2017 (7) TMI 1465 - AT - Income Tax

Cash payments for land purchase to related company allowed when recipient admits income in returns under section 40A(3)

Smt. Jalumuri Rama Lakshmi Versus ITO, Ward-2, Kakinada

ITAT Visakhapatnam upheld CIT(A)'s decision dismissing revenue's appeal. Court held that cash payments for land purchase to related company were genuine ... Addition u/s 40A - payments for purchase of the land in cash to related company of the assessee - HELD THAT:- The intention of the legislature for inserting section 40A(3) of the Act is to pluck the loophole of tax evasion by making the payments in cash. Once it is established that the payment is genuine and the recipient has admitted the payment in their income return, the purpose of 40A(3) of the Act is complied with. Therefore, the courts have held in such circumstances the rigor of the provisions needs to be interpreted liberally when the payment is genuine and the payee is identifiable. In this case, there is no doubt regarding the payee and payer and the CIT(A) also has given a finding that the payee in the case of Siri Constructions has admitted the amount in their returns. As in the case of Sri Lakshmi Satyanarayana Oil Mill [2014 (8) TMI 486 - ANDHRA PRADESH HIGH COURT] held that the provision must be interpreted liberally and the assessees cannot be subjected to undue rigor. Therefore, in the instant case, the payments are said to be genuine and the payees are identifiable and the recipients have admitted the receipts in the income. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld and the appeal of the revenue is dismissed. Correct head of income - Gain on sale of land - capital gain or business income - intention behind the transaction - HELD THAT:- It is evident that the assessee has meticulously planned the entire transaction as business transaction. It is evident from the fact that before registration of the land with the help of GPA and she had entered into an agreement for development of the land with M/s. Siri Constructions and immediately after the development she has sold the land to Reliance Industries. The entire transaction appears to be with an intention to do the business but not for the investment. Therefore, the CIT(A) rightly held the transaction as the venture in the nature of trade and not capital gains. We do not find any infirmity in the order of the Ld. CIT(A), therefore order of the CIT(A) is upheld. Issues:1. Nature of transaction - Capital gains or venture in the nature of trade.2. Addition made under section 40A(3) of the Act.Detailed Analysis:1. Nature of Transaction:The appeal involved a dispute regarding the nature of a transaction for the assessment year 2008-09. The assessing officer contended that the sale of land should be treated as a venture in the nature of trade rather than capital gains as admitted by the assessee. The assessee argued that the purchase was not for trade but for agricultural activity and investment. The assessing officer, however, treated the transaction as a venture in the nature of trade and assessed the income under the head business income. On appeal, the CIT(A) upheld the nature of the transaction as a venture in the nature of trade but deleted the additions made under section 40A(3) of the Act.2. Addition under Section 40A(3) of the Act:The assessing officer made an addition under section 40A(3) of the Act for payments made in cash. The revenue contended that the provisions of section 40A(3) were applicable as payments were made in cash for the purchase of land and development. However, the CIT(A) deleted the addition, citing the genuineness of the transactions and the identification of payees. The Tribunal upheld the CIT(A)'s decision, emphasizing that the payments were genuine, the payees were identifiable, and the recipients had admitted the receipts in their income tax returns. The Tribunal interpreted the provisions of section 40A(3) liberally, in line with previous court decisions, and dismissed the revenue's appeal.In conclusion, the Tribunal upheld the CIT(A)'s decision regarding the nature of the transaction as a venture in the nature of trade and the deletion of additions made under section 40A(3) of the Act. The appeal filed by the revenue was dismissed, and the cross objection filed by the assessee was also dismissed.