M/s Virupa Township, Vijayawada V. THE ACIT, CIRCLE-2(1), Vijayawada

ITA 614/VIZ/2013

• Counselvise Citation: 61425314 RSA 2013
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 03-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Revision of order; Opportunity of being heard; Bonafide belief; Period of limitation; Reasonable cause; Assessment record; Condonation of delay
• Section: 40A(3); 143(3); 263

Judgement Text

ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO S . 614&615 /VIZAG/ 2013 ASSESSMENT YEAR : 2007-08 M/S. VIRUPA TOWNSHIP VIJAYAWADA VS. ACIT CIRCLE-2(1) VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AAGFV 0415L ASSESSEE BY: SHRI G.V.N. HARI, ADVOCATE REVENUE BY: SHRI K.V.N. CHARYA, CIT(DR) DATE OF HEARING : 05.03.2014 DATE OF PRONOUNCEMENT : 07.03.2014 ORDER PER SAKTIJIT DEY, JUDICIAL MEMBER:- THESE ARE TWO APPEALS OF THE ASSESSEE PERTAINING T O THE ASSESSMENT YEAR 2007-08. WHILE ITA NO.615/VIZAG/2013 IS AGAIN ST THE ORDER PASSED U/S 263 OF THE INCOME-TAX ACT, ITA NO.614/VIZAG/2013 ARI SES OUT OF THE CONSEQUENTIAL ORDER PASSED IN PURSUANCE TO THE ORDE R U/S 263 OF THE ACT. WE WILL FIRST DEAL WITH ITA NO.615/VIZAG/2013. 2. THERE IS A DELAY OF 603 DAYS IN FILING OF THE AF ORESAID APPEAL. THE ASSESSEE HAS FILED A PETITION SEEKING CONDONATION O F DELAY. IN THE PETITION IT HAS BEEN STATED BY THE ASSESSEE THAT THE ORDER PASS ED U/S 263 OF THE ACT WAS RECEIVED BY THE ASSESSEE ON 10.12.2011 AND ORIGINAL LY THE APPEAL OUGHT TO HAVE BEEN FILED BEFORE THE TRIBUNAL ON OR BEFORE 08 .02.2012. HOWEVER, IN PARAGRAPH 5 OF THE ORDER PASSED U/S 263 OF THE ACT, THE CIT DIRECTED THE ASSESSING OFFICER TO MODIFY THE ASSESSMENT ORDER AF TER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AS NO DEMAND WAS R AISED IN THE ORDER PASSED U/S 263 OF THE ACT, THE ASSESSEE WAS UNDER A BONAFIDE BELIEF THAT THE PROCEEDINGS WOULD ATTAIN FINALITY ONLY IN THE EVENT OF ASSESSMENT ORDER BEING MODIFIED. THEREFORE, WHEN THE ASSESSMENT WAS COMPL ETED U/S 143(3) R.W.S. 263 OF THE ACT VIDE ORDER DATED 25.01.2012, THE ASS ESSEE PREFERRED AN APPEAL ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 2 AGAINST THE SAID ASSESSMENT ORDER BEFORE THE CIT(A) WITHIN THE STATUTORY TIME LIMIT. WHEN THE APPEAL WAS HEARD ON 02.09.2013, TH E CIT(A) EXPRESSED A VIEW THAT SHE CANNOT DECIDE THE ISSUE I N APPEAL AS THE ASSESSING OFFICER COMPLETED THE ASSESSMENT AS PER THE DIRECTI ONS OF THE CIT U/S 263 OF THE ACT. ACCORDINGLY, THE CIT(A) DISMISSED THE ASS ESSEES APPEAL. ONLY AFTER THE APPEAL WAS DISMISSED BY THE CIT(A), THE ASSESSE E AFTER CONSULTATION WITH HIS LOCAL CONSULTANTS COULD VISUALIZE THAT REMEDY W OULD LIE IN THE FORM OF AN APPEAL BEFORE THE ITAT, VISAKHAPATNAM AGAINST THE O RDER DATED 10.12.2011 OF THE COMMISSIONER OF INCOME TAX, VIJAYAWADA U/S 26 3 OF THE ACT. THEREFORE, THE ASSESSEE TOOK NECESSARY STEPS IN FIL ING THE APPEAL BEFORE THE ITAT VISAKHAPATNAM BENCH ON 03.10.2013 AFTER A DELA Y OF 602 DAYS. IT WAS THEREFORE PRAYED BY THE ASSESSEE TO CONDONE THE DEL AY. THE CONTENTS OF THE PETITION WERE ALSO SUPPORTED BY AN AFFIDAVIT SWORN BY THE ASSESSEE. THE LD. A.R. REITERATING THE FACTS AS STATED IN THE DELAY C ONDONATION PETITION SUBMITTED THAT THE FACTS STATED THEREIN CONSTITUTES A REASONABLE CAUSE FOR CONDONING DELAY. IN THIS CONTEXT, HE RELIED UPON A DECISION OF THE HONBLE BOMBAY HIGH COURT IN CASE OF REMEX CONSTRUCTIONS/RE MEX ELECTRICALS VS. FIRST INCOME-TAX OFFICER AND OTHERS 166 ITR 18 SUBM ITTED THAT WHEN THE ASSESSE HAS A GOOD CASE ON MERIT AND THE ORDER PASS ED BY THE REVISIONAL AUTHORITY IS WITHOUT JURISDICTION, THAT GROUND ALON E IS ENOUGH FOR THE TRIBUNAL TO CONDONE THE DELAY AND ENTERTAIN THE APPEAL. THE LD. A.R. ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF IMPROVEMENT TRUST, LUDHIANA VS. UJAGAR SINGH AND OTHERS CIVIL APPEAL N O.2395 OF 2008 TO SUBMIT THAT WHERE THE ASSESSEE HAS A SUBSTANTIAL CASE IN H IS FAVOUR AND THE ASSESSEE WOULD NOT HAVE GAINED ANYTHING BY NOT FILING THE AP PEAL IN TIME, DELAY SHOULD BE CONDONED. 3. THE LD. D.R. ON THE OTHER HAND OBJECTED FOR COND ONATION OF THE DELAY. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI ALS ON RECORD. ON GOING THROUGH THE EXPLANATION OF THE ASSESSEE FOR B ELATED FILING OF THE APPEAL, WE ARE SATISFIED THAT THERE WAS A REASONABLE CAUSE FOR NOT FILING THE APPEAL IN TIME. THAT BESIDES AS CAN BE SEEN THE ISSUE IN DIS PUTE I.E. THE DISALLOWANCE ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 3 U/S 40A(3) OF THE ACT STANDS DECIDED IN FAVOUR OF T HE ASSESSEE BY AN ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.324/V IZAG/2012 FOR THE ASSESSMENT YEAR 2008-09. THE HONBLE BOMBAY HIGH C OURT WHILE CONSIDERING IDENTICAL ISSUE OF DISMISSAL OF ASSESSEES APPEAL W ITHOUT CONDONATION OF DELAY IN CASE OF REMEX CONSTRUCTIONS/REMEX ELECTRICALS VS . FIRST INCOME TAX OFFICERS AND OTHERS (SUPRA) HAS HELD AS UNDER: THE GRIEVANCE OF SHRI PANDIT THAT THE TRIBUNAL WAR, VERY TECHNICAL IN NOT CONDONING THE DELAY OF ABOUT THREE YEARS IN FILING THE APPEALS AGAINST THE ORDERS PASSED UNDER S. 263 OF THE ACT IS NOT WITHOUT MERIT. THE TRIBUNAL HELD THAT THE PETITIONE R OUGHT TO HAVE FILED AN APPLICATION FOR CONDONATION OF DELAY DULY SUPPORTED BY AN AFFIDAVIT AT THE TIME OF PRESENTATI ON OF APPEAL, BUT INSTEAD OF THAT, MERELY APPEALS WERE LODGED AND AN AFFIDAVIT OF A PARTNER OF THE FIRM WAS TENDERED ONLY WHEN THE OBJECTION WAS RAISED ABOUT THE DELAY IN FILING THE APPEALS. IT IS UNDOUBTEDLY TRUE THAT THE EXPLANATION GIVEN IN THE AFFIDAVIT FOR DELAY IN LODGING THE APPEALS IS NOT VERY SUBSTANTIA L, BUT, IN MY JUDGMENT, TAKING INTO CONSIDERATION THE FACT THAT T HE REVISIONAL AUTHORITY HAD ACTED WITHOUT JURISDICTION, WAS ENOUG H FOR THE TRIBUNAL TO CONDONE THE DELAY AND ENTERTAIN THE APP EALS. IT IS TRUE THAT THE TRIBUNAL COULD NOT ENTERTAIN THE APPE ALS BEYOND THE PERIOD OF LIMITATION AS A MATTER OF COURSE, BUT EQUALLY THE TRIBUNAL WOULD NOT DEFEAT THE ENDS OF JUSTICE MEREL Y BECAUSE THE PARTIES FAILED TO RESORT TO PROPER PROCEDURE IN FILING THE APPEALS. IN MY JUDGMENT, THE TRIBUNAL OUGHT TO HAVE CONDONED THE DELAY IN FILING THE APPEALS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ONCE IT IS FOUND THAT THE APPEALS AGAINST THE ORDER OF THE REVISIONAL AUTHORITY SHOULD HAVE BEEN ENTERTAINED AND IT IS FURTHER FOUND THAT THE ORDER OF THE REVISIONAL AUTH ORITY WAS WHOLLY WITHOUT JURISDICTION, THEN THE SEQUITUR IS T HAT THE APPEALS FILED AGAINST THE REVISIONAL AUTHORITY MUST BE ALLOWED. SHRI JETLY DID NOT SERIOUSLY DISPUTE THAT IF THE APPEALS WERE MAINTAINABLE AND WERE ENTERTAINED, THE ORDER OF THE REVISIONAL AUTHORITY COULD NOT BE SUSTAINED. IN THESE CIRCUMSTANCES, IN MY JUDGMENT, THE PETITIONER IS ENTITLED TO SUCCEED. SH RI JETLY SUBMITTED THAT THE PETITIONER HAD AN ALTERNATE REME DY OF SEEKING REFERENCE AGAINST THE ORDER OF THE TRIBUNAL AND AS THE PETITIONER HAS FAILED TO ADOPT THAT REMEDY, THE REL IEF SHOULD NOT BE GRANTED. NORMALLY, I WOULD NOT HAVE PERMITTED TH E PETITIONER TO APPROACH THE WRIT COURT FOR RELIEF, WHEN THERE W AS REMEDY OF SEEKING REFERENCE, BUT TAKING INTO CONSIDERATION TH E FACT THAT THIS PETITION IS PENDING IN THIS COURT FOR THE LAST FOUR YEARS AND THE FACT THAT THE PETITIONER IS A SMALL CONCERN HAV ING A SMALL TURNOVER AND THE FACT THAT THE ORDER PASSED BY THE REVISIONAL AUTHORITY WAS WHOLLY WITHOUT JURISDICTION, I AM NOT INCLINED TO REFUSE THE RELIEF ON THE GROUND OF AVAILABILITY OF ALTERNATE REMEDY. 5. IT IS ALSO SETTLED PRINCIPLE OF LAW THAT TECHNIC ALITIES SHOULD NOT COME IN THE WAY OF RENDERING SUBSTANTIAL JUSTICE. THEREFOR E, CONSIDERING ASSESSEES ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 4 EXPLANATION IN THE LIGHT OF THE DECISION OF THE HON BLE BOMBAY HIGH COURT (SUPRA) WE CONDONE THE DELAY AND ADMIT THE APPEAL F OR HEARING. 6. REVERTING BACK TO THE MERITS OF THE ISSUE, BRIEF LY, THE FACTS ARE, THE ASSESSEE A PARTNERSHIP FIRM IS ENGAGED IN THE BUSIN ESS OF PURCHASE OF LANDS AND SELLING THE SAME AFTER DEVELOPING AS RESIDENTIA L PLOTS. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN OF I NCOME ON 19.10.2007 DECLARING TOTAL INCOME OF RS.20,21,670/-. ASSESSME NT FOR THE IMPUGNED ASSESSMENT YEAR WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 31.12.2009 DETERMINING THE TOTAL INCOME AT RS.25,25 ,790/- AFTER MAKING DISALLOWANCE OF RS.5,04,116/- CLAIMED AS EXPENDITUR E TOWARDS COMMISSION PAID TO MARKETING AGENT AND BUSINESS PROMOTION EXPE NSES. THE CIT IN EXERCISE OF POWER U/S 263 OF THE ACT CALLED FOR THE ASSESSMENT RECORDS AND WHILE EXAMINING THE SAME, WAS OF THE VIEW THAT THE ASSESSMENT ORDER PASSED WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF RE VENUE ON THE GROUND THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE CASH PAY MENTS MADE AMOUNTING TO RS.4,79,22,915/- IN CONTRAVENTION TO THE PROVISI ONS OF SECTION 40A(3) OF THE ACT. HE THEREFORE ISSUED A SHOW CAUSE NOTICE TO TH E ASSESSEE DIRECTING HIM TO EXPLAIN AS TO WHY 20% OF SUCH EXPENDITURE SHALL NOT BE DISALLOWED. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE CIT , THE ASSESSEE EXPLAINED THAT THEIR BUSINESS IS TO DEVELOP RESIDENTIAL PLOTS BY PURCHASING AGRICULTURAL LANDS. AFTER PURCHASING AGRICULTURAL LANDS, NECESS ARY APPROVALS FROM THE CONCERNED AUTHORITIES FOR CONVERSION OF LANDS INTO RESIDENTIAL LAY OUT, DEVELOPMENT ETC. ARE UNDERTAKEN BY THEM AND THE PLO TS ARE SOLD TO VARIOUS PARTIES. THE LAND PURCHASED IS AN AGRICULTURAL LAND FROM THE FARMERS AND THE AGREEMENTS ENTERED INTO ARE SALE AGREEMENTS WITH GE NERAL POWER OF ATTORNEY. THE COST OF DEVELOPMENT OF LAND SUCH AS LAY OUT CHARGES, MARKETING AND OTHER CONVERSIONS ARE ENTIRELY TAKEN UP BY THE ASSESSEE. IN ORDER TO TAKE UP SUCH ACTIVITY FOR DEVELOPING THE L AND, THE LAND OWNER HAS TO PERMIT THE ASSESSEE TO TAKE UP DEVELOPMENT AND CONV ERSION ACTIVITY. THE AGREEMENTS AND OTHER DOCUMENTS ARE SIGNED BY THE LA ND OWNERS. THE ONLY INTEREST OF THE FIRM IS GAIN DERIVED FROM THE CONVE RSION OF LAND AFTER INCORPORATING THE DEVELOPMENT EXPENSES AND OTHER IN CIDENTAL EXPENSES LIKE ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 5 COMMISSION FOR THE PROGRESS, ETC. DEVELOPMENT OF T HE AGRICULTURAL LAND INTO HOUSING PLOTS TAKES CONSIDERABLE TIME AND RESOURCES AND ALSO REQUIRES VARIOUS APPROVALS FROM VARIOUS STATUTORY AUTHORITIES. IN T HE DUE COURSE OF DEVELOPMENT OF LAND, THE AGRICULTURAL ACTIVITY CANN OT BE PERFORMED BY THE FARMERS AND THE AGRICULTURAL LAND LOOSES ITS CHARAC TER. HENCE, WITHOUT PAYING ANY COMPENSATION, THE ASSESSEE CANNOT VENTURE INTO DEVELOPMENT OF THE LAND TO HOUSING PLOTS AND DO ITS BUSINESS. THE OWNERS O F THE AGRICULTURAL LANDS ARE FARMERS AND DO NOT HAVE ANY LONG RELATIONSHIP WITH THE ASSESSEE AS THEY ARE STRANGERS. THEREFORE, THERE WILL BE FEAR IN THE MI ND OF THE SMALL LAND OWNERS WHO ENTIRELY DEPEND ON THEIR SMALL BUSINESS OF LAND HOLDING. HENCE, THE LAND OWNERS PRESS FOR THE CONSIDERATION TO BE PAID IN CA SH BEFORE TAKING UP ANY DEVELOPMENT ACTIVITY. AS CONSIDERABLE AMOUNT OF MO NEY HAS BEEN PAID TO THE FARMERS IN ORDER TO PROTECT THE INTEREST OF THE FIR M, A DOCUMENT IS ACCEPTED IN FAVOUR OF THE FIRM BY THE FARMERS IN THE FORM OF SA LE AGREEMENT CUM GPA. THE ASSESSEE SUBMITTED THAT THE ENTIRE CONSIDERATIO N PAID TO THE LAND OWNERS OF THE AGRICULTURAL LAND IS RECORDED IN THE BOOKS O F ACCOUNTS AND THE IDENTITY OF THE FARMERS IS ALSO ESTABLISHED. THE AMOUNTS PA ID TO THE FARMERS ARE NOT DISPUTED AT ANY STAGE. AS THE FIRM COME INTO EXIST ENCE NEWLY UNLESS THE FIRM PAYS CASH AS CONSIDERATION IT IS NOT IN A POSITION TO CAPTURE THE DEALS. IT IS ALSO A USUAL PRACTICE IN THE FIELD OF REAL ESTATE T O PAY CASH FOR THE ACQUISITION OF THE LAND. IT WAS SUBMITTED THAT THE PROVISIONS O F SECTION 40A(3) ARE ENACTED IN THE ACT TO CURB THE BLACK MONEY TRANSACT ION. IN CASE OF ASSESSEE SINCE THERE ARE NO SUCH DEALS AND THE ENTIRE CONSID ERATION PAID HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS AND NECESSARY INF ORMATION HAS ALREADY BEEN DISCLOSED IN THE RETURN OF INCOME, THERE CANNO T BE ANY DOUBT WITH REGARD TO THE GENUINENESS OF THE TRANSACTION. IT W AS SUBMITTED THAT THE ASSESSEE FIRM IS A NEW ENTRANT IN THE BUSINESS OF R EAL ESTATE HAVING COME INTO EXISTENCE IN SEPTEMBER, 2006. AS A NEW ENTRANT AND THAT TOO IN THE FIELD OF REAL ESTATE IT IS DIFFICULT TO ACQUIRE LAND THAT TO O AGRICULTURAL LAND FROM THE FARMERS AS MOST OF THEM DEAL IN CASH ONLY. IN ORDER TO CAPTURE THE BUSINESS, THE ASSESSEE HAS TO MAKE CASH TRANSACTIONS. IF THE FIRM DOES NOT AGREE TO THE TERMS AND CONDITIONS IMPOSED BY THE FARMERS, TH EY WILL NOT BE IN A POSITION TO GET DEALS AND DEVELOP THE LAND FOR RESA LE AS HOUSING PLOTS. IT WAS ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 6 SUBMITTED BY THE ASSESSEE THAT ALL THE FARMERS ARE ILLITERATE AND THEY DO NOT BELIEVE THE BUSINESS PEOPLE DUE TO CERTAIN REASONS AND BEING ADVISED BY WELL WISHERS. WITH THEIR VILLAGE BACK GROUND, IT IS VER Y DIFFICULT TO CONVINCE THEM FOR BANKING TRANSACTIONS. AS THE PAYMENT IN CASH F OR ACQUISITION OF LAND IS A COMMON PHENOMENA IN THE FIELD OF REAL ESTATE AND MA NY OF THE OPERATORS IN THIS LINE OF ACTIVITY DEAL IN CASH, THE ASSESSEE FI RM HAD NO OTHER CHOICE BUT MAKE PAYMENTS TO THE FARMERS IN THE FORM OF CASH ON LY. IT WAS SUBMITTED THAT THE TRANSACTIONS HAVE BEEN DONE WITH A BONAFID E BELIEF AND THE PAYMENT IN CHEQUE CREATES A HURDLE FOR BUSINESS. IT WAS SU BMITTED THAT AS ALL THE TRANSACTIONS ARE RECORDED IN THE BOOKS OF ACCOUNTS AND THE IDENTITY OF THE PARTIES IS ESTABLISHED AND BUSINESS EXPEDIENCY MADE THE FIRM TO MAKE THE PAYMENTS IN CASH NO DISALLOWANCE SHOULD BE MADE U/S 40A(3) OF THE ACT. 7. THE CIT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WAS HOWEVER NOT CONVINCED WITH THE SAME. HE NOTED THAT ON A VERIFICATION OF MATERIAL ON RECORD, IT WAS SEEN THAT THE ASSESSEE M ADE CASH PAYMENTS IN INSTALMENTS OVER A LONG PERIOD OF TIME WHICH REVEAL S THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE SELLER IS NOT OF ONE O R TWO DAYS. HE NOTED THAT THE PURCHASES WERE ALSO MADE THROUGH A SALE AGREEME NT CUM GPA AND SUCH DOCUMENTS CONTAINS A CLAUSE THAT THE LAND WILL BE R EGISTERED IN THE NAME OF THE PARTY TO WHOM THEY SUGGEST. AS SUCH, THE RELAT ION IS A CONTINUING ONE WHERE THERE APPEARS TO BE NO CASH AND CARRY SITUATI ON. THE CIT NOTED THAT THE ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENTS OF PAYMENT BY CROSS CHEQUE OR CROSS BANK DRAFT IN THE CIRCUMSTANCES SPE CIFIED UNDER RULE 6DD. CLAUSE (J) OF RULE 6DD WHICH PROVIDES FOR EXCEPTION AL OR UNAVOIDABLE CIRCUMSTANCES UNDER WHICH THE ASSESSEE CAN BE EXEMP TED FROM THE REQUIREMENT OF PAYMENT BY CROSS CHEQUE OR CROSS BAN K DRAFT IS AMENDED W.E.F. 27.05.1995. AFTER THE AMENDMENT, THE EXCEPT IONS PROVIDED UNDER RULE 6DD IS SPECIFIC AND THE PAYMENTS WHICH DIRECTLY FAL L WITHIN THE SPECIFIC EXCEPTIONS ALONE ARE EXEMPT FROM THE REQUIREMENT U/ S 40A(3) OF THE ACT. HE NOTED THAT AS PER RULE 6DD(J) PAYMENTS MADE FOR THE PURCHASE OF THE AGRICULTURAL PRODUCTS AND PAYMENTS MADE IN A VILLAG E OR TOWN WHICH ON THE DATE OF PAYMENT IS NOT SERVED BY ANY FAULT OR PAYME NTS MADE ON A BANK ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 7 HOLIDAY OUTSIDE THE PURVIEW OF SECTION 40A(3) OF TH E ACT. THE CIT NOTED THAT THE ASSESSEE HAD DEBITED THE ENTIRE PAYMENT OF RS.4 ,79,22,915/- BEING THE SALE CONSIDERATION OF LAND TO THE PROFIT & LOSS ACC OUNT UNDER THE HEAD PURCHASES AND AFTER DEDUCTING CORRESPONDING COST OF SALES, THE REMAINING AMOUNT WAS DISCLOSED AS CLOSING STOCK WHICH AMOUNTE D TO RS.1,65,39,600/- INCLUDING THE DEVELOPMENT EXPENDITURE. THIS ACCORD ING TO THE CIT SHOWS THAT THE PAYMENT IS CLAIMED AS DEDUCTIBLE EXPENDITURE IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. THE CIT FURTHER NOTED THAT THE ASSESSEE HAD MADE THE TRANSACTIONS FROM CURRENT ACCOUNT OF PARTNER SR I D. SRINIVASA RAO. ON GOING THROUGH THE DETAILS OF TRANSACTIONS, HE NOTED THAT THE ASSESSEE HAS CREATED ONE MAIDEN ACCOUNT FOR THE TRANSACTION OF C ASH PAYMENTS IN THE NAME OF ONE OF THE PARTNER SRI SRINIVASA RAO AND PA YMENTS WERE MADE CONTINUOUSLY FROM THIS ACCOUNT. ALL THE PAYMENTS M ADE THROUGH THIS ACCOUNT WERE INSTANTLY TRANSFERRED TO RELEVANT ACCOUNTS AS PER THE ACCOUNTING PRINCIPLE AND THERE IS NO BALANCE/OUTSTANDING IN THIS ACCOUNT AT THE END OF THE YEAR. ALL THE TRANSACTIONS WERE DULY REFLECTED IN THE PUR CHASE ACCOUNT AND PAYMENT DULY REFLECTED IN THE CASH ACCOUNT. AS SUCH, THE R ELATIONSHIP BETWEEN THE ASSESSEE AND THE SELLER HAS LASTED FOR A LONG TIME AND ALL THE SELLERS ARE RESIDENTS OF VILLAGES WHERE BANKING FACILITIES ARE AVAILABLE. THE CIT THEREFORE WAS OF THE VIEW THAT THERE IS NO REASON WHY THE ASS ESSEE SHOULD MAKE PAYMENTS IN CASH RATHER THROUGH CHEQUE, THAT TOO, W HERE PAYMENTS WERE MADE WELL BEFORE THE LAND TRANSACTION HAD TAKEN PLA CE. HE THEREFORE CONCLUDED THAT THE PAYMENTS IN QUESTION WERE NOT MA DE OUT OF SHEER NECESSITY AND THERE WAS NO PRACTICAL DIFFICULTY OR UNAVOIDABLE CIRCUMSTANCES WHICH WARRANTED CASH PAYMENTS IN VIOLATION OF SECTI ON 40A(3) OF THE ACT. HE NOTED THAT THE ASSESSEE IS NOT NEW EITHER TO THE BU SINESS OR HIS SELLERS OR TO THE PROVISIONS OF INCOME-TAX ACT. THEREFORE, IT IS DIFFICULT TO BELIEVE THAT THE PAYMENTS IN QUESTION WERE MADE DUE TO URGENCY, SELL ER BEING NEW AND IN EXTENUATING CIRCUMSTANCES. THE CIT DWELLING UPON S OME INSTANCES OF PURCHASE OF AGRICULTURAL LAND WHERE PAYMENTS HAVE B EEN MADE IN CASH NOTED THAT THESE PAYMENTS WERE ACCOUNTED FOR IN THE ASSES SEES BOOKS THROUGH THE CURRENT ACCOUNT OF PARTNER SHRI D. SRINIVASA RAO BY MEANS OF JOURNAL ENTRIES. THOUGH ENTIRE PAYMENT WAS MADE OUT OF ASSESSEES BO OKS THE PROPERTY WAS ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 8 REGISTERED IN THE NAME OF PARTNER SRI SRINIVASA RAO . ENTIRE LAND COST WAS BROUGHT INTO BOOKS AS STOCK IN TRADE DURING THE YEA R UNDER CONSIDERATION ITSELF AND AS SUCH, THERE IS NO IOTA OF EVIDENCE FOR BRING ING THE LAND INTO FIRMS BOOKS BY THE PARTNERS AS CLAIMED BY THE ASSESSEE. THE CIT OPINED THAT THE ACCOUNTING PRINCIPLE PRACTICED BY THE ASSESSEE IN T HIS REGARD IS ALSO NOT CORRECT SINCE ONLY ONE JOURNAL ENTRY WAS PASSED THR OUGH CURRENT ACCOUNT OF SHRI D. SRINIVASA RAO BY DEBITING CASH ACCOUNT AND CREDITING SAME TO PERSONS FROM WHOM THE LANDS HAVE BEEN PURCHASED. THE CIT(A ) FURTHER HELD THAT THE DECISIONS RELIED UPON BY THE ASSESSEE SINCE WERE RE NDERED PRIOR TO THE AMENDMENT TO RULE 6DD W.E.F. 27.5.1995, THE SAME AR E NOT APPLICABLE TO THE ASSESSEES CASE. ULTIMATELY, THE CIT MODIFIED THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT BY DIRECTING THE ASSESSING OF FICER TO INVOKE THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND MAKE NE CESSARY ADDITION AS DIRECTED BY HIM. 8. BEING AGGRIEVED OF THE AFORESAID ORDER PASSED U/ S 263 OF THE ACT, THE ASSESSEE IS BEFORE US. 9. THE LD. A.R. SUBMITTED THAT THE CIT DOES NOT DIS PUTE THE FACT THAT THE ASSESSEE IS PURCHASING AGRICULTURAL LAND FROM AGRIC ULTURISTS. IT IS ALSO NOT DISPUTED THAT THE PAYMENTS WERE NOT MADE BY THE ASS ESSEE DIRECTLY TO THE AGRICULTURISTS BUT HAVE BEEN MADE THROUGH THE PARTN ER. THEREFORE, WHEN THE PAYMENTS ARE BEING MADE THROUGH A PARTNER WHO IS AC TING AS AN AGENT ON BEHALF OF THE FIRM THEN THE PAYMENT IN CASH COMES W ITHIN THE EXCEPTION PROVIDED U/S SUB-CLAUSE (K) OR RULE 6DD. THEREFORE , THE PROVISIONS OF SECTION 40A(3) WOULD NOT BE APPLICABLE TO SUCH PAYMENTS MAD E IN CASH. IT WAS CONTENDED BY THE LD. A.R. THAT IN SOME INSTANCES PA YMENTS HAVE TO BE MADE ON SUNDAYS AND PUBLIC HOLIDAYS CONSIDERING BUSINESS EXPEDIENCY. THEREFORE, SUCH PAYMENTS WOULD FALL WITHIN THE EXCEPTION PROVI DED UNDER CLAUSE (J) OF RULE 6DD AND AS SUCH WILL ALSO NOT ATTRACT THE PROV ISIONS OF SECTION 40A(3) OF THE ACT. IT WAS THEREFORE CONTENDED BY THE LD. A.R. THAT SINCE THE PAYMENTS ARE COVERED UNDER RULE 6DD(J) OF THE RULES, NO DISA LLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE AC T. THE LD. A.R. ALSO ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 9 SUBMITTED THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF AN ORDER PASSED BY THE TRIBUNAL IN ASSESS EES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO.324/VIZAG/2012 DA TED 11.12.2013, SPECIFICALLY DRAWING OUR ATTENTION TO THE FINDINGS OF THE TRIBUNAL IN PARAGRAPH 12 ONWARDS, THE LD. A.R. CONCLUDED HIS SUBMISSIONS BY CONTENDING THAT THE PAYMENTS MADE ON SUNDAYS AND HOLIDAYS SHOULD BE EXC LUDED WHILE INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 10. THE LD. D.R. WHILE CONCEDING THAT THE ISSUE IS COVERED BY THE DECISION OF THE COORDINATE BENCH IN THE ASSESSEES OWN CASE IN ITA NO.324/VIZAG/2012 DATED 11.12.2013, AT THE SAME TIME SUPPORTED THE OR DER OF THE CIT. 11. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IALS ON RECORD. ON A PERUSAL OF THE ORDER OF THE CIT, IT IS VERY MUCH CL EAR THAT HE HAS NOT RAISED ANY DOUBT WITH REGARD TO THE GENUINENESS OF THE TRA NSACTION. IT IS ALSO A FACT THAT HE ALSO HAS FOUND THE FACT THAT PAYMENTS HAVE BEEN MADE TO AGRICULTURISTS WHO ARE IDENTIFIABLE. ONLY REASON F OR WHICH HE HAS DIRECTED FOR DISALLOWANCE OF THE EXPENDITURE CLAIMED U/S 40A(3) OF THE ACT IS DUE TO NON- FULFILLMENT OF CONDITIONS LAID DOWN UNDER RULE 6DD( J) OF THE I.T. RULES. IT IS TO BE NOTED THAT, SIMILAR CASH PAYMENTS TOWARDS PURCHA SE OF AGRICULTURAL LAND WAS ALSO MADE IN THE FINANCIAL YEAR 2007-08 RELEVAN T TO THE ASSESSMENT YEAR 2008-09. DISALLOWANCES MADE U/S 40A(3) OF THE ACT BY THE ASSESSING OFFICER WAS CONFIRMED BY THE CIT(A). WHEN THE MATTER CAME UP BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.324/VIZ AG/2012, THE TRIBUNAL AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIES IN THE CONTEXT OF THE STATUTORY PROVISION HELD THAT SO FAR AS CASH PAYMENTS MADE ON SUNDAYS AND PUBLIC HOLIDAYS ARE CONCERNED, NO DISALLOWANCE CAN BE MADE U/S 40A(3) OF THE ACT AS SUCH PAYMENTS COME WITHIN THE EXCEPTION PROVIDED UNDER RULE 6DD(J) OF THE IT RULES. HOWEVER, SO FAR AS ASSESSEES CLAIM OF EXEMPTION UNDER SUB RULE (G) OF RULE 6DD, THE MATTER WAS REMITTED BACK TO THE ASSESSING OFFICER FOR VERIFICATION. THE OPERATIVE PORTION FROM THE ORDER OF THE TRIBUNAL IS EXTRACTED HEREUNDER FOR CONVENIENCE: ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 10 18. IN THE PRESENT CASE, THERE IS NO DENYING THE FACT THAT PERSONS TO WHOM PAYMENTS WERE MADE IN CASH ARE VILLAGERS AND 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 WH ICH MAY REQUIRE THE PAYMENTS TO BE MADE IN CASH ON HOLIDAYS AND SUN DAYS, OTHERWISE, THEY WOULD HAVE SOLD THE LANDS TO SOME OTHER PERSON S. 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 EXPRE SSION 'REQUIRED TO BE MADE' UNDERSTOOD IN THIS CONTEXT AND KEEPING THE INTENTION OF LEGISLATURE IN MIND CAN BE CONSTRUED TO MEAN THAT P AYMENTS REQUIRED TO BE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IN TH ESE CIRCUMSTANCES, PAYMENTS MADE ON SUNDAYS AND HOLIDAY S 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, THEREFORE, DIRECT THE AO TO VERIFY SUCH PAYMENTS MADE ON SUNDA YS AND HOLIDAYS AND DELETE THE ADDITION OF THESE AMOUNTS. 19. SO FAR AS ADDITION OF THE REST OF THE AMOUNT SU STAINED BY THE CIT(A) IS CONCERNED, THOUGH ASSESSEE HAS STATED THA T SUCH PAYMENTS COME WITHIN THE AMBIT OF SUB-RULE(G) OF RU LE 6DD, HOWEVER, ASSESSEE IS REQUIRED TO SUBSTANTIATE THE F ACT BY PRODUCING CREDIBLE EVIDENCE THAT THERE IS NO BANKING FACILITI ES AVAILABLE IN THOSE AREAS TO WHOM PAYMENTS WERE MADE, ORDINARILY RESIDES OR NOT CARRYING ON ANY BUSINESS OR PROFESSION. THEREFORE, T O 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 LAID DOWN IN THE DECISIONS RELIED UPON BY THE LD D.R. DO NOT APPLY T O THE FACTS OF THE PRESENT CASE. IN THE CIRCUMSTANCES, GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 12. FACTS BEING IDENTICAL AND ISSUE BEING MATERIALL Y THE SAME RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH AS AFOR ESAID, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CASH PAYMENTS MADE BY THE ASSESSEE AND EXCLUDE THE PAYMENTS MADE ON SUNDAYS AND PUBLIC HOL IDAYS FROM THE PURVIEW OF SECTION 40A(3) OF THE ACT. 13. IN THE RESULT, THE ASSESSEES APPEAL IS CONSIDER ED TO BE ALLOWED FOR STATISTICAL PURPOSES. ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 11 ITA NO.614/VIZAG/2013: 14. THIS APPEAL ARISES OUT OF THE CONSEQUENTIAL ORD ER PASSED IN PURSUANCE TO ORDER OF THE CIT U/S 263 OF THE ACT. BRIEFLY, T HE FACTS ARE AS A CONSEQUENCE OF THE ORDER PASSED U/S 263 OF THE ACT DIRECTING THE ASSESSING OFFICER TO MAKE DISALLOWANCE U/S 40A(3) OF THE ACT, THE ASSESSING OFFICER PASSED AN ASSESSMENT ORDER U/S 143(3) R.W.S. 263 OF THE ACT ON 25.01.2012 DISALLOWING THE AMOUNT OF RS.95,84,583/- BY INVOKIN G THE PROVISIONS OF SECTION 40A(3) OF THE ACT. AGAINST THE AFORESAID A SSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). TH E CIT(A) HOWEVER REFUSED TO ENTERTAIN ASSESSEES APPEAL SINCE THE AS SESSMENT COMPLETED WAS IN PURSUANCE TO DIRECTION OF THE CIT U/S 263 OF THE AC T. BEING AGGRIEVED, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE US. 15. WHILE DEALING WITH THE ASSESSEES APPEAL IN THE ITA NO.615/VIZAG/2013, WE HAVE ISSUED A DIRECTION TO TH E ASSESSING OFFICER TO VERIFY AND EXCLUDE CASH PAYMENTS MADE ON SUNDAYS AN D PUBLIC HOLIDAYS FROM THE PURVIEW OF SECTION 40A(3) OF THE ACT. HENCE, THIS APPEAL OF THE ASSESSEE HAS BECOME INFRUCTUOUS. ACCORDINGLY, WE DISMISS TH E SAME. 16. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.614/V IZAG/2013 IS DISMISSED AND APPEAL IN ITA NO.615/VIZAG/2013 IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 7 TH MAR14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 7 TH MARCH, 2014 ITA NO.614 & 615/VIZAG/2013 M/S. VIRUPA TOWNSHIP, VIJAYAWADA 12 COPY TO 1 M/S. VIRUPA TOWNSHIP, D.NO.23-32-23, FLAT NO.302, A.V. TOWERS, PAPARAJU STREET, SATYANARAYANA PURAM, VIJAYAWADA 2 ACIT CIRCLE-2(1), VIJAYAWADA 3 THE CIT, VIJAYAWADA 4 THE CIT(A), VIJAYAWADA 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM