2025 (7) TMI 1803 - AT - Income Tax

Cash Payment of Rs. 30 Lakhs for Property Purchase Held Genuine Under Section 40A(3) Business Expediency Rules

Sanskar Homes Pvt. Ltd. Versus ACIT, Central Circle-3 (Old), Now Central Circle-13, New Delhi

The ITAT Delhi allowed the assessee's appeal, holding that the cash payment of Rs. 30 lakhs for property purchase was genuine and made due to the seller's ... Disallowance u/s 40A(3) - payment in cash for purchase of property HELD THAT:- Genuineness and bonafide nature of the transaction involved in the total payments made by the assessee for purchase of property including cash payment of Rs. 30 lacs cannot be doubted. AO rightly placed reliance on the decision of Attar Singh Gurmukh Singh [1991 (8) TMI 5 - SUPREME COURT] wherein, it held that the provisions of Section 40A(3) are not absolute and that the consideration of the business expediency and other relevant factors are not excluded. The assessee placed reliance on the decision of M/s Geo Connect Ltd [2022 (9) TMI 1021 - ITAT DELHI] for AY 2014-15 wherein, it was held that cash payment made for procurement of land to the seller at the insistence of seller cannot be held to be in violation of provisions of Section 40A(3) of the Act. We find that the Delhi Tribunal had also placed reliance on the aforesaid decision of Hon'ble Supreme Court along with the decision of case of Anupam Tele Services reported [2014 (2) TMI 30 - GUJARAT HIGH COURT] In the case before us also, the genuineness of the payment is not doubted and payment of Rs. 30 lacs in cash was made in view of the insistence of the recipient which constituted the business expediency for the assessee to make payment in cash. We hold that this is not a fit case for effecting disallowance u/s 40A(3) of the Act in the facts and circumstances of the instant case. Assessee appeal allowed. ISSUES: Whether disallowance under Section 40A(3) of the Income-tax Act, 1961 is justified for cash payment made for purchase of property.Whether payment in cash at the insistence of the seller or third party constitutes violation of Section 40A(3) or falls within the exception of business exigencies.Whether the property purchased was held as stock-in-trade or investment, affecting applicability of Section 40A(3). RULINGS / HOLDINGS: The disallowance of Rs. 30 lakhs under Section 40A(3) was not justified as the cash payment was made at the insistence of the intermediary party, which constitutes a 'business exigency' exception.The payment made in cash was 'duly acknowledged by the recipient,' and the genuineness of the transaction was not doubted, negating any presumption of tax evasion or avoidance.The property was held as stock-in-trade, not as investment, but the exception under Section 40A(3) applies due to the business exigency involved in the cash payment. RATIONALE: The Court applied the provisions of Section 40A(3) of the Income-tax Act, 1961, which restricts cash payments exceeding prescribed limits but allows exceptions based on business expediency.The decision relied on the Supreme Court precedent in Attar Singh Gurmukh Singh v. ITO (191 ITR 667), which held that the provisions of Section 40A(3) are not absolute and must consider business expediency and relevant factors.The Tribunal also followed coordinate bench decisions, including M/s Geo Connect Ltd v. DCIT and Anupam Tele Services (362 ITR 92), which recognized that cash payments made at the insistence of the seller or intermediary do not violate Section 40A(3).The Court emphasized that the payment was made to a third party (M/s Emerald Homes Pvt. Ltd) who had originally paid the seller in cash, and the assessee was compelled to follow the same mode of payment, which was confirmed by the recipient.There was no dispute on the genuineness or bonafide nature of the transaction, and the entire purchase consideration was duly accounted for, negating any loss to the exchequer.The Court rejected the Revenue's characterization that the cash payment was directly made to the seller without understanding the transaction chain.