ACE INDIA ABODES LTD., Jaipur V. ACIT, Jaipur

ITA 79/JPR/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7199 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 01-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Assessee Lawyers: G G MUNDRA
• Keywords: Business income; Additional evidence; Cost of acquisition
• Section: 40A(3); 133A; 32; 28

Judgement Text

1 ITA 79-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 79/JP/2011 ASSTT. YEAR : 2007-08. M/S. ACE INDIA ABODES LTD., VS. THE ACIT, CENTRAL CIRCLE-2, C-9, BHAGIRATH COLONY, JAIPUR. CHOMMU HOUSE, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.G. MUNDRA RESPONDENT BY : SHRI VINOD JOHARI DATE OF HEARING : 04.08.2011 DATE OF PRONOUNCEMENT : 12.8.2011. ORDER DATED : 12/08/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IS OBJECTING IN CONFIRMING THE ACTI ON OF THE AO IN INVOKING PROVISIONS OF SECTION 40A(3) OF THE IT ACT IN RESPE CT OF PAYMENT MADE IN CASH FOR PURCHASES OF FIXED ASSET BEING AGRICULTURAL LAND WH ICH WAS LATER ON TREATED AS STOCK-IN- TRADE AND THEREBY UPHOLDING AN ADDITION OF RS. 1,89 ,21,509/- UNDER THE SAID SECTION AND IN MAKING A FURTHER ADDITION OF RS. 53,85,000/- UNDER THE SAID SECTION BY APPLYING THE PROVISIONS OF OTHER SIMILAR PAYMENT AGGREGATING TO RS. 2,69,28,859/-. 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF PURCHASE, SALES AND DEVELOPMENT OF LAND AND THE COL ONY. THE SURVEY U/S 133A WAS CARRIED OUT ON 24.8.06 AND DURING THE COURSE OF SURVEY; IT WAS FOUND THAT THE APPELLANT HAS BOUGHT LAND FROM VARIOUS FARMERS FOR DEVELOPING A COLONY C ALLED PLATINUM GREENS NEAR MEHLA TOWN CLOSE TO NH 8 BETWEEN CITIES OF JAIPUR AND AJM ER. THE A.O. NOTICED THAT THE ASSSESSEE HAS MADE PAYMENT TO LAND OWNERS NOT ONLY BY CHEQUE OR DD BUT ALSO IN CASH. A.O. HAS TABULATED THE DETAILS OF PAYMENT MADE TO L AND OWNERS IN CASH AND CHEQUE ALONGWITH THE NAME AND ADDRESS OF THE SELLER AND OT HER DETAILS IT IS NOTICED BY THE A.O. THAT LAND WORTH RS. 23,13,40,424/- WAS PURCHASED BY THE ASSESSEE COMPANY FOR WHICH AMOUNT OF RS. 10,03,12,537/- WAS PAID THROUGH CHEQU E! BANK DRAFT AND AMOUNT OF RS. 9,46,07,549/- WAS PAID IN CASH. IN VIEW OF THESE CA SH PAYMENTS, THE AD. HAS GIVEN SHOW CAUSE TO THE ASSESSEE FOR INVOKING THE PROVISIONS O F SECTION 40 A (3) AND THEREBY DISALLOWING 20% OUT OF CASH PAYMENTS. THE A.R OF TH E ASSESSEE HAS SUBMITTED THAT; I) COMPANY HAS PURCHASED AGRICULTURAL LAND FROM DIF FERENT AGRICULTURIST FARMERS RESIDING IN REMOTE RURAL AREAS AND MOREOVER THE LAND BEING F IXED ASSETS, THEREFORE, WILL NOT FALL WITHIN THE PROVISIONS OF SECTION 40A (3) II) THE PROVISIONS OF SECTION 40A (3) IS APPLICABLE FOR EXPENDITURE EXCEEDING RS. 20.000/ WHICH ARE DEBITED AS EXPENDITURE IN TRADIN G AND PROFIT/LOSS ACCOUNT. SINCE THE COMPANY HAS NOT DEBITED THIS AMOUNT IN THE TRADING AND PROFIT AND LOSS ACCOUNT, HENCE, 40A (3) IS NOT APPLICABLE. III) THERE WAS NO BUSINESS ACTIVITY AND HENCE THE A SSESSEE HAS NOT PREPARED TRADING ACCOUNT. THE SECTION 40A (3) APPLIES TO EXPENDITURE DEBITED U/S 32 TO 37. 3 4. A.O HAS CONSIDERED THE ARGUMENT AND REJECTED THE SAME. A.O. HAS MENTIONED THAT THE LAND IS STOCK IN TRADE FOR ASSESSEE AND SINCE P AYMENT OF PURCHASE OF STOCK IN TRADE HAS BEEN MADE, THESE PAYMENTS ARE CONSIDERED TO BE EXPE NDITURE. THE A.O. HAS PLACED RELIANCE ON HONBLE SUPREME COURT DECISION IN THE C ASE OF ATTAR SINGH GURMUKH SINGH VS. ITO (1991)191 ITR 667. A.O. HAS MENTIONED THAT APPELLANT HAS NOT FURNISHED ANY DOCUMENT IN ITS SUPPORT THAT THE LAND FALLS OUTSIDE THE MUNICIPAL LIMIT. MOREOVER, A.O. HAS REFERRED THAT ALL THE OUTGOINGS ARE EXPENDITURE AS HELD BY HONBLE SUPREME COURT. A.O. ALSO MENTIONED THAT THE CASE OF THE ASSESSEE I S NOT COVERED WITHIN THE EXCEPTION PROVIDED IN RULE 6DD. ACCORDINGLY A.O. DISALLOWED 2 0% OUT OF THE CASH PAYMENTS OF RS. 9,46,07,549/- IN VIEW OF PROVISIONS OF SECTION 40A( 3) AMOUNTING TO RS. 1,89,21,509/-. 5. IT WAS CONTENDED BEFORE LD. CIT (A) THAT THE ASS ESSEE COMPANY PURCHASED AGRICULTURAL LAND AS FIXED ASSET AND THUS PROVISION S OF SECTION 40A (3) ARE NOT APPLICABLE. FURTHER THE ASSESSEE DID NOT CLAIM THE SAID CASH PA YMENTS AS ITS EXPENDITURE DURING THE YEAR. IT WAS SUBMITTED THAT PROFIT AND GAINS OF THE BUSINESS IS CHARGEABLE TO TAX U/S 28 OF I. TAX ACT AND SAME IS TO BE COMPUTED IN ACCORDANCE WI TH SECTION 30 TO 40 D. IN CASE THERE IS NO RECEIPT CHARGEABLE U/S 28, NOTHING CAN BE ASS ESSED UNDER THE HEADS PROFITS AND GAINS OF THE BUSINESS AND PROVISIONS OF SECTION 30 TO 40D CANNOT BE INVOKED. AS CAN BE SEEN FROM THE COPY OF AUDITED ACCOUNT, THE ASSESSEE HAS NOT SHOWN ANY RECEIPT OF BUSINESS AND HAS NOT CLAIMED THE EXPENDITURE OF PURCHASE COST OF AGRICULTURAL LAND BUT ENTIRE EXPENDITURE OF THE SAID STOCK-IN-TRADE WAS CARRIED FORWARD IN NEXT ACCOUNTING YEAR AS OPENING STOCK. IT WAS SUBMITTED THAT FOR INVOKING P ROVISIONS OF SECTION 40A (3), THE AMOUNT, OF EXPENDITURE INCURRED IN CASH MUST BE CLA IMED AS EXPENDITURE EITHER WHILE WORKING GROSS PROFIT OR WHILE WORKING NET PROFIT. T HERE CANNOT BE DISALLOWANCE OF 4 EXPENDITURE WITHOUT ANY CLAIM OF ALLOWANCE OF EXPEN DITURE HAVING BEEN MADE. THE SUPPORT WAS DERIVED FROM THE CASE OF M/S SARAL MOTO RS & GENERAL FINANCE LTD VS. ACIT (2009)121 ITD 50 (DELHI) AND DECISION OF ITAT, JAIP UR BENCH, JAIPUR IN THE CASE OF SALASAR OVERSEAS PVT. LTD. VS. ACIT. 6. IN GROUND NO. 2, IT WAS SUBMITTED THAT A.O. HAS ERRED IN OBSERVING THAT CASE OF THE ASSESSEE DOES NOT FALL IN EXCEPTION PROVIDED U/R 6D D. IT WAS SUBMITTED THAT THE PAYMENTS WERE MADE SOME OF THE FARMERS IN VILLAGES WHERE THE Y ORDINARILY RESIDE WHICH IS NOT SERVED BY ANY BANK ON THE DATE OF PAYMENT. THE TRAN SACTION WAS GENUINE. THE OBJECT OF SECTION 40A (3) IS TO ENSURE THAT PAYMENTS MADE IN RESPECT OF WHICH DEDUCTIONS ARE CLAIMED ARE GENUINE. IT WAS SUBMITTED THAT THE FARM ERS ARE ILLITERATE AND THEY WOULD NOT SIGN THE REGISTERED DEED UNLESS THEY RECEIVED PAYME NT IN CASH. CONSIDERING THE VARIOUS DECISIONS PARTICULARLY OF KANTILAL PURHOTTAM & COMP ANY VS. CIT 155 ITR 519 WHEREIN IT WAS HELD THAT SELLER INSISTED ON CASH PAYMENT AND T HE PAYMENT WAS GENUINE, PROVISIONS OF SECTION 40A (3) CANNOT BE INVOLVED. 7. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) GAVE THE FOLLOWING FINDINGS :- 3.4 1 HAVE CONSIDERED THE ARGUMENT OF ID. A.R A ND HAVE PERUSED THE ASSESSMENT ORDER AND RELEVANT RECORD. THE FIRST ISS UE IS WHETHER 40A (3) WILL BE APPLICABLE FOR PURCHASE OF LAND. UNDISPUTED LY, THE LAND IS TRADING ASSET AS FAR AS APPELLANTS COMPANY IS CONCERNED. I N VIEW OF THE DECISIONS OF HONBLE. SUPREME COURT IN THE CASE OF ATTAR SING H GURMUKH SINGH (SUPRA), THE EXPENDITURE ON PURCHASE OF STOCK-IN-TR ADE IS HELD TO BE COVERED WITHIN THE PROVISIONS OF SECTION 40A(3). NOW COMING TO THE OTHER ISSUE THAT THE APPELLANT HAS NOT CLAIMED THESE CASH PAYME NTS AS EXPENDITURE. AS PER THE A.R OF THE APPELLANT, THE APPELLANT COMPANY HAS NOT DRAWN TRADING 5 ACCOUNT AND HAS ONLY DRAWN PROFIT AND LOSS ACCOUNT. THE ARGUMENT OF THE APPELLANT IS INCORRECT THAT THE BUSINESS INCOME HAS NOT BEEN DETERMINED DURING THE YEAR UNDER CONSIDERATION. THE BUSINESS I NCOME IS NIL, AS THE EXPENDITURE INCURRED DURING THE YEAR IS ADDED IN TH E VALUE OF STOCK-IN-TRADE OF LAND. SIMILARLY ARGUMENT OF THE APPELLANT THAT I T HAS NOT CLAIMED EXPENDITURE IS ALSO INCORRECT. FROM THE COPY OF THE AUDITED BALANCE SHEET, IT IS SEEN THAT THE APPELLANT HAS SHOWN LAND PURCHA SED IN THE DEBIT SIDE OF THE PROFIT AND LOSS ACCOUNT. THUS THE APPELLANT COM PANY HAS DEFINITELY INCURRED EXPENDITURE FOR PURCHASE OF STOCK-IN-TRADE AND IT HAS DEFINITELY CLAIMED IT IN PROFIT AND LOSS ACCOUNT. IT IS OTHER THING THAT SINCE THERE IS NO SALE, DURING THE YEAR OUT OF THE STOCK-IN-TRADE, TH E ENTIRE STOCK-IN- TRADE HAS BEEN SHOWN AS CLOSING STOCK. FROM THE VIEW OF PRINC IPALS OF ACCOUNTANCY ALSO, ANY PURCHASE OF STOCK-IN-TRADE HAS TO BE FIRS T CLAIMED/DEBITED IN THE TRADING CUM PROFIT AND LOSS ACCOUNT AND IS CLAIMED AS EXPENDITURE. IT IS SEPARATE MATTER THAT INCIDENTALLY IF NONE OF THE ST OCK-IN-TRADE HAS BEEN SOLD DURING THE YEAR, THAN ALL STOCK-IN-TRADE WILL BE RE FLECTED IN CLOSING STOCK. MOREOVER, THIS FINDING THAT THE EXPENDITURE IN PURC HASE OF STOCK-IN-TRADE, WHETHER SOLD DURING THE YEAR OR NOT WILL FALL WITHI N THE PURVIEW OF 40A(3) IS DIRECTLY SUPPORTED BY THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO (1991) 191 ITR 667, WHEREIN THE HONBLE SUPREME COURT HAS HELD : IT MAY BE STATED THAT THE WORD EXPENDITURE HAS NO! BEEN DEFINED IN THE ACT. II IS A WORD OF WIDE IMPORT. SECTION 40 A (3) REFERS TO THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF WHICH PAYMENT IS MADE. IT MEANS THAT ALL OUTGOINGS ARE BROUGHT UNDER THE W ORD EXPENDITURE FOR THE PURPOSE OF THE SECTION. THE EXPENDITURE FOR PURCHAS ING STOCK IN TRADE IS ONE OF SUCH OUTGOINGS. THE VALUE OF THE STOCK IN TR ADE HAS TO BE TAKEN INTO ACCOUNT WHILE DETERMINING THE GROSS PROFITS UNDER S ECTION 28 ON PRINCIPLES OF COMMERCIAL ACCOUNTING. THE PAYMENT MADE FOR PURC HASES WOULD ALSO BE COVERED BY THE WORD EXPENDITURE AND SUCH PAYMENT S CAN BE DISALLOWED, IF THEY ARE MADE IN CASH IN THE SUMS EXCEEDING THE AMOUNT SPECIFIED UNDER SECTION 40A(3). WE HAVE EARLIER OBSERVED THAT RULE 6DD HAS TO BE RE AD ALONGWITH SECTION 404(3). THE RULE ALSO CONTEMPLATE S PAYMENTS MADE FOR STOCK IN TRADE AND RAW MATERIALS. (EMPHASIS SUPPLI ED NOW). 6 3.5 THE FACTS OF THE CASE OF M/S SARAL MOTORS AND GENERAL FINANCE LTD VS. ACIT 121 LTD 50 REFERRED BY THE A.R. OF THE APPELLANT ARE THAT ASSESSEE COMPANY ENGAGED IN BUSINESS OF FINANC ING MOTOR VEHICLES ON HIRE PURCHASE, GAVE LOAN TO THE VARIOUS PARTIES IN CASH. ON THESE FACTS, THE HONBLE ITAT HELD THAT THE AMOUNT HAS NOT BEEN CLAIMED AS EXPENDITURE SINCE IT WAS LOAN TRANSACTION AND ACCOR DINGLY PROVISIONS OF SECTION 40A (3) ARE NOT APPLICABLE. NOW COMING TO T HE ARGUMENT OF THE APPELLANT THAT 40A(3) IS NOT ATTRACTED IF THE PARTI ES ARE IDENTIFIABLE AND PAYMENTS ARE GENUINE. IT IS USEFUL TO REFER TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF HASANAND PINJOMAL VS. CIT 112 ITR 134 WHEREIN THE HONBLE COURT HAS HELD AS UNDER :- TURNING NOW TO THE INTERPRETATION OF THE RELEVANT PROVISIONS OF SECTION 40A, IT IS CLEAR THAT SUB SECTION (1) WHICH CONTAINS A NON-OBSTINATE CLAUSE, IS AN OVERRIDING PROVISIONS WHICH OPERATES TO SET ASIDE AS TO NO LONGER VALID ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THE ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROVISIONS OF SECTION 40A WILL APPLY IN SUPPRESSION OF THE OTHER CONTRARV PROVISIONS OF THE ACT RELATIN G TO THE COMPUTATION OF INCOME UNDER THE AFORESAID HEAD. SUB SECTION (3) DE ALS WITH ONE OF THE CASES IN WHICH AN EXPENDITURE INCURRED BY AN ASSESS EE HAS TO BE DISALLOWED EVEN F IT IS ALLOWABLE UNDER THE OTHER P ROVISIONS OF THE ACT. THE SAID SUB SECTION, IN EFFECT PROVIDES THAT WHERE EXP ENDITURE IS INCURRED BY THE ASSESSEE IN RESPECT OF WHICH PAYMENT IS MADE AF TER MARCH, 31, 1969, IN A SUM EXCEEDING RS. 2,500/- (NOW RS. 20,000/-) OTHE RWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT SUCH EXPENDITURE SHALL NOT BE ALLOWED AS A DEDUCTION. TH IS IS A MANDATORY DIRECTIVE GIVEN BY THE LEGISLATURE TO THE TAXING AU THORITY AND ON ITS PLAIN TERM IT COMMANDS SUCH AUTHORITY TO DISALLOW ALL EXP ENDITURE, EVEN IF IT IS OTHERWISE ADMISSIBLE, IF THE PAYMENT IN RESPECT OF SUCH EXPENDITURE IN CASE WHEN IT EXCEEDS RS. 2,500/-( NOW RS. 20,000/-) IS M ADE OTHERWISE THAN IN THE MANNER SPECIFIED. THERE IS NO DISCRETION LEFT W ITH IKE TAXING AUTHORITY UNDER THIS SUBSECTION TO ALLOW SUCH EXPENDITURE. IN VIEW OF THE ABOVESAID DECISION OF HONBLE GUJARA T HIGH COURT, IT IS QUITE EVIDENT THAT MISCHIEF OF PROVISIONS OF SECTION 40A (3) WILL APPLY EVEN TO THOSE PAYMENTS WHICH ARE GENUINE AND PARTIE S ARE IDENTIFIABLE AND THEREBY THOSE PAYMENTS ARE OTHERWISE ALLOWABLE U/S 37. 7 3.6 NOW COMING TO OTHER ISSUE WHETHER THE CASE OF THE APPELLANT IS COVERED WITHIN THE EXCEPTION PROVIDED UNDER RULE 6DD, THE APPELLANT HAS TRIED TO ARGUE THAT PAYMENT HAS BEEN MADE TO SOME OF THE FARMERS IN VILLAGE WHERE BANKING FACILITIES ARE NOT AVAILABLE. I HAVE CONSIDERED THIS ARGUMENT. FIRSTLY THE APPELLANT HAS NOT SPECIFIED AS TO WHICH OF THE SELLERS ARE RESIDING IN PARTICULAR VIL LAGE, WHICH IS NOT COVERED BY BANKING FACILITIES. ON THE OTHER HAND IT IS SEEN FROM THE AVAILABLE DETAILS THAT SOME OF THE SELLERS OF THE LAND ARE RESIDING I N JAIPUR CITY TO WHOM THE APPELLANT HAS MADE CASH PAYMENT E.G. HEAVY SUBSTANT IAL AMOUNT OF THE PAYMENT TOTALING TO RS. 1.81 CRORE HAS BEEN MADE IN CASH TO ONE SH. VED VRAT SHARMA, SUSHILA SHARMA WHO ARE RESIDING IN BAN IPARK JAIPUR. SIMILARLY, SUBSTANTIAL SUM BEING RS. 2.63 CRORES HA S BEEN PAID IN CASH TO SELLER BEING A PVT. LTD. COMPANY NAMELY MEHIA REAL ESTATE PVT. LTD HAVING OFFICE AT S.P. MARG JAIPUR. SOME OTHER SELLE RS ARE RESIDING IN VILLAGE BUT IT IS SEEN THAT APPELLANT HAS MADE PAYM ENT TO THEM THROUGH DEMAND DRAFT AND CHEQUE ALSO. ACCORDINGLY, IT CANNO T BE SAID THAT THOSE SELLERS ARE NORMALLY RESIDING IN VILLAGES WHICH ARE NOT COVERED WITH BANKING FACILITIES. IF THE SELLER WAS USUALLY RESID ING IN THE PLACE WHICH WAS NOT COVERED WITH BANKING FACILITIES, THEN THE SELLE R COULD NOT HAVE TAKEN PART PAYMENT THROUGH CHEQUE OR DEMAND DRAFT AND THE Y WOULD HAVE TAKEN ALL THE PAYMENT IN CASH. ACCORDINGLY, THIS ARGUMENT OF THE APPELLANT IS TOTALLY DEVOID OF ANY MERIT AND IS REJECTED. REGARD ING CONTENDED INSISTENCE BY THE SELLER TO RECEIVE PAYMENT IN CASH, THE ARGUM ENT ITSELF IS CONTRADICTORY FROM THE FACTS THAT THOSE VERY SELLER S HAVE RECEIVED PART PAYMENT THROUGH CHEQUE OR PD. MOREOVER, NO SUCH EVI DENCE OF INSISTENCE BY THE SELLER WAS FILED BEFORE THE A.O. OR EVEN BEF ORE THE UNDERSIGNED BY WAY OF ADDITIONAL EVIDENCE. IN VIEW OF THE AFORESAID DISCUSSION, IT IS HELD THA T A.O. WAS RIGHT IN OBSERVING THAT THE CASE OF THE APPELLANT IS NOT COV ERED WITHIN ANY OF THE EXCEPTION PROVIDED IN RULE DD. ACCORDINGLY, IT IS H ELD THAT THE A.O. WAS 8 JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 40A (3) AND THEREBY MAKING DISALLOWANCE OF 20% OF THE CASH PAYMENTS AND THEREF ORE THE DISALLOWANCE OF RS. L,89,21,509/- IS UPHELD. 4. DURING THE COURSE OF APPEAL PROCEEDINGS, IT WAS NOTICED BY THE UNDERSIGNED THAT AMOUNT OF RS. 3,64,20,338/- HAS BE EN PAID BY THE APPELLANT AT THE TIME OF AGREEMENTS WITH VARIOUS SE LLERS AND ALL THESE PAYMENTS HAVE NOT BEEN MADE THROUGH CHEQUE, MEANING THEREBY THAT THERE ARE STILL MORE PAYMENTS MADE IN CASH, WHICH WOULD A TTRACT THE PROVISIONS OF SECTION 40A(3). ACCORDINGLY, A.R OF THE APPELLAN T WAS ASKED TO FURNISH THE DETAILS AND MODES OF PAYMENTS MADE TO THE DIFFE RENT SELLERS AT THE TIME OF EXECUTION OF AGREEMENTS AND HE WAS FURTHER ASKED TO SHOW CAUSE AS TO WHY SHOULD NOT DISALLOWANCE BE ENHANCED TO THE EXTE NT OF 20% OF SUCH CASH PAYMENTS OUT OF AFORESAID AMOUNT OF RS. 3.64 C RORES. 4.1 THE A.R OF THE APPELLANT FURNISHED THE DETAILS WHICH INDICATED THAT OUT OF RS. 3,64,20,338/- RS. 6O LAKH WAS4 PAID BY C HEQUE AND RS. 34,91,446/- THOUGH PAID BY CASH BUT WAS RETURNED BA CK ON ACCOUNT OF CANCELLATION OF THE AGREEMENT OF PURCHASE WITH THE SELLER PARTY AND BALANCE AMOUNT OF RS. 2,69,28,892/-WAS PAID IN CASH TO THE VARIOUS SELLERS. THE A.R ARGUED THAT SUBMISSION ALREADY GIVEN MAY BE CON SIDERED AGAINST THE PROPOSED ENHANCEMENT ALSO. 4.2 THE SUBMISSION OF THE A.R HAS ALREADY BEEN CON SIDERED BY THE UNDERSIGNED AS DISCUSSED IN EARLIER PARAGRAPHS AND IT HAS BEEN HELD THAT PAYMENT MADE BY THE APPELLANT IN CASH IN EXCESS OF RS. 20,000/- ATTRACTS THE PROVISIONS OF SECTION 40A (3) AND THE CASE OF T HE APPELLANT IS NOT COVERED IN THE EXCEPTION PROVIDED IN RULE 6DD IN VI EW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LEGAL POSITION ON THE ISSUE UNDER CONSIDERATION. CONSIDERING THAT THE FACT AND CIRCUM STANCES RELATED TO THESE FURTHER NOTICED CASH PAYMENTS BY THE UNDERSIGNED AR E SAME AS FOR THE OTHER CASH PAYMENTS HELD TO BE COVERED U/S 40A(3), THESE FURTHER NOTICED CASH 9 PAYMENTS ARE ALSO HELD TO BE COVERED U/S 40A(3) REQ UIRING DISALLOWANCE OF 20% OUT OF THESE FURTHER NOTICED CASH PAYMENTS OF R S. 2,69,28,892/-. ACCORDINGLY, DISALLOWANCE IS ENHANCED BY RS. 53,85, 778/-. 8. NOW THE ASSESSEE IS IN APPEAL HERE BEFORE THE TR IBUNAL. 9. THE SUBMISSIONS MADE BEFORE LD. CIT (A) WERE REI TERATED HERE BEFORE THE TRIBUNAL. COPY OF BRIEF WRITTEN SUBMISSIONS WAS ON THE FILE. IT WAS FURTHER SUBMITTED THAT ALL THE PAYMENTS WERE MADE TO FARMERS. FARMERS CAM E FROM THE VILLAGE AND THEY WERE NOT HAVING ANY BANK ACCOUNT IN THE TOWN. THEREFORE, TH E PAYMENT COULD NOT BE MADE BY ACCOUNT PAYEE CHEQUE OR DEMAND DRAFT. IT WAS ALSO EXPLAINED THAT NO DEDUCTION WHATSOEVER HAS BEEN CLAIMED DURING THE YEAR UNDER C ONSIDERATION. AS PER PROVISIONS OF SECTION 40A(3) THE DEDUCTION WILL NOT BE ALLOWED UP TO 20% OF THE EXPENDITURE INCURRED IN THE YEAR IN WHICH THE CASH PAYMENT HAS BEEN MADE. SINCE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION, THEREFORE, THERE IS NO QUESTION OF ANY D ISALLOWANCE. RELIANCE WAS PLACED IN CASE OF PACL INDIA, 38 DTR 1 (JP) AND IN CASE OF M/ S. RISHABHDEV TOWNSHIP & DEVELOPERS P. LTD., DECIDED IN ITA NO. 181/JP/2010 DATED 29.4.2011. 10. ON THE OTHER HAND, THE LD. D/R STRONGLY PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. IT WAS FURTHER SUBMITTED THAT THERE IS NO D ISPUTE THAT PAYMENTS HAVE BEEN MADE IN CASH AND ALL THE LAND IN QUESTION HAS BEEN SHOWN IN STOCK-IN-TRADE. THEREFORE, THE DISALLOWANCE HAS TO BE MADE. IT IS NOT THE QUESTIO N WHETHER ANY DEDUCTION HAS BEEN CLAIMED OR NOT BUT AS PER PROVISIONS OF SECTION 40A (3) DISALLOWANCE HAS TO BE MADE IF THE PAYMENTS ARE MADE IN CASH. 11. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND VARIOUS CASE LAWS, WE ARE OF THE VIEW THAT ASSESSEE 10 DESERVES TO SUCCEED IN ITS APPEAL ON THE GROUND TH AT NO EXPENDITURE HAS BEEN CLAIMED IN THE YEAR UNDER CONSIDERATION IN THE PROFIT & LOSS A CCOUNT AND, THEREFORE, NO DISALLOWANCE CAN BE MADE UNDER SECTION 40A(3). FIRST, WE WOULD LIKE TO SEE THE PROVISIONS OF SECTION 40A(3) WHICH ARE AS UNDER :- 40A(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 TWEN TY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F SUCH EXPENDITURE. AFTER GOING THROUGH THE ABOVE PROVISIONS, IT IS SEE N THAT WHERE ANY EXPENDITURE HAS BEEN INCURRED IN CASH THEN IN THAT CASE NO DEDUCTION WI LL BE ALLOWED. ASSESSEE HAS NOT CLAIMED ANY DEDUCTION ON ACCOUNT OF PURCHASE OF LAN D WHICH WAS SHOWN IN STOCK-IN- TRADE. THE LD. CIT (A) BY PLACING HEAVY RELIANCE O N THE DECISION OF HONBLE APEX COURT IN CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO, 191 I TR 667 (SC) HAS HELD THAT ONCE AN ITEM HAS BEEN SHOWN IN CLOSING STOCK THEN IT HAS TO BE PRESUMED THAT ASSESSEE HAS CLAIMED EXPENDITURE. HOWEVER, IN THE SAID DECISION OF HONB LE APEX COURT IT IS SEEN THAT THE HONBLE SUPREME COURT HAS OBSERVED THAT THE VALUE O F STOCK IN TRADE HAS TO BE TAKEN INTO ACCOUNT WHILE DETERMINING THE GROSS PROFITS UNDER S ECTION 28 ON PRINCIPLES OF COMMERCIAL ACCOUNTING. THE RATIO IS NOT APPLICABLE ON THE FAC TS OF THE PRESENT CASE AS ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE AND THERE IS NO GROSS PROFI T EARNED BY ASSESSEE. NEITHER ANY TRADING ACCOUNT WAS DRAWN AS ASSESSEE HAS NOT CLAIM ED ANY EXPENDITURE. LAND WAS PURCHASED AND EXPENDITURE ON PURCHASE OF LAND WAS I NCURRED, THEY WERE SHOWN IN ASSET 11 SIDE AND WHATEVER THE AMOUNT WAS RECEIVED ON ACCOUN T OF BOOKING OF PLOT THAT WAS SHOWN IN LIABILITY SIDE. COPY OF BALANCE SHEET WAS FILED BEFORE AO AS WELL AS BEFORE LD. CIT (A) AND IT WAS CLEARLY MENTIONED THAT ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE ON ACCOUNT OF PURCHASE OF LAND. THE LD. CIT (A) HAS ALSO OBSERVE D IN HIS ORDER THAT ASSESSEE HAS NOT PREPARED ANY TRADING ACCOUNT AND, THEREFORE, HE HAS NOT SHOWN THE EXPENDITURE CLAIMED BUT HAS SHOWN THE LAND IN STOCK-IN-TRADE AND IN VIE W OF PRINCIPLES OF ACCOUNTANCY ANY PURCHASES OF STOCK-IN-TRADE HAS TO BE TREATED AS CL AIMED IN THE TRADING ACCOUNT. IN OUR VIEW THESE OBSERVATIONS OF LD. CIT (A) ARE NOT CORR ECT AS ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE. SINCE ENTIRE LAND WAS SHOWN IN ASSET SIDE IN THE BALANCE SHEET AND ADVANCE RECEIVED WAS SHOWN IN LIABILITY SIDE AS ADVANCE, TH EREFORE, IN OUR VIEW THERE WAS NO TRADING DURING THE YEAR UNDER CONSIDERATION. 11.1 IT IS ALSO A WELL SETTLED PROPOSITION IN LAW T HAT THE ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT DETERMINED IN NATURE TO HOLD THAT ANY EXPEN DITURE HAS BEEN CLAIMED OR NOT AS HELD BY HONBLE SUPREME COURT IN CASE OF JUTE CORPORATIO N OF INDIA. THEREFORE, MERELY ON THE BASIS OF ENTRIES IN THE BOOKS OF ACCOUNT IT CANNOT BE DETERMINED THAT ASSESSEE HAS CLAIMED ANY EXPENDITURE. THE ASSESSEE HAS SHOWN NIL INCOME AND SAME HAS BEEN ACCEPTED BY THE AO ALSO. THEREFORE, WE ARE OF THE VIEW THAT SINCE NO EXPENDITURE WAS CLAIMED DURING THE YEAR UNDER CONSIDERATION, THEREFORE, PROVISIONS OF SECTION 40A(3) CANNOT BE ATTRACTED. 12. IN CASE OF CIT VS. BALAJI ENGINEERING AND CONST RUCTION WORKS, 323 ITR 351 (KAR.), THE HONBLE KARNATAKA HIGH COURT HAS HELD T HAT WHERE THE ASSESSEE BEING A PRINCIPAL CONTRACTOR HAD PASSED ON THE AMOUNT TO TH E SUB-CONTRACTOR, SUCH AMOUNT COULD NOT BE TREATED AS AN EXPENDITURE AS THE SAME WAS NO T CLAIMED IN ITS PROFIT & LOSS ACCOUNT. 12 13. THE FACTS IN THIS CASE WERE THAT THE ASSESSEE W AS A CIVIL CONTRACTOR WHO ENTRUSTED WORK TO A SUB-CONTRACTOR AND PAYMENT OF RS. 37,17,7 88/- WERE MADE TO SUB-CONTRACTOR. THE AO DISALLOWED THE SAME BY HOLDING THAT EXPENDIT URE PAID BY WAY OF CASH WAS CONTRARY TO SECTION 40A(3) OF THE ACT. THE LD. CIT (A) AS WELL AS THE TRIBUNAL HELD THAT IT WAS NOT AN EXPENDITURE CLAIMED BY ASSESSEE BUT IT W AS A PAYMENT MADE TO SUB-CONTRACTOR PURSUANT TO AN AGREEMENT. ON APPEAL, AS STATED ABO VE, THE HONBLE KARNATAKA HIGH COURT AFFIRMED THE VIEW OF THE TRIBUNAL. 14. THIS RATIO OF HONBLE KARNATAKA HIGH COURT CAN BE APPLIED ON THE FACTS OF THE PRESENT CASE AS IN THIS CASE ALSO NO EXPENDITURE HA S BEEN CLAIMED BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT. LANGUAGE OF SECTION 40A(3) IS VERY CLEAR WHERE IT IS PROVIDED THAT NO DEDUCTION WILL BE ALLOWABLE IF ANY EXPENDITURE H AS BEEN INCURRED IN CASH. 15. WE FURTHER NOTED THAT THE BOARD HAD OCCASION TO DEAL WITH SEVERAL REPRESENTATIONS FROM VARIOUS CHAMBERS OF COMMERCE, TRADE ASSOCIATIO NS AND BUSINESSMEN REGARDING THE SCOPE OF PROVISIONS OF SECTION 40A(3) OF THE IT ACT , 1961, AND RULE 6DD OF IT RULES, 1962. SINCE MANY OF THE POINTS RAISED THEREIN WERE OF AN IMPORTANT NATURE, THE CLARIFICATIONS THEREON WAS ISSUED BY THE BOARD BY C IRCULAR NO. 33 DATED 29.12.1969 WHEREIN IT WAS CLARIFIED THAT THE PROVISIONS OF SEC TION 40A(3) WOULD APPLY IN COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSI NESS OR PROFESSION, WHERE ANY EXPENDITURE HAS BEEN INCURRED. THE BOARD CIRCULAR SUPPORTS THE CASE OF THE ASSESSEE AS ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE ON ACCOUNT OF PURCHASE OF AGRICULTURAL LAND FROM FARMERS UNDER THE HEAD PROFITS AND GAINS OF BU SINESS OR PROFESSION. 13 16. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, W E HOLD THAT SINCE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE, THEREFORE, NO DISALLOWANCE CAN BE MADE DURING THE YEAR UNDER CONSIDERATION. 17. EVEN ON ALTERNATE CONTENTION OF ASSESSEE THAT P AYMENTS WERE MADE TO VARIOUS FARMERS IN VILLAGES WHERE NO BANK FACILITIES WERE A VAILABLE, WE FIND THAT ASSESSEE DESERVES TO SUCCEED ON THIS ALTERNATE CONTENTION IN PART. E XCEPT PAYMENTS TO THREE PARTIES I.E. SHRI VEDVRAT SHARMA AT RS. 2,21,20,000/-, MEHLA REAL EST ATE PVT. LTD. AT RS. 3,57,13,900/-, AND TO SHRI ANIL CHORDIA AT RS. 2,85,000/- WHICH HA S BEEN MADE IN CASH. THEY ARE RESIDENTS OF JAIPUR. THEREFORE, PROVISIONS OF SECT ION 40A(3) CAN BE APPLIED ON THESE PAYMENTS. HOWEVER, IN CASE OF OTHER PARTIES, PROVI SIONS OF SECTION 40A(3) CANNOT BE APPLIED AS THEY ARE RESIDING IN VILLAGES WHERE NO B ANKING FACILITIES WERE AVAILABLE. 18. SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN CA SE OF M/S. RISHABHDEV TOWNSHIP & DEVELOPERS P. LTD. THE TRIBUNAL WHILE DECIDING T HE APPEAL OF THE DEPARTMENT IN ITA NO. 181/JP/2010 VIDE ITS ORDER DATED 29.4.2011 HAS HELD AS UNDER :- 7. AFTER CONSIDERING THE SUBMISSIONS AND PERUSIN G THE MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE DEPARTMENT IS IN APPEAL AND IF THEY WANT TO VERIFY WHETHER THE RE IS A BRANCH IN VILLAGE BALLUPURA OR NOT CAN BE VERIFIED AT ANY POINT OF TI ME WHICH THEY HAVE NOT DONE. IT WILL BE JUST FUTILE EXERCISE IN SENDING T HE MATTER BACK TO THE FILE OF AO TO JUST SATISFY HIMSELF BY GIVING HIM OPPORTUNIT Y. THE EXCEPTION PROVIDED UNDER RULE 6DD(G) IS VERY CLEAR BY IT IS P ROVIDED THAT WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN, WHICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERSON WHO ORDINA RILY RESIDES, OR IS CARRYING ON ANY BUSINESS, PROFESSION OR VOCATION, I N ANY SUCH VILLAGE OR TOWN, THEN NO DISALLOWANCE CAN BE MADE UNDER SECTIO N 40A(3). IN FACT, THE LD. CIT (A) HAS MENTIONED SUB CLAUSE (H) WHEREAS TH E CORRECT CLAUSE IS 14 6DD(G). THE LD. COUNSEL OF THE ASSESSEE HAS MADE S TATEMENT AT BAR THAT THERE IS NO BANK BRANCH IN VILLAGE BALLUPURA AT THE TIME OF PURCHASE OF THE LAND FROM VARIOUS SELLERS. IT WAS ALSO SUBMITTED B Y LD. A/R THAT NORMALLY THE VILLAGERS PAID IN CASH AT THE TIME OF ENTERING INTO AGREEMENT AND SALE DEED IS COMPLETED AT A LATER STAGE WHEREIN THEY HAV E AGREED TO RECEIVE THE AMOUNT FROM THE ASSESSEE EITHER IN CASH OR CHEQUE A S THE CASE MAY BE. THIS CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE REMAINED UNCONTROVERTED, THEREFORE, WE SEE NO REASON TO INTE RFERE WITH THE FINDING OF LD. CIT (A) AND HELD THAT LD. CIT (A) WAS RIGHT IN DELETING THE DISALLOWANCE MADE BY AO UNDER SECTION 40A(3). 19. SIMILAR VIEW HAS BEEN EXPRESSED BY THE TRIBUNAL IN CASE OF PACL INDIA LTD., 38 DTR 1 (JP) ALSO WHEREIN IT HAS BEEN HELD AS UNDER : - CLAUSE (H) OF R. 6DD 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 CAR RYING ON ANY BUSINESS IN SUCH VILLAGE OR TOWN. THERE IS NO DISPUTE THAT THE SELLERS OF THE LAND ARE VILLAGERS ENGAGED IN FARMING ACTIVITIES AND ARE RES IDING 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-COMP ANY THAT ALL PAYMENTS WERE MADE AT THE VILLAGES PRIOR TO REGISTRATION OF THE SALE. THIS SUBMISSION CANNOT BE OUTRIGHTLY REJECTED. NORMALLY, ILLITERATE POOR FARMERS WOULD INSIST ON CASH PAYMENTS, ESPECIALLY WHEN SUCH PAYME NTS INVOLVE HUGE AMOUNTS, AT THE PLACE OF THEIR RESIDENCE FOR THE SI MPLE REASON THAT THEY WOULD LIKE TO AVOID THE RISK OF RECEIVING CASH AT T HE 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-REGIS TRAR THAT FULL PAYMENT 15 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 CONVENIEN CE, IN THE RECEIPT THE PLACE IS MENTIONED AS THE TOWN WHERE THE DOCUMENT I S REGISTERED. THE AO HAS NOT MADE ANY EFFORT TO EXAMINE ANY OF THE SELLE RS TO VERIFY AS TO WHETHER THE PAYMENTS WERE RECEIVED AT THE VILLAGES OR AT THE TOWN. CONSIDERING THE ENTIRE FACTS THE PROPOSITION THAT T HE PAYMENTS WERE MADE AT VILLAGES WHERE BANKING FACILITIES DID NOT EXIST IS ACCEPTED. EVEN IF IT IS ASSUMED THAT PAYMENTS WERE MADE AT A TOWN WHERE BAN KING FACILITIES WERE AVAILABLE, THE CASE OF THE APPELLANT-COMPANY WOULD STILL FALL UNDER THE EXCEPTION OF R. 6DD. RULE 6DD(H) HAS TO BE INTERPR ETED LIBERALLY SO AS NOT TO FRUSTRATE THE OBJECT OF THE LEGISLATURE. THE OB JECT 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 PROVISO TO S. 40A(3) REFERS TO THE NATURE AND EXTENT OF BANKING FACILIT IES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER REL EVANT 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 PAYMENT. IN THE PRESENT CASE, EVEN IF IT IS ASSUMED THAT THE PAYMEN T WAS MADE AT THE DISTRICT HEADQUARTER, THE ADMITTED POSITION IS THAT THE SELLERS DID NOT HAVE ANY BANK ACCOUNTS AT SUCH TOWN AND THEY DID NOT RES IDE OR CARRY ON ANY BUSINESS OR FARMING ACTIVITY AT SUCH TOWN. IT WOUL D 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 WIL L 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), 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 HAVE 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 16 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 OR ABSENCE OF BANKING FACILITIES. RULE 6DD (H) MUST BE INTERPRETED KEEPING IN VIEW THIS OBJECT AND PURPOSE. THEREFORE, THE CASH PAYMENTS RE COVERED UNDER SECTION PROVISO TO S. 40A(3) AND R. 6 DD(H). THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 1,60,69,350/ - SUSTAINED BY THE CIT (A). WHILE HOLDING SO, THE TRIBUNAL HAS TAKEN INTO CONSI DERATION CASES OF M/S. P. PRAVIN & CO., 274 ITR 534 (GUJ.), HASANAND PINJOMAL, 112 ITR 134 (GUJ.), VENKATA SATYANARAYANA TIMBER DEPOT, 165 ITR 253 (AP) AND CH AUDHARY & CO., 217 ITR 431 (ALL.). 20. WHILE DECIDING THIS ISSUE, THE LD. CIT (A) HAS TAKEN INTO CONSIDERATION THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF H ASANAND PINJOMAL (SUPRA) AND THIS VERY DECISION HAS BEEN CONSIDERED BY THE TRIBUNAL I N CASE OF PACL INDIA LTD. (SUPRA). IN THIS CASE ALSO IT HAS BEEN HELD THAT WHERE PAYMENT HAS BEEN MADE IN VILLAGES, THE PROVISIONS OF SECTION 40A(3) CANNOT BE APPLIED. WH ILE HOLDING SO, THE TRIBUNAL HAS TAKEN INTO CONSIDERATION THE GENUINENESS OF THE PAYMENT M ADE BY ASSESSEE THAT EVEN ON ACCOUNT OF GENUINENESS OF THE PAYMENT DISALLOWANCE SHOULD N OT BE MADE UNDER SECTION 40A(3). THE LD. CIT (A) HAS REJECTED BOTH THE CONTENTIONS O F ASSESSEE THAT PAYMENTS WERE MADE IN VILLAGES AND AMOUNT OF PAYMENT WAS GENUINE. SINCE BOTH THESE ISSUES HAVE ALREADY BEEN DECIDED BY THE TRIBUNAL IN ABOVE STATED CASES, THER EFORE, ON ACCOUNT OF PAYMENT MADE TO VILLAGERS IN THE VILLAGES, PROVISIONS OF SECTION 40 A(3) ARE NOT APPLICABLE AS HELD BY THE TRIBUNAL ABOVE. SINCE WE HAVE ALLOWED THE ISSUE TO TO IN FAVOUR OF THE ASSESSEE BY HOLDING THAT NO EXPENDITURE CAN BE DISALLOWED UNDER SECTION 40A(3) AS ASSESSEE HAS NOT 17 CLAIMED ANY EXPENDITURE IN ITS PROFIT & LOSS ACCOUN T, THEREFORE, WE HOLD THAT EVEN PART DISALLOWANCE CANNOT BE MADE ON ACCOUNT OF PAYMENT M ADE TO THE PARTIES RESIDING IN JAIPUR. ACCORDINGLY WE DELETE THE ENTIRE DISALLOWA NCE SUSTAINED BY LD. CIT (A). 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 22. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 12 .8.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/ COPY FORWARDED TO :- M/S. ACE INDIA ABODES LTD., JAIPUR. THE ACIT, CENTRAL CIRCLE-2, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 79/JP/2011) BY ORDER, AR ITAT JAIPUR.