PCR Developers Pvt.Ltd, Hyderabad V. DCIT, Circle-16(3), Hyderabad

ITA 677/HYD/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6111 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: S RAMA RAO; D SATYANARAYANA
• Keywords: Business expenditure; Additional evidence; Ignorance of law
• Section: 40A(3); 143(3); 142(1); 133A; 234B; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 676 & 677/HYD/2011 ASSESSMENT YEARS: 2006-07 AND 2007-08 M/S PCR DEVELOPERS (P) LTD., HYDERABAD. PAN AADCP 6653J VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 16(3), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 753/HYD/2014 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 16(3), HYDERABAD. VS. M/S PCR DEVELOPERS (P) LTD., HYDERABAD. PAN AADCP 6653J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO & SHRI D. SATYANARAYANA REVENUE BY : SMT. U. MINI CHANDRAN DATE OF HEARING 24-01-2017 DATE OF PRONOUNCEMENT 23-02-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THE TWO APPEALS FILED BY THE ASSESSEE ARE AGAINST THE ORDERS OF CIT(A) WITH REGARD TO APPEAL AGAINST 143(3) ASSESSM ENT FOR THE AYS 2006-07 AND 2007-08. THE REVENUE HAS FILED APPEAL A GAINST THE ORDER OF CIT(A) WITH REGARD TO APPEAL AGAINST 143(3) R.W. S. 147 ASSESSMENT FOR THE AY 2007-08. 2 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. ITA NO. 676 & 677/HYD/2011 FOR AY 2006-07 & 2007-0 8 BY THE ASSESSEE 2. AS THE ISSUES IN BOTH THESE APPEALS ARE MATERIAL LY IDENTICAL, WE REFER TO THE FACTS FROM AY 2006-07 BEING ITA NO. 67 6/HYD/2011. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTA TE, FILED ITS E- RETURN OF INCOME FOR THE AY 2006-07 ON 29/11/2006 A DMITTING TOTAL INCOME OF RS. 12,08,340/-. THE AO COMPLETED THE ASS ESSMENT U/S 143(3) OF THE ACT BY DETERMINING THE TOTAL INCOME A T RS. 43,93,962/-. 3.1 A SURVEY UNDER SECTION 133A WAS CONDUCTED ON TH E PREMISES OF THE ASSESSEE ON 28.02.2006 AND BOOKS OF ACCOUNTS WE RE IMPOUNDED DURING SURVEY. ON EXAMINING THE BOOKS OF ACCOUNTS, IT WAS FOUND THAT THE ASSESSEE HAD MADE SEVERAL PAYMENTS IN CASH EXCE EDING RS. 20,000/- THEREBY VIOLATING THE PROVISIONS OF SECTIO N 40A(3) OF THE ACT. THE PAYMENTS WERE PRIMARILY MADE TOWARDS LAND DEVEL OPMENT, MISCELLANEOUS EXPENSES, LAND PAYMENTS. THE ASSESSIN G OFFICER FOUND THAT A LARGE NUMBER OF PAYMENTS WERE MADE IN VIOLAT ION OF SECTION 40A(3). ACCORDINGLY, THE ADDITIONS WERE MADE AS PER PARAS 3 TO 8 OF THE ASSESSMENT ORDER. 4. DURING APPEAL PROCEEDINGS, THE ASSESSEE'S MAIN A RGUMENTS WERE THAT THE PAYMENTS WERE MADE TO POOR AGRICULTUR ISTS WHO DID NOT HAVE BANK ACCOUNTS. SECONDLY, THE ASSESSEE STATED T HAT IT DID NOT HIRE ANY CONTRACTOR AND THE PAYMENTS WITH REGARD TO THE DEVELOPMENT WORKS WERE MADE TO THE STAFF OF THE ASSESSEE AND TH E MASTRIES. IT WAS ALSO STATED THAT THE PAYMENTS WERE MADE DIRECTLY TO THE LABOURERS. THE THIRD ARGUMENT IS THAT SOME OF THE PAYMENTS WER E PETTY IN NATURE AND WERE MADE TO VARIOUS EMPLOYEES OF THE ASSESSEE. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) CONFIRMED THE ADDITIONS MADE U/S 40A(3) BY THE AO B Y OBSERVING AS UNDER: 3 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. 1. THERE IS NO DOUBT ABOUT THE FACT THAT A LARGE NU MBER OF PAYMENTS HAVE BEEN MADE VIOLATING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 2. THE EXPLANATION THAT PAYMENTS WERE MADE TO POOR LAND OWNERS, WHO DID NOT HAVE BANK ACCOUNTS IS COMPLETEL Y UNSUBSTANTIATED. THE ONUS LIES SQUARELY ON THE ASSE SSEE TO NOT ONLY PROVIDE DETAILS OF ITS PAYMENTS THROUGH EN TRIES IN THE BOOKS OF ACCOUNT, BUT ALSO TO SUBSTANTIATE THE ARGU MENTS MADE BY IT. THE ASSESSEE HAS NOT EVEN PROVIDED FULL DETA ILS OF EACH AND EVERY TRANSACTION. MOREOVER, THE LANDS WERE SIT UATED CLOSE TO SHAMSHABAD, WHICH HOUSES ONE OF BEST AIRPORTS IN THE COUNTRY ALONG WITH MANY OTHER FACILITIES. THE ASSES SING OFFICER HAS RIGHTLY STATED THAT HE CANNOT ACCEPT THE AFOREM ENTIONED ARGUMENTS OF THE ASSESSEE PERTAINING TO NO BANKING FACILITIES. FURTHER, THE ARGUMENT THAT THE LAND OWNERS INSISTED ON CASH PAYMENTS IS ALSO NOT VALID. NOT ONLY IT IS VIOLATIV E OF THE LEGAL PROVISIONS, BUT IT IS ALSO UNSUBSTANTIATED. FURTHER , THE ASSESSEE HAS NOT PROVIDED A SINGLE SHRED OF EVIDENC E TO SHOW THAT PAYMENTS IN SMALL AMOUNTS WERE MADE TO ITS WOR KERS DIRECTLY. THIS ARGUMENT IS INCORRECT AND IS NOT SUP PORTED BY ANY EVIDENCE ON RECORD. PAYMENTS HAVE BEEN MADE TO SPEC IFIC PERSONS CLEARLY INDICATED BY THE ASSESSING OFFICER IN HIS ORDER AND THESE HAVE BEEN IN VIOLATION OF SECTION 40A(3). THE OTHER ARGUMENTS OF THE ASSESSEE ARE ALSO COMPLETELY UNSUBSTANTIATED. EVEN ADEQUATE DETAILS HAVE NOT BEE N PROVIDED BY THE ASSESSEE. 6. AS REGARDS THE ADDITIONS OF RS. 10,06,154/- & RS . 6,16,109/- ON ACCOUNT OF COMMISSION PAYMENTS, THE ASSESSEE MADE P AYMENTS OF COMMISSION TO AN EXTENT OF RS. 1,58,73,210/- WITH R EGARD TO FOUR VENTURES. THE AO MADE THE DISALLOWANCE FOR THE REAS ON THAT COMMISSION PAYMENTS ALLOWABLE WOULD BE 6.4% OF THE SALE PRICE AND, THEREFORE, HE DETERMINED THE COMMISSION PAYMENT AT RS. 71,50,000/- IN RESPECT OF ALL PROJECTS. HE ARRIVED AT THE PROPO RTIONATE AMOUNT DISALLOWABLE FOR THE YEAR UNDER CONSIDERATION AT RS . 10,06,154/- AND RS. 6,16,109/- FOR THE TWO VENTURES UNDERTAKEN DURI NG THE YEAR. 7. BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN RESTRICTING THE COMMISSION PAYMENTS BA SED ON THE STATEMENTS OF THE PERSONS TO WHOM THE COMMISSION WA S PAID AND COPIES OF THE STATEMENTS SO RECORDED WERE NOT PROVI DED TO THE 4 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. ASSESSEE. IT WAS FURTHER SUBMITTED THAT IN THE ASSE SSMENT ORDER THE AO MENTIONED AT PAGE 11 THE RATE OF COMMISSION RANG ES BETWEEN RS. 50 AND 100/- PER SQ.YD. AND ARRIVED AT A RATE OF 4 % TO 8% BASED ON THE SALE PRICE OF EACH SQ. YARD BUT RESTRICTED THE SAME TO 6.4%. IT WAS SUBMITTED THAT THIS IS THE PROBABLE AMOUNT ARRIVED AT BY HIM AS AGAINST THE ACTUAL AMOUNT PAID AND RECORDED IN THE BOOKS OF ACCOUNT. FINALLY, IT WAS SUBMITTED THAT AS THE AO DID NOT PR OVIDE AN OPPORTUNITY TO CROSS EXAMINE THE PERSONS TO WHOM COMMISSION WAS PAID, THE ASSESSEE SUBMITTED THAT THE ADDITION MADE BY THE AO WAS NOT JUSTIFIABLE. 8. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT NO ENQUIRY HAD BEEN CONDUCTED AT THE BACK OF THE ASSESSEE AND IT WAS THE ASSESSEE WHO WAS ASKED BY T HE AO TO PROVIDE DETAILS OF ALL THE PERSONS, TO WHOM COMMISS IONS WERE PAID. HE OBSERVED THAT AS CLEARLY BROUGHT OUT IN THE ASSE SSMENT ORDER BY THE AO, THE ASSESSEE COULD NOT EVEN FURNISH THE NAM ES AND ADDRESS OF MOST OF THE PERSONS TO WHOM IT HAD CLAIMED TO HA VE GIVEN COMMISSION PAYMENTS. IT DID NOT IDENTIFY THE TRANSA CTION WISE COMMISSION PAYMENTS, THE RATES AT WHICH COMMISSIONS WERE PAID OR ANY AGREEMENT OF COMMISSION. HE OBSERVED THAT MOREO VER, THE AO HAD RIGHTLY POINTED OUT THAT THE COMMISSION PAYMENT S DEBITED TO THE LEVEL OF 20% IS EXCESSIVELY HIGH AND DOES NOT CONFI RM TO EITHER THE MARKET RATES OR HUMAN PROBABILITY AND MOREOVER, THE ASSESSEE DID NOT MAKE ANY SPECIFIC REQUEST DURING THE ASSESSMENT PRO CEEDINGS FOR EXAMINATION OF ITS OWN COMMISSION AGENTS. IN VIEW O F THE ABOVE OBSERVATIONS, THE CIT(A) CONFIRMED THE ADDITIONS MA DE BY THE AO TOWARDS COMMISSION PAYMENTS. 9. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS ERRONEOUS, UNJUST AND CONTRARY TO THE FACTS OF THE CASE. 5 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE PROVISIONS OF SEC. 40A(3) WOULD AP PLY IN RESPECT OF THE PAYMENTS MADE FOR ACQUISITION OF LAND IN SIL ICON COUNTY AND FURTHER ERRED IN CONFIRMING THE ADDITION MADE B Y THE ASSESSING OFFICER OF RS. 7,71,298/-. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE PROVISIONS OF SEC.40A(3) WOULD APP LY IN RESPECT OF THE PAYMENTS MADE FOR ACQUISITION OF LAND IN SIL ICON COUNTY-II AND FURTHER ERRED IN CONFIRMING THE ADDITION MADE B Y THE ASSESSING OFFICER OF RS. 7,06,659/-. 4. THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS ) ERRED IN CONFIRMING THE ADDITION OF RS.11,554/- BEING DISALL OWANCE MADE U/S 40A(3) IN RESPECT OF LAND DEVELOPMENT EXPENSES INCURRED BY THE APPELLANT FOR SILICON COUNTY-II. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.1,18,605/- BEING DISA LLOWANCE MADE U/S 40A(3) IN RESPECT OF LAND DEVELOPMENT EXPENSES INCURRED BY THE APPELLANT FOR SILICON COUNTY. 6. THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS ) ERRED IN CONFIRMING THE ADDITION OF RS.8,587/- BEING DISALLO WANCE MADE U/S 40A(3) IN RESPECT OF BUSINESS PROMOTION EXPENSE S INCURRED BY THE APPELLANT FOR SILICON COUNTY. 7. THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS ) ERRED IN CONFIRMING THE ADDITION OF RS.6,660/- BEING DISALLO WANCE MADE U/S 40A(3) IN RESPECT OF LAND COMMISSION PAYMENTS I NCURRED BY THE APPELLANT FOR SILICON COUNTY. 8. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN APPLYING THE PROVISIONS OF SEC.40(A)(IA) IN RESPECT OF SILICON COUNTY-II AND FURTHER ERRED IN ARRIVING AT THE DISA LLOWANCE OF RS. 46,751/-. 9. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN ARRIVING AT A DISALLOWANCE OF RS.10,06,154/- ON ACC OUNT OF PAYMENTS TOWARDS COMMISSION IN RESPECT OF SILICON C OUNTY. 10. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN ARRIVING AT A DISALLOWANCE OF RS.6,16,109/- ON ACCO UNT OF PAYMENTS TOWARDS COMMISSION IN RESPECT OF SILICON C OUNTY-II. 9.1 THE GROUNDS RAISED BY THE ASSESSEE IN AY 2007-0 8 ARE AS FOLLOWS: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS ERRONEOUS, UNJUST AND CONTRARY TO THE FACTS OF THE CASE. 6 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.1,48,89,771/- MADE BY THE ASSESSING OFFICER APPLYING THE PROVISIONS OF SEC. 4 0A(3) IN RESPECT OF THE FOLLOWING PROJECTS: A) HIGHWAY PARADISE .. RS.17,76,764 B) SILICON COUNTY .. RS.18,08,077 C) SILICON COUNTY-II .. RS.16,02,401 D) SILICON COUNTY-III .. RS.66,13,927 E) ROYAL RESIDENCY .. RS.29,37,438 F) CRYSTAL PARK .. RS. 1,51,164 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.88,93,980/- BEING THE DISALLOWANCE OF PROPORTIONATE COMMISSION PAID DURING THE PREVIOU S YEAR UNDER CONSIDERATION. 4. THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS ) ERRED IN CONFIRMING LEVY OF INTEREST U/S 234B OF RS.30,64,68 1/- AND U/S 234C OF RS.26,427/-. 10. LD. AR SUBMITTED THAT THE ASSESSEE IS IN BUSINE SS OF DEVELOPMENT OF REAL ESTATE. IN THAT PROCESS, IT HAS BOUGHT AGRICULTURAL LANDS IN AND AROUND SHAMSHABAD AREA. ALL THESE LAND S WERE DIRECTLY PURCHASED FROM VILLAGERS WHEREIN THERE IS NO BANKIN G FACILITY AVAILABLE AT THE RELEVANT POINT OF TIME WHEN THE ASSESSEE PUR CHASED THE LANDS. HOWEVER, HE OBJECTED TO THE OBSERVATION OF CIT(A) T HAT SHAMSHABAD AREA IS WELL DEVELOPED AND IT HAD BANKING FACILITIE S. HE SUBMITTED THAT THESE WERE SUBSEQUENT DEVELOPMENTS DUE TO VARIOUS D EVELOPMENTS CARRIED OUT BY THE GOVT. WHEN THE ASSESSEE BOUGHT VARIOUS LANDS FROM THE LAND OWNERS WHO ARE BASICALLY AGRICULTURIS TS, THE PAYMENTS WERE MADE TO LANDLORDS AT THE TIME OF PURCHASE. HE SUBMITTED THAT NO DOUBT PAYMENTS WERE MADE IN CASH MORE THAN RS. 20,0 00/-, BUT, THESE PAYMENTS WERE AS PER RULE 6DD(G) OF THE RULES . HENCE, THE PROVISIONS OF SECTION 40A(3) WILL NOT APPLY IN RESP ECT OF THESE PAYMENTS. HE FURTHER SUBMITTED THAT THE ASSESSEE HA S MADE SUBMISSIONS BEFORE THE AO THAT DURING THIS AY, PAYM ENTS WERE NOT AT ALL CONSIDERED AS EXPENDITURE IN THE P&L A/C, THE Q UESTION OF DISALLOWANCE U/S 40A(3) WILL NOT ARISE AS THESE PAY MENTS WERE SHOWN AS ADVANCES GIVEN TO LAND OWNERS. FURTHER, LD. AR R ELIED ON THE ORDER 7 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CAS E OF SAHITYA HOUSING PVT. LTD. VS. DCIT IN ITA NO. 246/HYD/2011, ORDER DATED 24/01/2014. LD. AR ALSO SUBMITTED A CHART OF LAND O WNERS SHOWING THE DETAILS SUCH AS LOCATION OF LAND, AMOUNT PAID TO THE LAND OWNERS AND ADDRESSES OF THE PARTIES. 10.1 WITH REGARD TO GROUND NOS. 8 & 9, PERTAINING T O DISALLOWANCE U/S 40(A)(IA) AND OTHER EXPENDITURE, LD. AR SUBMITTED THAT FOR THE LAND DEVELOPMENT EXPENSES, ASSESSEE HAS MADE PAYMENTS DI RECTLY TO THE EMPLOYEES OF THE COMPANY TO CARRY OUT THE EXPENDITU RE RELATING TO LAND DEVELOPMENT IN THE VILLAGES WHERE THERE IS NO BANKING FACILITY, AS IT IS NECESSITATED THAT EMPLOYEES OF THE COMPANY HA D TO CARRY LARGE AMOUNT OF CASH TO CARRY OUT DEVELOPMENTS AT THE SIT E WHERE THERE IS NO BANKING FACILITIES. 10.2 WITH REGARD TO COMMISSION PAYMENTS, LD. AR SUB MITTED THAT IN THE REAL ESTATE BUSINESS, COMMISSION AGENTS PLAY A CRUCIAL ROLE AS THEY HAVE TO APPROACH, CONVINCE AND BRING THE CUSTO MERS TO THE COMPANY. THE COMPANY IS BOUND TO ANNOUNCE ATTRACTIV E COMMISSION FOR THE AGENTS IN ORDER TO IMPROVE THE BUSINESS, WH ICH WAS IN FACT AROUND 20% OF THE SALE PRICE. HE REITERATED THAT TH E PAYMENT MADE BY THE ASSESSEE TO THE AGENTS WERE ACCORDING TO THE PO LICY ADOPTED BY THE ASSESSEE AND WERE ACTUAL PAYMENTS MADE TO THE A GENTS. HE, THEREFORE, CONTENDED THAT AO CANNOT DETERMINE QUANT UM OF COMMISSION WHICH THE COMPANY SHOULD HAVE INCURRED. 11. LD. DR BASICALLY SUPPORTED THE ORDERS OF AO AND CIT(A) AND FURTHER SUBSTANTIATED AND ARGUED THAT RULE 6DD(G) B ASICALLY SPEAKS ABOUT ONLY ORDINARY RESIDENCE OF THE PARTIES. IT IS RELEVANT TO NOTICE THAT CHART SUBMITTED BEFORE THE HONBLE TRIBUNAL BY THE AR IN WHICH THE ADDRESSES WERE GIVEN, WHICH HIGHLIGHTS THAT ORD INARY RESIDENCE OF THE PARTIES, WHO SOLD LAND TO THE ASSESSEE ARE ORDI NARY RESIDENTS IN AND AROUND HYDERABAD WHERE THERE IS NO SHORTAGE OF BANKING FACILITIES. IT IS ONLY TO INFER THAT THESE PAYMENTS WERE MADE IN THE PLACE OF RESIDENCE AND NOT IN THE PLACE OF SALE, HE NCE, SHE 8 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. VEHEMENTLY ARGUED THAT THESE PAYMENTS WERE NOT AS P ER RULE OF EXCLUSION UNDER RULE 6DD(G) OF THE RULES. 11.1 FOR THE OTHER TYPES OF PAYMENTS FOR LAND DEVEL OPMENT AND COMMISSION, SHE RELIED ON THE ORDERS OF REVENUE AUT HORITIES. 12. IN THE REJOINDER, LD. AR READ OUT RULE 6DD(G), IN WHICH NOT ONLY THE RULE SPEAKS ABOUT ORDINARY RESIDENCE, BUT, IT A LSO SPEAKS ABOUT OR CARRYING OF ANY BUSINESS, PROFESSION OR VOCATI ON, IN ANY SUCH VILLAGE OR TOWN. HE REITERATED THAT THE PAYMENTS W ERE MADE TO THE LAND OWNERS AFTER THE REGISTRATION IN THE VILLAGES ITSELF AND THE PAYMENT IN THE PLACE OF VILLAGES ALSO FALLS WITHIN THE RULE 6DD(G). HE SUBMITTED THAT RULES SHOULD BE APPLIED IN TOTO AND NOT INTERPRETING PART OF THE RULE. HE RELIED ON THE ORDER OF THE COORDINA TE BENCH IN THE CASE OF SAHITYA HOUSING PVT. LTD. (SUPRA). 13. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF SAHITY A HOUSING PVT. LTD. (SUPRA) WHEREIN THE COORDINATE BENCH OBSERVED AS UN DER: 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIE S, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES. SEC 40A(3) READS AS UNDER: PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT S HALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB SECTI ON (3) AND THIS SUB SECTION WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON I N A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAY EE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES IN SUCH CASES AND UNDER SUCH CIRCUM STANCES AS MAY BE PRESCRIBED HAVING REGARD TO THE NATURE AND EXTENT OF BANKING F ACILITIES AVAILABLE CONSIDERATIONS OF BUSINESS EXPENDITURE AND OTHER RELEVANT FACTORS. 14. THE EXCEPTIONS TO THE APPLICATION OF SEC 40A (3 ) IS LAID DOWN IN RULE 6DDJ. RULE 6DD AFTER ITS AMENDMENT FROM 1995, READS AS UNDER: RULE 6DD PRIOR TO 25.7.1995, CLAUSE (J) OF RULE 6DD OF THE I T RULES READ AS FOLLOWS: 6DD....... I) IN ANY OTHER CAUSE, WHERE THE ASSESSE E SATISFIES THE ASSESSING OFFICER THAT THE PAYMENT COULD NOT BE MADE BY A CROSS CHEQUE DRAW ON A BANK OR BY A DRAWN ON A BANK OR BY A CROSSED BANK DRAFT...... (1) DUE TO EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES OR 9 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. (2) BECAUSE PAYMENT IN THE MANNER AFORESAID WAS NO T PRACTICABLE, OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE, HAVING REGA RD TO THE NATURE OF THE TRANSACTION AND THE NECESSITY FOR EXPEDITIOUS SETTLEMENT THEREO F. AND ALSO FURNISHES EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFICER AS TO THE GENUINENESS OF THE PAYMENT AND IDENTITY OF THE PAYE E. THE ABOVE CLAUSE (J) OF RULE 6DD HAS BEEN OMITTED B Y THE IT (FOURTEENTH AMENDMENT) RULES 1995 W.E.F. 27.5.1995. IT IS PERTINENT TO REF ER AT THIS JUNCTURE, TO THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SM T. CH. MANGAYAMMA VS. UNION OF INDIA AND OTHERS (239 ITR 687), WHEREIN CONSIDERING THE CONSTITUTIONAL VALIDITY OF THE PROVISIONS OF S.40A(3) OF THE ACT IN THE LIGHT OF T HE ABOVE AMENDMENT MADE TO RULE 6DD OF THE IT RULES, THE HONBLE HIGH COURT OBSERVED AN D HELD AT PAGE 693 OF THE REPORTS (239 ITR 687) AS FOLLOWS: IN VIEW OF THE AFORESAID PRINCIPLES AS LAID DOWN AND THE OBJECT AS SOUGHT TO BE ACHIEVED U/S 40A(3) OF THE ACT, ANY CHANGES MADE IN THE SUBO RDINATE LEGISLATION WOULD NOT IN ANY WAY AFFECT THE SUBSTANTIVE PROVISION. MOREOVER, BY DELETING THE CIRCUMSTANCES AS CONTEMPLATED EARLIER, VIZ., SUB CLAUSES (1) AND (2) OF RULE 6DD(J) THE OBJECTS OF CURBING THE CIRCULATION OF BLACK MONEY AND REGULATING THE BUSIN ESS TRANSACTIONS BECOME MORE STRENGTHENED AND IT AVOIDS ANY UNDUE ADVANTAGE BEIN G TAKEN BY UNSCRUPULOUS ASSESSEES OR LITIGATION BEING MULTIPLIED. AS THE POSITION STA NDS NOW 20% OF THE CASH TRANSACTIONS EXCEEDING RS.20,000 ARE DISALLOWED IN COMPUTING THE BUSINESS EXPENDITURE BUT NOT THE ENTIRE RS.20,000/- WHILE THE AMENDED PROVISION CONF ERS ADVANTAGE TO THE ASSESSEE TO THIS EXTENT, THE CIRCUMSTANCES PERMITTED TO BE TAKE N INTO ACCOUNT BY THE ASSESSING AUTHORITY ARE NO LONGER AVAILABLE BY REASON OF DELE TION OF OLD RULE 6DD(J). BUT THAT BY ITSELF DOES NOT MAKE SECTION 40A(3) ARBITRARY AND U NCONSTITUTIONAL. ONE CANNOT PLEAD IGNORANCE OF LAW AND MAKE CASH PAYMENTS CONTRARY TO LAW. IT IS TOO LATE IN THE DAY TO ACCEPT ANY SUCH PROPOSITION. FURTHERMORE, IN THE PR ESENT DAY BANKING SCENARIO, THE MODE OF PAYMENT BY WAY OF CROSSED CHEQUES OR DEMAND DRAFTS CANNOT BE SAID TO BE ONEROUS DUTY CASE ON AN ASSESSEE WHICH CAN BE MADE A FOUNDATION FOR ATTACKING THE VALIDITY OF THE SAID SECTION. THEREFORE, IT IS NOT OPEN FOR ATTACKING THE PROVISION AS VIOLATIVE OF ANY PROVISION OF THE CONSTITUTION. THE RE IS NO ARBITRARINESS OR DISCRIMINATION IN THE SAID PROVISION WARRANTING INTERFERENCE BY TH IS COURT UNDER THE CIRCUMSTANCES. IN VIEW OF THE ABOVE THERE IS ABSOLUTELY NO MERITS IN THE CHALLENGE MADE AS TO THE VALIDITY OF SECTION 40A(3) OF THE ACT BY MERE DELETION OF SU B CLAUSES (1) AND (2) OF RULE 6DD(J). THE SAID PROVISION IS PERFECTLY VALID AND WE MAY HASTEN TO ADD THAT THE DELETION OF SUB CLAUSES (1) AND (2) OF RULE 6DD(J) IS ONLY A STEP F ORWARD IN THE ACHIEVEMENT OF THE AVOWED OBJECT ENVISAGED U/S 40A(3) OF THE ACT. 15. THEREFORE THE ONLY EXCEPTION THAT THE ASSESSEE CAN CLAIM IS WHEN PAYMENTS ARE REQUIRED TO BE MADE ON DAYS WHEN THE BANKS WERE CLO SED ON ACCOUNT OF HOLIDAYS OR STRIKE. TRANSACTIONS AFTER THE BANKING HOURS IN THE COURSE OF REGULAR BUSINESS WILL NOT FALL WITHIN THIS EXCEPTION. IN THOSE TRANSACTIONS, THE P AYMENT IS NOT REQUIRED TO BE MADE WHEN THE BANKS ARE CLOSED I.E. AFTER BANKING HOURS. FURTHER THE PURPOSE OF THE DISALLOWANCE U/S 40A (3) IS TO DISSUADE TRANSACTION S BY CASH. 16. SEC 40A(3) ITSELF PROVIDES THAT THE EXCEPTIONS WILL HAVE TO BE PRESCRIBED HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITI ES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. TAKING ALL T HESE FACTORS, CONSIDERING THE NATURE OF ACTIVITY OF THE ASSESSEE AND THE NECESSITY FOR THEM TO PAY CASH TO THE LAND OWNERS WE ARE 10 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. OF THE OPINION THAT THE CONDITION UNDER RULE 6DD FO R EXEMPTION VIZ., TRANSACTIONS SHOULD HAVE TAKEN PLACE ON BANK HOLIDAYS SHOULD BE READ DO WN IN THE CASE OF THE ASSESSEE. 17. IN THE CASE UNDER CONSIDERATION, NO BANKING FAC ILITY IS AVAILABLE WHERE THE PROPERTIES WERE PURCHASED BY ASSESSEE, THEREFORE, THERE WAS NO CHOICE FOR THE ASSESSEE EXCEPT TO MAKE THE PAYMENTS IN CASH DUE TO EXCEPTIONAL OR UNA VOIDABLE CIRCUMSTANCES AS PROVIDED UNDER RULE 6DD. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION OF RS. 4,09,98,105/- MADE U/S 4 0A(3) OF THE ACT. 13.1 IN THE CASE UNDER CONSIDERATION, THE FACTS ARE SIMILAR TO THE FACTS IN THE ABOVE DECISION OF THE COORDINATE BENCH . AS PER THE SAID DECISION, THE PAYMENTS ARE MADE IN THE PLACE OF REG ISTRATION WHEREIN THERE IS NO BANKING FACILITIES, ARE NOT COVERED BY THE PROVISIONS OF SECTION 40A(3). IN THE GIVEN CASE, LD. DR SUBMITTED THAT AS PER 6DD(G), THE ORDINARY RESIDENCE OF THE LAND OWNERS A RE RELEVANT, AS THE PAYMENT WOULD HAVE MADE IN THE PLACE OF RESIDENCE N OT IN THE PLACE OF REGISTRATION. WE ARE NOT IN A POSITION TO APPREC IATE THIS VIEW BECAUSE THE RULE 6DD(G) EXCLUDES THE PAYMENT, WHICH IS MADE IN A VILLAGE OR TOWN, WHICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERSON WHO ORDINARILY RESIDES, OR IS CARRYING ON ANY BUSINESS, PROFESSION OR VOCATION, IN ANY SUCH VILLA GE OR TOWN. IN THE ABOVE RULE, WITH REGARD TO THE PERSON WHO RECEIVES THE PAYMENT, IT PRESCRIBES TWO SITUATIONS WHEREIN FIRST SITUATION, RULE ALLOWS THE PAYER TO PAY IN THE PLACE OF RESIDENCE AND IN THE SECOND SITUATION, THE PAYMENT MADE IN THE PLACE OF THE DEALING OR PLACE O F REGISTRATION IN WHICH THE PERSON CARRIES THE BUSINESS, PROFESSION O R VOCATION. IN THE GIVEN CASE, THE ASSESSEE CLAIMS THAT THE PAYMENT WA S MADE IN THE PLACE OF VOCATION AND THE REVENUE INFERS THAT THE P AYMENT WAS MADE IN THE PLACE OF RESIDENCE DUE TO THE FACT THAT THE BANKING FACILITIES ARE AVAILABLE IN THE PLACE OF RESIDENCE. THE REVENUE HA S NOT SUBSTANTIATED ITS CLAIM THAT THE PAYMENTS WERE ACTU ALLY MADE IN THE PLACE OF RESIDENCE. IN THE ABSENCE OF SUCH EVIDENCE , WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THESE PAYMENTS WERE MADE IN THE PLACE OF VOCATION I.E., THE PAYMENTS WE RE MADE IN VILLAGES WHERE THE AGRICULTURAL LANDS ARE SITUATED. 11 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. 13.2 CONSIDERING THE ABOVE DISCUSSION AND THE DECIS ION OF THE COORDINATE BENCH WHICH IS DIRECTLY ON THIS POINT, W E SET ASIDE THE ORDERS OF CIT(A) AND ALLOW THE APPEALS OF THE ASSES SEE IN BOTH THE YEARS UNDER CONSIDERATION. 13.3 WITH REGARD TO LAND DEVELOPMENT EXPENDITURE, T HESE EXPENSES WERE INCURRED IN THE VILLAGES TO DEVELOP THE LAND, WHERE THERE IS NO BANKING FACILITIES. HENCE, WE ARE INCLINED TO ACCEP T THE CONTENTION OF THE ASSESSEE THAT THESE PAYMENTS WERE MADE DIRECTLY TO THE EMPLOYEES OF THE COMPANY TO CARRY OUT THE DEVELOPME NT WORK. ACCORDINGLY, THESE EXPENSES ARE ALSO NOT HIT BY THE PROVISIONS OF SECTION 40A(3). 13.4 WITH REGARD TO PAYMENT OF COMMISSION, WE HAVE NOTICED THAT THE AO HAS DISALLOWED THE PAYMENT TO AGENTS DUE TO THE FACT THAT GENUINENESS OF THE PAYMENTS WERE NOT PROVED DUE TO NON-COMPLIANCE TO THE NOTICES OF AO AND MISMATCH OF THE SIGNATURES ON THE CONFIRMATION LETTERS SUBMITTED BY THE ASSESSEE. THE LD. AO HAD ACCEPTED THE PAYMENTS WHICH ARE PROPERLY DOCUMENTED . HENCE, WE ACCEPT THE FINDINGS OF THE AO AND ACCORDINGLY GROUN DS RAISED BY THE ASSESSEE IN THIS REGARD ARE DISMISSED. 14. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ITA NO. 753/HYD/2014 BY THE REVENUE FOR AY 2007-08 15. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: I. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH IN LAW AND IN FACTS OF THE CASE. II. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS.1,29,10,312/- MADE U/S 40A(3) OF THE ACT REPRESE NTING THE PAYMENTS MADE IN CASH TO LAND OWNERS. III. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.49,900/- MADE U/S 40A(3) TOWARDS PAYMENTS MADE TO EMPLOYEES FOR INCURRING EXPENDITURE ON DEVELOPMENT. 12 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. IV. THE CIT(A) ERRED IN IGNORING THE PROVISIONS OF RULE-46A WHERE IN THE CIT(A) HAS TO CALL FOR REMAND REPORT FROM TH E ASSESSING OFFICER, BEFORE ACCEPTING THE ADDITIONAL EVIDENCE P RODUCED BEFORE HIM. V. THE CIT(A) ERRED IN IGNORING THE PROVISIONS THAT THE COMPANY WILL NOT GET ANY IMMUNITY FROM THE APPLICATION OF P ROVISIONS OF SECTION 40A(3), AS THE ASSESSEE FAILED TO PRODUCE E VIDENCE IN SUPPORT OF ITS CLAIM THAT THE CIRCUMSTANCES STIPULA TED UNDER RULE 6DD(G) WERE PREVAILING ON THE DATES OF PAYMENTS IN CASH. VI. THE CIT(A) ERRED IN IGNORING THE FACT THAT THE ASSESSEE HAD FILED SEPARATE TRADING AND P & L ACCOUNT FOR SEPARA TE VENTURES AND SHOWN PAYMENTS TO SAME AGENTS WHO ARE COMMONLY EMPLOYED. THUS THE CIT(A) ERRED IN DELETING THE DIS ALLOWANCE OF RS.49,900/- MADE U/S 40A(3) TOWARDS PAYMENTS AGENTS . 16. BRIEFLY THE FACTS OF THE CASE ARE THAT FOR THE AY 2007-08, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/10/2007 A DMITTING AN INCOME OF RS. 1,33,57,380/-. THE AO ISSUED NOTICES U/S 143 (2) AND 142(1) OF THE IT ACT. THE ASSESSEE FILED ALL THE DETAILS. THE AO COMPLETED THE ASSESSMENT U/S 143(3) ON 31/12/2009 DETERMINING THE TOTAL INCOME AT RS. 3,71,41,126/-. THE AO, THEREAFTER, ISSUED NOTIC E U/S 148 ON 29/03/2012 REQUIRING THE ASSESSEE TO FILE THE RETUR N OF INCOME. THE AO DID NOT FURNISH THE REASONS FOR REOPENING THE AS SESSMENT. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE FIL ED DETAILED EXPLANATION AS TO WHY THE PROVISIONS OF SECTION 40A (3) ARE NOT APPLICABLE. THE AO, HOWEVER, COMPLETED THE ASSESSME NT U/S 143(3) RWS 147 ON 28/12/2012 DETERMINING THE TOTAL INCOME AT RS. 5,01,01,342/- DISALLOWING AN AMOUNT OF RS. 1,29,10, 312/- REPRESENTING THE PAYMENTS MADE TO THE LAND OWNERS BY APPLYING TH E PROVISIONS U/S 40A(3) AND ALSO DISALLOWED RS. 49,900/- REPRESENTIN G THE LAND DEVELOPMENT EXPENSES. 17. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND FILED WRITTEN SUBMISSI ONS, WHICH WERE EXTRACTED BY THE CIT(A) IN HIS ORDER AT PAGES 2 TO 4 OF THE ORDER WHEREIN DETAILS OF CASH PAYMENT FOR PURCHASE OF LAN D FOR AY 2006-07 AND 2007-08 IN A TABULAR FORM WERE ALSO THERE. 13 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. 18. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT EXCEPT IN THE CASE OF MAHESWARAM, THE LANDS ARE SITUATED IN THE VILLAGES WHICH ARE NOT COVERED BY B ANKING FACILITIES. HE NOTED THAT THE ASSESSEE SUBMITTED THAT THE PAYMENTS WERE MADE AT THE SITE TO ALL THE AGRICULTURISTS AND THAT AT THE TIME OF MAKING SUCH PAYMENT, THE VILLAGES WERE NOT GOVERNED BY BANKING FACILITIES. THE CIT(A), THEREFORE, HELD THAT THE EXCEPTIONS PROVIDE D IN RULE 6DD(G) WOULD APPLY AND PROVISIONS U/S 40A(3) WOULD NOT APP LY. HE, ACCORDINGLY, DELETED THE ADDITION OF RS. 1,29,10,31 2/-. 18.1 WITH REGARD TO THE ADDITION MADE OF RS. 49,900 /- U/S 40A(3) OF THE ACT, THE ASSESSEE SUBMITTED THAT THE PAYMENTS W ERE MADE TO THE EMPLOYEES FOR INCURRING THE EXPENDITURE ON DEVELOPM ENT. EACH PAYMENT MADE BY THE EMPLOYEES IS NOT MORE THAN RS. 20,000/-. THE CIT(A), THEREFORE, HELD THAT THE PROVISIONS U/S 40A (3) WOULD NOT APPLY AND ACCORDINGLY, THE ADDITION OF RS. 49,900/- MADE BY THE AO DELETED BY THE CIT(A). 19. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US. 20. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. WHILE DELETING THE ADDITION MADE BY THE AO U/S 40A(3), THE CIT(A) CATEGORICALLY HELD THAT THE EXCEPTIONS PROVI DED IN RULE 6DD(G) WOULD APPLY AND PROVISIONS U/S 40A(3) WOULD NOT APP LY AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THAT THE PAYMENTS WERE MADE AT THE SITE TO ALL AGRICULTURISTS AND THAT AT THE TIME OF MAKING SUCH PAYMENT, THE VILLAGES WERE NOT GOVERNED BY BAN KING FACILITIES. THEREFORE, FOLLOWING THE CONCLUSIONS DRAWN IN ASSES SEES APPEALS (SUPRA), WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 21. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED. 14 ITA NO. 676 & 677/H/11 & 753/H/14 M/S PCR DEVELOPERS (P) LTD. 22. TO SUM UP, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 23 RD FEBRUARY, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 23 RD FEBRUARY, 2017 KV COPY TO:- 1) M/S PCR DEVELOPERS PVT. LTD., C/O SHRI S. RAMA R AO, 3-6-643, SHRIYAS ELEGANCE, FLAT NO. 102, ST. NO . 9, HIMAYAT NAGAR, HYDERABAD 29. 2) DCIT, CIRCLE 16(3) HYDERABAD 3) CIT(A) - V, HYDERABAD 4 CIT IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE