHERE AN ELEMENT OF PROFIT IS EMBEDDED. IF THERE IS NO MOTIVE TO EARN PROFIT, THE WORD COMMERCE LOSES ITS MEANING. THE SE COND WORD USED BY THE APEX COURT IS EXPEDIENCY WHICH MEANS THAT THERE W AS AN URGENCY OR NECESSITY IN THE DIRECTION OF PROMOTION OF TRADE TO EARN PROFITS AS WELL AS TO PROLIFERATE THE ACTIVITIES OF BUSINESS. THE ASSESS EE HAD PLEDGED HIS ASSETS BY PAYING HUGE INTEREST BUT DID NOT CHARGE ANY MO NEY ON SUCH MONEY WHICH IS NOT EASY TO PROCURE FROM BANKS. THE ASSESS EE ALSO RUNS A GREAT RISK OF LOSING ALL THE PLEDGED ASSETS IN CASE THE LOAN FAILS. IT IS, THEREFORE, INCOMPREHENSIBLE THAT THE ASSESSEE I S NOT EARNING ANY MONEY BY USING THIS MONEY AND DID NOT CHARGE INTEREST FROM THEM. THIS IS A ITA NO.456(ASR)/2013 6 STRANGE CONDUCT OF A BUSINESS WHERE HE SEEMS TO BE DOING CHARITY INSTEAD OF BUSINESS. SIMILAR IN THE RATIO OF JUDGMENT OF HONB LE P & H IN THE CASE OF M/S. ABHISHEK INDUSTRIES, 286 ITR 1 (P&H) READ WITH JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT (SUPRA) IN THE INSTANT CASE, THE ASSESSEE HAS FAILED TO PROVE WHET HER THERE WAS ANY COMMERCIAL EXPEDIENCY IN ADVANCING THE INTEREST FRE E LOANS. IN FACT, THE ASSESSEE HAS NOT EVEN CLAIMED THAT THE AFORESAID LO ANS WERE GIVEN FOR THE PURPOSE OF BUSINESS OR THAT THERE WAS ANY COMMERCIA L EXPEDIENCY IN ADVANCING THE SAME. IT IS ALSO NOTICED THAT THE AS SESSEE HAS TAKEN AMOUNTS OF SECURED LOAN FROM BANKS AND OTHER PARTIES ON WHICH HEAVY INTEREST WAS PAID I.E. UPTO 22.25% PER ANNUM AND IMMOVABLE ASSETS WER E PLEDGED. THEREFORE, APPLYING THE RATIO OF JUDGMENT IN THE CASE OF M/S. ABHISHEK INDUSTRIES 286 ITR 1 (P&H) READ WITH JUDGMENT OF HONBLE SUPREME C OURT IN THE CASE OF S.A. BUILDERS VS. CIT (SUPRA) AN AMOUNT OF RS.7,76, 043/- HAS BEEN DISALLOWED AS EXPENDITURE. THE WORKING OF INTEREST @ 15.75% ON THE LOANS GIVEN WITHOUT ANY COMMERCIAL EXPEDIENCY IS GIVEN BE LOW. THE INTEREST RATE HAS BEEN CALCULATED AT THE MINIMUM RATE OF INTEREST PAID TO THE BANKING INSTITUTIONS ON THE LOANS ADVANCED IN THE INTEREST OF NATURAL JUSTICE.: S.NO. NAME OF THE PERSON DATE DEBIT BALANCE DATE OF CREDIT CREDIT AMOUNT INTEREST @ 15.875% ITA NO.456(ASR)/2013 7 1. SH.SUNIL KUMAR BANSAL S/O SH. GIRDHARI LAL BHATINDA 3.12.2008 04.12.2008 18,00,000 27,00,000 24.3.2009 24.3.2009 1,800,000 2,700,00 212.625 2. SH.SUBHASH GOYAL C/O M/S. SUBHASH AUTO HOME, BATHINDA 05.09.2008 1,100,000 10.03.2009 1,00,000 97,694 3. M/S. NEHA ENTERPRISES PROP. SH TIRLOCHAN KUMAR S/O SH. RAI KUMAR BATHINDA 01.04.2008 500,000 16.04.2008 500,000 3.281 4. SMT. SEEMA MITTAL 500.000 1.094 5. SMT. ANU 179.200 28.224 6. M/S. SAREE PALACE 01`04.2008 3,000,000 06.03.200 9 3,00,000 433.133 776,043 GOING BY ABOVE MENTIONED FACTS, IT WAS HELD THAT T HE PROFITS HAVE BEEN COMPROMISED BY NOT CHARGING OF INTEREST FROM LOANS ADVANCED TO DIFFERENT DEBTORS WHICH HAVE NO BUSINESS EXPEDIENCY AND HEAV Y INTEREST HAVE BEEN PAID TO THE BANK AND OTHER FINANCIAL INSTITUTIONS. THE FACTS AND CIRCUMSTANCES OF THE CASES MENTIONED IN THE PLEA OF THE COUNSEL I N HIS REPLY ARE ENTIRELY DISTINGUISHABLE AND NOT RELEVANT TO THE CIRCUMSTAN CES OF THE PRESENT CASE. THE REPLY OF THE ASSESSEE WAS NOT FOUND PLAUSIBLE. THE RATIO OF THE JUDGMENT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1 READ WITH JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD. VS. CIT (APPEAL) AND OTHERS (288 ITR 1) IS SQUARELY APP LICABLE IN THIS CASE. IN ITA NO.456(ASR)/2013 8 VIEW OF ABOVE, AN ADDITION OF RS.7,76,043/- WAS MAD E ON ACCOUNT OF NON CHARGING OF INTEREST FROM DEBTORS. 3. AS REGARDS THE SECOND ADDITION MADE BY THE AO, T HE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDIN GS THE DETAIL OF CLOSING STOCK AS ON 31.03.2009 ALONG WITH SALES/PURCHASE DU RING THE YEAR WAS OBTAINED FROM ASSESSEE AND PLACED ON RECORD. IT WAS NOTICED THAT THE ENTIRE PURCHASES IN RESPECT OF PROPERTIES WERE MADE IN CAS H AND TITLE DEEDS WERE REGISTERED WITH REGISTRAR OF REVENUE DEPARTMENT EXC EPT PURCHASE OF ONE PROPERTY AMOUNTING TO RS.8,86,175/- WHICH WAS MADE THROUGH DEMAND DRAFT. THE PAYMENT OF CASH IN THE PURCHASE OF STOCK IN TRA DE ATTRACTS PROVISIONS OF SECTION 40A(3) OF THE ACT AND SUCH PAYMENTS ARE LIA BLE TO BE DISALLOWED. SUPREME COURT OF INDIA HAS VIDE ITS DECISION DATED 07.08.1991 IN THE CASE OF ATTAR SINGH GURMUKH SIGH VS. ITO (SC) 191 ITR 667 (SC), 97 CTR 251 (SC) HAS HELD THAT ALL SUCH EXPENSES SHALL BE DISAL LOWED WHERE THERE WERE NO EXIGENT REASONS TO MAKE PAYMENT OTHERWISE THAN A CR OSSED CHEQUE OR BANK DRAFT. THE TITLE DEEDS WERE REGISTERED AT A PLACE I .E. BATHINDA, WHICH IS WELL SERVED BY THE BANKING FACILITIES. THE STRENGTH OF R ULE 6DD ALSO DOES NOT PROVIDE SUPPORT AS BOTH BUYER AND SELLERS ARE WELL VERSED WITH LOCAL BANKING CONDITIONS AND THERE IS NOTHING TO SHOW ANY EMERGEN T NEED TO EXECUTED THE DEEDS FOR SUCH BIG AMOUNTS. THE HONBLE SUPREME CO URT SAID IT WILL BE ITA NO.456(ASR)/2013 9 CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RUL E 6DD THAT THEY ARE INTENDED TO REGULATE THE BUSINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLAC K MONEY FOR BUSINESS TRANSACTIONS . IN MUDIAM OIL COMPANY VS. ITO (1973) 92 ITR 519 A.P. IF THE PAYMENT IS MADE BY A CROSSED CHEQUE DRAWN ON A BANK OR A CROSSED BANK DRAFT THEN IT WILL BE EASIER TO ASCERTAIN, WHEN DED UCTION IS CLAIMED, WHETHER THE PAYMENT WAS GENUINE AND WHETHER IT WAS OUT OF T HE INCOME FROM DISCLOSED SOURCES. IN INTERPRETING A TAXING STATUTE THE COURT CANNOT BE OBLIVIOUS OF THE PROLIFERATION OF BLACK MONEY WHICH IS UNDER CIRCULATION IN OUR COUNTRY. ANY RESTRAIN INTENDED TO CURB THE CHAN CES AND OPPORTUNITIES TO USE OR CREATE BLACK MONEY SHOULD NOT BE REGARDED AS CURTAILING THE FREEDOM OF TRADE OR BUSINESS. THE CLOSING STOCK OF PROPERT IES HAS BEEN SHOWN AS STOCK IN TRADE AS IS EVIDENT FROM BALANCE SHEET WHI CH HAS DULY BEEN ATTESTED BY THE CHARTERED ACCOUNTANT THE OPPORTUNITY OF BEIN G HEARD WAS AFFORDED TO THE ASSESSEE VIDE LETTER DATED 13.09.2011. 4. THE ASSESSEE SUBMITTED THE REPLY WHICH IS AVAILA BLE AT PAGES 8 TO 14 OF AOS ORDER. THE AO CONSIDERED THE REPLY OF THE ASSE SSEE AND SUBMITTED THAT IT IS CORRECT THAT PAYMENT OF RS.1,78,150/- HAS BEE N MADE TO THE GOVERNMENT ON ACCOUNT OF PURCHASE OF STAMP PAPERS FOR REGISTR ATION OF SUCH TITLE DEEDS OF THE SAID PROPERTIES BUT NO EVIDENCE REGARDING PA YMENT TO THE ARJI NAVIS ITA NO.456(ASR)/2013 10 FOR DRAFTING/WRITING THE REGISTRATION DEEDS HAS BEE N FURNISHED. HENCE, THE VALUE OF RS.1,78,150/- MADE ON ACCOUNT OF PURCHAS E OF STAMP DUTY PAPERS IS LIABLE TO BE DEDUCTED FROM THE VALUE OF STOCK BY CO NSIDERING THE CONTRAVENTION OF VIOLATION OF SECTION 40A(3) HAS N O WEIGHTAGE AS THE ASSESSEE IS MAINTAINING MANY NUMBER OF BANK ACCOUNT S AND MOST OF THE TITLE DEEDS HAVE BEEN REGISTERED WITH THE REGISTRAR, BATH INDA WHICH IS THE PLACE WHERE HIS OFFICE AS WELL AS RESIDENCE IS SITUATED. MOREOVER, THE SELLERS OF THE LAND/PROPERTIES ARE ALSO RESIDENTS OF BATHINDA. HEN CE THERE IS NO POSSIBILITY OF EMERGENCY OR BUSINESS DIFFICULTY BY PREPARING AN D ISSUING DEMAND DRAFTS TO THE SELLERS. THESE DAYS EVERYONE IS MAINTAINING BANK ACCOUNTS AND NO ONE CAN DENY TO RECEIVE THE DEMAND DRAFT, NOR HE MAY HA VE ANY COMPLICATION OR DIFFICULTY IN PREPARING OR ENCASHMENT OF THE INSTRU MENT. NO HARDSHIP SEEMS TO BE THERE IN PURCHASING OF DEMAND DRAFT OR MAKING PAYMENT ORDER ETC. HENCE, THE PLEA TAKEN BY THE ASSESSEE IS DEVOID OF LOGICAL FORCE. THE ASSESSEE HAS BROUGHT NOTHING ON RECORD TO SHOW THAT HE MADE SLIGHTEST OF EFFORTS TO CONVINCE THE SELLERS TO ACCEPT THE PAYMENTS BY CHE QUE/DEMAND DRAFT NOR HE COULD PRODUCE ANY EVIDENCE THAT THE SELLERS OF LAND REFUSED TO ACCEPT CHEQUES/DEMAND DRAFTS. THE REAL ESTATES DEALS ARE SUCH THAT IT NORMALLY TAKES 2-3 MONTHS TO COMPLETE A DEAL AND THERE IS H ARDLY ANY EMERGENCY OF ANY SORT WITH SUCH A LONG TIME AVAILABLE WITH THE ASSESSEE. BANK DRAFTS CAN ITA NO.456(ASR)/2013 11 BE EASILY PREPARED. THERE MIGHT BE A CHANCE OF A CH EQUE GETTING BOUNCED BUT A DEMAND DRAFT IS AS GOOD AS CASH AND CAN BE CREDIT ED TO THE BANK A/C OF SELLER IN ONE DAY. THE CONDUCT OF BOTH BUYER AND SE LLERS IS NOT ABOVE SUSPICION AND THE CIRCUMSTANCES CLEARLY INDICATE TH AT NO EFFORT WAS MADE TO CONVINCE THE SELLERS OF LAND TO ACCEPT CROSSED CHEQ UES/DEMAND DRAFTS NOR ANYTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO SUBSTANTIATE HIS CLAIM. IT IS FOR THE ASSESSEE TO PROVE THAT THERE W ERE EXCEPTIONAL CIRCUMSTANCES TO MAKE CASH PAYMENT TO PURCHASE ST OCK-IN-TRADE. THE CASE LAWS REFERRED TO BY THE ASSESSEE ARE DISTI NGUISHABLE WITH THE FACTS OF THE PRESENT CASE AND THESE ARE NOT APPLICABLE IN THE CIRCUMSTANCES OF THE CASE. THE RATIO OF JUDGMENT OF SUPREME COURT IN THE CASE OF M/S. ATTAR SINGH GURMUKH SINGH VS. ITO (SUPRA) IS APPLICABLE I N THIS CASE. HENCE, THE EXPENDITURE MADE BY WAY OF CASH PAYMENT IN PURCHAS E OF STOCK IN TRADE WAS DISALLOWED AND ADDITION OF RS.33,71,275/- (RS.35,49 ,425/- MINUS RS.1,78,150/-) WAS MADE ON THIS ACCOUNT. 5. THE LD. CIT(A) ACCEPTED THE EXPLANATION OF THE ASSESSEE AND DELETED BOTH THE ADDITIONS MADE BY THE AO VIDE ORDER DATED 19.03.2013. 6. THE LD. DR ARGUED THAT THE AO FOUND THAT WHILE THE ASSESSEE WAS PAYING INTEREST TO BANKS AND SOME OTHER PARTIES, NO INTEREST HAD BEEN CHARGED BY HIM ON LOANS TO SOME PERSONS. RELYING ON THE RAT IO OF THE JUDGMENT OF THE ITA NO.456(ASR)/2013 12 JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISHEK I NDUSTRIES 286 ITR 1 HE DISALLOWED THE CLAIM OF INTEREST EXPENSES PROPORTIO NATELY AT RS.7,76,043/-. ALSO RELIANCE WAS PLACED ON THE JUDGMENT OF APEX CO URT IN THE CASE OF S.A. BUILDERS 288 ITR 1, IN SO FAR AS IT IS CLEAR THAT T HE ADVANCES WERE NOT MADE IN COMMERCIAL EXPEDIENCY. THE LD. CIT(A) NOTED TH AT THOUGH THE ASSESSEE HAD FOREGONE INTEREST ON SOME OF THE INTEREST FREE ADVANCES HE HAD MADE TO SOME PERSONS, HE HAD ALSO NOT PAID INTEREST TO MANY OF THE PERSONS FROM WHOM HE HAD AVAILED OF INTEREST FREE LOANS. THUS, H E WAS HAVING ENOUGH OF INTEREST FREE BORROWINGS AT ITS DISPOSAL. HE ACCEPT ED A SUBMISSION OF THE ASSESSEE SHOWING DEEMED INTEREST NOT PAID ON INTERE ST FREE LOANS AT RS.10,20,360/- VIS--VIS FOREGONE INTEREST ON INTER EST FREE ADVANCES GIVEN AT RS.6,30,380/-. IT WAS ACCORDINGLY HELD BY HIM THAT THE ASSESSEE HAD ENOUGH OF INTEREST FREE BORROWINGS AS ITS DISPOSAL. THE F ACTS HAVE NOT BEEN CORRECTLY APPRECIATED BY THE LD. CIT(A). IT IS A FACT THAT TH ESE ADVANCES WERE MADE TO SUCH PERONS AS HAD NO BUSINESS DEALINGS WITH THE AS SESSEE FOR A SHORT PERIODS DURING THE YEAR, SO THAT THE ADVANCES WERE ALL SQUARED UP DURING THE YEAR AND DID NOT FIND ANY PLACE IN THE ASSET SIDE O F THE BALANCE SHEET OF THE ASSESSEE. THE ASSESSEE LENT THE MONEYS FOR BENEFITS WHICH CAN ONLY BE CALLED PERSONAL AND THE WANT OF FUNDS FOR BUSINESS DUE TO SUCH ADHOC LENDING HAS OBVIOUSLY BEEN MET OUT OF INTEREST BEARING LOANS WH ICH WERE UTILIZED EVEN ITA NO.456(ASR)/2013 13 DURING THE PERIOD THE SAME FUNDS WERE LENT OUT OF T HE CASH KITTY OF THE BUSINESS OF THE ASSESSEE. THE CONTENTIONS OF THE AS SESSEE TAT IT HAS SUBSTANTIAL AMOUNT OF INTEREST FREE BORROWINGS ON WHICH NO INTE REST HAD BEEN CHARGED BY HIM, IS TRUE. HOWEVER, THIS FACT DOES NOT HELP THE CASE OF THE ASSESSEE, BECAUSE DESPITE SUCH INTEREST FREE UNSECURED LOANS THAT IT HAD BEEN ENJOYING DURING THE YEAR, IT DID HAVE BANK LOANS ON WHICH IT HAD TO PAY INTEREST AND ALSO BECAUSE THE LENDING OF INTEREST FREE SHORT TE RM ADVANCES TO PERSONS WHO HAD NO BUSINESS DEALINGS WITH THE ASSESSEE, CANNOT BE SAID TO THE IN COMMERCIAL EXPEDIENCY. 6.1. AS REGARDS THE DISALLOWANCE U/S 40A(3) FOR RS. 33,71,275/-, THE LD. COUNSEL ARGUED THAT THE AO FOUND THAT THE ASSESSEE HAD MADE THE SAID PAYMENT IN CASH FOR PURCHASE OF PROPERTY WHICH WAS HIS STOCK IN TRADE AND WAS THUS STRUCK BY THE PROVISIONS OF SEC. 40A(3) OF THE ACT. THE ASSESSEE TRIED TO TAKE SHELTER OF THE PROVISO TO SECTION 40 A(3) WHICH PROVIDES THAT NO DISALLOWANCE IS TO BE MADE WHERE THE EXPENDITURE HA S BEEN UNDER CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELE VANT FACTORS. THE ASSESSEE TOOK THE STAND THAT THE TRANSACTIONS WERE GENUINE AND DULY RECORDED IN THE BOOKS AS WELL AS SUPPORTED BY THE R EGISTRATION DEEDS MADE BEFORE THE SUB-REGISTRAR. THE LD. CIT(A) ACCEPTED THE GROUNDS OF THE ASSESSEE AND HELD THAT AFTER ALL, THE OBJECT IS NO T TO DEPRIVE THE ASSESSEE OF ITA NO.456(ASR)/2013 14 THE DEDUCTION TO WHICH HE IS OTHERWISE ENTITLED TO CLAIM, WHERE THE AMOUNT WAS PAID IN CASH OR RECEIVED IN CASH. THE AO HAS TO FIND OUT WHETHER THE TRANSACTION IS GENUINE OR NOT, AND IF HE FINDS THAT THE TRANSACTION IS GENUINE, HE SHOULD ALLOW THE DEDUCTION. HE HAS ALSO HELD THA T IN THE PRESENT CASE THE IDENTITY OF THE PAYEE IS PROVED, THE GENUINENESS OF THE TRANSACTION IS DULY DOCUMENTED BY THE SALE DEED INSTRUMENT AND THE AMOU NT OF TRANSACTION IS ALSO CERTIFIED BY THE STAMP REGISTRATION AUTHORITY BY WAY OF CIRCLE RATES ETC. THUS, ALL THE THREE INGREDIENTS OF THE GENUINE NESS AND CORRECTNESS OF THE TRANSACTION AND ALSO THE IDENTITY OF THE PAYEE ARE ESTABLISHED. IN SUCH CIRCUMSTANCES, THE PROVISIONS OF SECTION 40A(3) ARE NOT ATTRACTED. THE CIT(A) HAS GOT THE INTERPRETATION OF THE SAID PROVI SO TO SEC. 40A(3) ALL WRONG. IT IS NOT THAT THE ANY BUSINESS EXPEDIENCY WOULD BE SUFFICIENT TO CIRCUMVENT THE RIGORS OF SECTION 40A(3). ONLY THE P RESCRIBED CASES AND CIRCUMSTANCES WERE TO BE TREATED AS BUSINESS EXPED IENCY BY THE AO. AND THE PRESCRIBED CASES AND CIRCUMSTANCES ARE MAND ATED ONLY IN RULE 6DD(A) TO 6DD(I) OF THE I.T. RULES, 1962. MOREOVER, SEC. 40A(3) HAS GOT HARDLY ANYTHING TO DO WITH THE THREE INGREDIENTS OF THE GENUINENESS AND CORRECTNESS OF THE TRANSACTION AND ALSO THE IDENTIT Y OF THE PAYEE, AS QUOTED FROM THE CIT(A)S ORDER. RATHER, ONLY WHERE THE SO CALLED THREE INGREDIENTS ARE PRESENT, CAN THE ASSESSEE STILL BE STRUCK BY TH E PROVISIONS OF SEC. ITA NO.456(ASR)/2013 15 40A(3).IF THE SO CALLED THREE INGREDIENTS WERE NOT PRESENT, THE ENTIRE TRANSACTION BECOMES A SHAM AND THE ENTIRE CREDIT/DE BIT IS LIABLE TO BE TREATED TO BE TREATED AS DEEMED INCOME IN TERMS OF SECTION S 68, 69A, 69B AND 69C OF THE ACT, AS THE CASE MAY BE. THE RIGORS OF SECTI ON 40A(3) ARE ONLY APPLICABLE WHERE THE GENUINENESS OF THE TRANSACTION AND THE PARTIES ENTERING INTO THE TRANSACTION IS ESTABLISHED AND WHERE NEVER THELESS, CASH IS USED FOR PAYMENTS IN PLACE OF THE BANKING ROUTES, UNLESS PRO TECTED BY THE EXPRESS INSTANCES AS LAID DOWN IN RULE 6DD(A) TO (I) OF THE I.T.RULES, 1962. THE CASE OF THE ASSESSEES IMPUGNED TRANSACTION IS NOT COVERED IN ANY OF THE INSTANCES CLEARLY DETAILED IN RULE 6DD(A) TO 6DD(I) . IN DETERMINING EXPEDIENCY, THE AO IS OBLIGED TO REMAIN WITHIN THE PARAMETERS SPECIFIED IN RULE 6DD AND CANNOT GO BEYOND THE RULES ON ANY GRO UNDS, INCLUDING THE GROUNDS OF EQUITY. THE PLEA OF THE ASSESSEE THAT (A ) THE ASSESSEE WAS STRANGER TO THE PERSON FROM WHOM THE PROPERTY WERE PURCHASED (B) THE RESPECTIVE SELLERS INSISTED FOR CASH PAYMENT (C) THE NATURE OF THE TRANSACTION WAS SUCH THAT IT WAS NECESSARY FOR EXPEDITIOUS SETTLEMENT OF THE DEAL, WHICH IT IS CLAIMED HAD TO BE SETTLED BECAUSE (D) THE PRICES OF THE PROPERTIES WERE UNEXPECTEDLY SHOOTING UP ON A DAY TO DAY BASIS DUR ING THE PERIOD, ARE NO WHERE COVERED IN THE VARIOUS CLAUSES AND SUB CLAUSE S OF RULE 6DD. ITA NO.456(ASR)/2013 16 6.2. THE LD. DR FURTHER STATED THAT THE PURCHASE OF LAND IS NOT EXACTLY AN ORDINARILY MUNDANE PURCHASE OF DAILY ROUTINE. IT RE QUIRES VARIOUS KINDS OF EVALUATIONS, BARGAINING, COMPARISONS ETC. THAT THE SELLER AND PURCHASER WERE STRANGERS IS NOT A RELEVANT POINT AT ALL, FOR THAT IS QUITE NORMAL. SECTION 40A(3) HAS NO PROVISION FOR RELIEF ON THE GROUNDS T HAT THE SELLERS INSISTED FOR CASH. THE CLAIM OF THE ASSESSEE THAT THE NATURE OF THE TRANSACTION WAS SUCH THAT IT WAS NECESSARY FOR EXPEDITIOUS SETTLEMENT OF THE DEAL WHICH IT IS CLAIMED HAD TO BE SETTLED BECAUSE THE PRICES OF THE PROPERTIES WERE UNEXPECTEDLY SHOOTING UP ON A DAY TO DAY BASIS DURI NG THAT PERIOD IS MERE RUSE. LAND IS NOT A PERISHABLE COMMODITY. HOWEVER, EXPEDITIOUS THE NEED MAY BE, THERE IS NO REASON PAYMENT CANNOT BE MADE T HROUGH A BANK DRAFT, IF NOT A CHEQUE. THE PROVISIONS OF SECTION 40A(3) ARE QUASI PENAL IN NATURE. THEY ARE NOT DIRECTLY RELATED TO COMPUTATION OF THE TOTAL INCOME OF AN ASSESSEE. THEY HAVE BEEN MANDATED ONLY AND ONLY TO BE IN THE NATURE OF PERSUASION SO THAT OLD HABITS ABOUT CASH TRANSACTIO NS ARE GRADUALLY CHANGED, IN THE INTEREST OF CREATION OF A MORE TRANSPARENT C OMMERCIAL REGIME, SO THAT THE WIDESPREAD PREVALENCE OF UNACCOUNTED BLACK MONE Y IS CHECKED. IT WOULD BE AGAINST THE SPIRIT OF LAW IF A VERY STRICT INTE RPRETATION WERE NOT ADOPTED OF THIS SUB-SECTION, ON ANY GROUNDS, INCLUDING EQUITY. ONCE IT IS SEEN FROM THE FACTS OF THE CASE THAT A VIOLATION IN TERMS OF SECT ION 40A(3) IS MADE OUT, ITA NO.456(ASR)/2013 17 WHICH IS NOT CARVED OUT IN THE EXCEPTIONS AS IN RUL E 6DD, THERE IS NO SCOPE FOR ANY ALLOWANCE TO THE ASSESSEE, ON ANY GROUNDS, INCLUDING THE GROUNDS OF GENUINENESS OF TRANSACTION. HOWEVER, GENUINE THE TR ANSACTION MAY BE, ONCE IT IS STRUCK BY THE PROVISIONS OF SECTION 40A(3), T HE SAME HAS TO BE DISALLOWED AND NO RELIEF CAN THEREFORE, BE GRANTED TO THE ASSESSEE ON THIS ACCOUNT EITHER. 7. THE LD. COUNSEL FOR THE ASSESSEE, RELIED UPON TH E SUBMISSIONS MADE BEFORE THE AO AND THE LD. CIT(A) AND ARGUED THAT TH E ASSESSEE WAS HAVING ENOUGH INTEREST FREE FUND BORROWINGS AT HIS DISPOSA L AND THEREFORE, THE ORDER OF THE LD. CIT(A) IS CORRECT ORDER AND PRAYED TO UP HOLD THE SAME WITH REGARD TO GROUND NO.1 OF THE REVENUE. 7.1. HE FURTHER ARGUED WITH REGARD TO THE DISALLOWA NCE U/S 40A(3) OF THE ACT THAT THE TRANSACTION IS GENUINE AND ONCE THE TR ANSACTION IS GENUINE DEDUCTION SHOULD BE ALLOWED, ESPECIALLY WHEN THE I DENTITY OF THE PAYEE IS PROVED AND GENUINENESS OF TRANSACTION IS DULY DOCUM ENTED BY SALE DEED INSTRUMENT AND ALL THE THREE INGREDIENTS OF THE GE NUINENESS AND TRANSACTION ARE PROVED AND THEREFORE, THE PROVISIONS OF SECTIO N 40A(3) ARE NOT ATTRACTED. HE RELIED UPON THE DECISIONS OF VARIOUS COURTS OF L AW PLACED IN THE PAPER BOOK IN THIS REGARD. ITA NO.456(ASR)/2013 18 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AS REGARDS THE INTEREST PAID TO VARIOUS PERSONS I.E . SH. SUNIL KUMAR, SH. SUBHASH GOYAL, M/S. NEHA ENTERPRISES, SMT. SEEMA MI TTAL, SMT. ANU AND M/S. SAREE PALACE, NOTHING HAS BEEN BROUGHT ON RECO RD HOW THE INTEREST FREE FUNDS WHICH HAVE BEEN CLAIMED TO HAVE BEEN AVAILABL E FOR ADVANCING THESE LOANS TO VARIOUS PERSONS WERE ACTUALLY AVAILABLE FO R ADVANCING TO THESE PERSONS. NO PART OF THE PAPER BOOK HAS BEEN POINTE D OUT TO US HOW THE INTEREST FREE FUNDS AVAILABLE WERE ADVANCED TO THES E PERSONS. THE LD. CIT(A) HAS NOT LOOKED INTO THIS ASPECT AND HAS ACCEPTED TH E SUBMISSION AND ARGUMENT OF THE ASSESSEE THAT INTEREST FREE FUNDS ARE AVAILABLE, WHICH ARE ADVANCED TO VARIOUS PERSONS MENTIONED HEREINABOVE. 8.1. SECONDLY, THE LD. COUNSEL FOR THE ASSESSEE, RE LIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILD ERS REPORTED IN 288 ITR 1. IN THIS REGARD, NOTHING HAS BEEN BROUGHT ON RECO RD BY THE ASSESSEE AND THE LD. CIT(A) WHILE DELETING THE ADDITION THAT THE A DVANCES HAVE BEEN MADE FREE OF INTEREST ON THE GROUND OF COMMERCIAL EXPEDI ENCY. NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE OR BY THE LD. CIT (A) WITH REGARD TO THE PURPOSE FOR WHICH THE VARIOUS PERSONS TO WHOM MONEY HAS BEEN ADVANCED HAS ACTUALLY USED THE MONEY. THE ADVANCES GIVEN MOS TLY ARE TO THE PERSONS IN THEIR PERSONAL CAPACITY AND IN THE ABSENCE OF AN Y MATERIAL OR COGENT ITA NO.456(ASR)/2013 19 EXPLANATION ON RECORD, THE SAME HAVE TO BE TREATE D TO HAVE BEEN ADVANCED FOR PERSONAL BENEFIT OF SUCH PERSONS. THE LD. CIT(A ) IS THEREFORE, NOT JUSTIFIED IN DISAPPROVING THE ORDER OF THE AO AND NOT FURTHER JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE A.O. ACCORDIN GLY, THE ORDER OF THE LD. CIT(A) IS REVERSED AND THE ORDER OF THE AO ON THE ISSUE IS RESTORED. THUS, GROUND NO.1 OF THE REVENUE IS ALLOWED. 9. AS REGARDS GROUND NO.2, THERE IS NO DISPUTE THA T IN TRADING OF PROPERTES, THE CASH HAS BEEN PAID AND THE PROVISION S OF SECTION 40A(3) ARE ATTRACTED. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD IS THAT THE ASSESSEE WERE STRANGER TO EACH OTHER AND THERE WAS BOOM IN THE PRICES OF IMMOVABLE PROPERTIES DURING THE PERIOD WHEN THE IMPUGNED PROP ERTIES HAD BEEN PURCHASED AND FOR EXPEDITIOUS SETTLEMENT OF DEALS, THE SELLERS OF IMPUGNED PROPERTIES INSISTED FOR QUICK AND CASH PAYMENT AND DEALS COULD NOT BE POSTPONED IN THE INTEREST OF BUSINESS AND THE ASSES SEE HAD TO YIELD BEFORE THE TERMS AND CONDITIONS OF THE SELLERS. THE AMENDMENT BY THE FINANCE ACT,2008 IN SECTION 40A(3) W.E.F. 1.4.2009 BY INSERTION OF T HE PROVISO WAS RELIED UPON WHICH READS AS UNDER: PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS O R PROFESSION UNDER SUB-SECTION (3) AND THIS SUB-SECTION WHERE A PAYMEN T 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, IN SUCH CASES AND UNDER SUC H CIRCUMSTANCES ITA NO.456(ASR)/2013 20 AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE A ND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUS INESS EXPEDIENCY AND OTHER RELEVANT FACTORS :] 9.1. THE LD. CIT(A) ACCEPTED THIS CONTENTION OF THE ASSESSEE AND DELETED THE ADDITION. AT THE OUTSET, IN THE PROVISO TO SECT ION 40A(3) OF THE ACT, THE EXCEPTIONS ARE PRESCRIBED UNDER RULE 6DD OF THE INC OME TAX RULES, 1962. IN OUR VIEW, THESE EXCEPTIONS HAVE BEEN PRESCRIBED UNDER RULE 6DD, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITI ES AVAILABLE FOR CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELE VANT FACTORS. THE SAID PROVISIONS HAVE TO BE READ TOGETHER BUT NOT SEPARAT ELY AS SUITS TO THE ASSESSEE. THERE IS NO INTENTION OF THE LEGISLATURE TO MAKE A LIST OF NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE AND OTHER FA CTORS TO BE DRAFTED BY THE ASSESSE AT THEIR WHIMS AND FANCIES AND AS SUITS TO THE ASSESSEE. THEREFORE RULES HAVE BEEN PRESCRIBED WHICH ARE RULE 6DD OF I .T.RULES, 1962 AND NOTHING BEYOND THAT. THE CASE LAWS RELIED UPON BY T HE ASSESSEE AND THE LD. CIT(A) ARE THE CASES BEFORE THE SAID AMENDMENT AND EVEN BEFORE THE SAID AMENDMENT, FACTS REMAIN THE SAME. THE LD. CIT(A) HA S NOT TAKEN THE SAID PROVISO IN THE RIGHT SPIRIT AND HAS JUST ACCEPTED THE SUBMISSIONS AND ARGUMENTS MADE BY THE ASSESSEE AND HAS DELETED THE ADDITION, WHICH IS AGAINST THE FACTS OF THE CASE AND AGAINST THE PROVI SIONS OF LAW. ACCORDINGLY, ITA NO.456(ASR)/2013 21 THE ORDER OF THE LD. CIT(A) IS REVERSED AND THAT OF THE A.O. IS RESTORED. THUS, GROUND NO.2 OF THE REVENUE IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.456(ASR)/2013 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH FEBRUARY, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28TH FEBRUARY, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SH.GURDAS GARG, BATHINDA. 2. THE DCIT, CIR. 1 BATHINDA. 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR