AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 251
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....eques. 3. The ld. CIT(A) erred in allowing relief in respect of disallowance of cash payments made on holidays disregarding the fact that the payments were made in instalments and as such there is no requirement to make payments on holiday to claim exception under Rule 6DD(j)." 3. As facts and issues are identical, for the sake of convenience, we shall deal with the facts as involved in ITA No. 1320/Hyd/2014 relating to AY 2010-11. 4. Briefly stated, assessee a company is engaged in real estate business. Activities of assessee, mainly, is to purchase land in bulk and after developing them into plots sale them to prospective buyers. In course of assessment proceeding, AO noticed that during the year under consideration, assessee has purchased lands worth Rs. 14,53,85,794. On further verification, AO found that assessee had made cash payments in excess of Rs. 20,000, in violation of section 40A(3) of the Act, to the extent of Rs. 82,85,097. In response to the query made, assessee while submitting details of cash payments made during the year also stated that there is no violation of section 40A(3) as they are covered under various clauses of Rule 6DD. The cash payments were ....
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....s far as payments of Rs. 22,20,000 claimed to have been paid on days when banks were closed, on account of holiday, thereby coming within exceptions provided under clause (i) of Rule 6DD, AO opined that there was no requirement of making payments on a particular day, which happens to be a holiday. This, according to AO is because in case of assessee, the transactions were not settled on that particular day. When the agreement of sale was entered some time back and assessee made payments in instalments on several occasions, then, there is no necessity of paying the amount on a holiday when the bank is closed. Accordingly, he disallowed the amount of Rs. 22,20,000 u/s 40A(3). 7. As far as the amount of Rs. 18,62,375 claimed to have been paid to the land owners in places where no banking facility was available thereby attracting clause (g) of Rule 6DD, AO observed that persons to whom payments were made are residing in villages located in Districts of Guntur and Krishna, which are most developed districts in the state and are covered by banking facilities. Therefore, he disallowed the cash payments made of Rs. 18,62,375. 8. Apart from the aforesaid amounts disallowed, AO also no....
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.... "6. We have heard both the parties and perused the material on record. In this case, the CIT(A) deleted the addition of Rs. 4,45,20,449 on the reason that the payments were made in the places where there is no banking facility available. The facts of the case under consideration need to be examined. As stated earlier the assessee company is in the business of real estate purchasing bulk lands and developing them into plots and selling of the same. It is common knowledge that in villages generally the transactions are by cash not because the transactions are not genuine or they want to avoid banks but because it is still a convenient mode of transaction and people are more comfortable in dealing with cash. This will not give immunity to the transactions in villages but it helps in understanding the reason which will help in appreciating the facts of the case. The assessee has furnished all the details stating that the said villages did not have banking facilities. The assessee filed confirmations from the village surpanches who certified that there were no banking facilities in the villages concerned and the assessee has also produced confirmations from the village surpanches co....
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....is no banking facility, the disallowance cash payment u/s. 40A(3) read with rule 6DD(g) is not warranted. 8. Further we came across a decision of the co4 ordinate Bench in the case of Sahitya Housing Pvt. Ltd. vs. DCIT in ITA No. 246/Hyd/2011. The Tribunal vide order dated 24.1.2014 held as under: "13. We have heard the arguments of both the parties, 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 shall be deemed to be the profits and gains of business or profession under sub section (3) and this sub section where 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 twenty thousand rupees in such cases and under such circumstances as may be prescribed having regard to the nature and extent of banking facilities 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, c....
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.... present 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. There is no arbitrariness or discrimination in the said provision warranting interference by this 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 sub 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 forward 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 closed 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 payment is not required to ....
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....cer held that the said agents are only brokers and a broker cannot be treated as an agent and the exemption under Rule 6DD is available only in respect of payments made through an agent of the party concerned. The AO was of the view that the agents utilised the vehicles provided by the company to hand over the cash to the intended agriculturists which goes to prove that they were acting only as messengers of the employees of the assessee4company. 12. The AR submitted that As per Rule 6DD(k) which says "where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person" exemption is available for cash payments u/s. 40A(3). The requirement is the payment should have been made to an agent who is required to make payment in cash for goods or services on behalf of the person for whom he is acting as an agent. It may be noted that the exemption under Rule 6DD(k) is available only in respect of cash payments made to an agent, hence, it is important to know the meaning of 'agent' vis4a4vis 'broker'. The words 'Agent' & "Broker" are not defined in the IT Act. There is no definition of the ter....
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....little amounts, I take the money from Abhinandana and the same are paid to the farmers. Every transaction was routed through by me only. As submitted earlier, in all these transactions, I use to take support from my nephew. Q. 22 At any time, did Abhinandana pay the amount towards cost of land by cheques into your account? A. 22 No, all the amounts paid in cash only to me, towards commission income. Q. 23 Have you given any receipts in respect of cash received by you on behalf of landlords? A. 23 I give receipts to Abhinandana in proof of cash taken by me. After receipt from the landlords, I take back the initial receipt given by me to Abhinandana. Q. 28 Though you have got TDS, you have not filed your IT Returns. A. 28 I do not know about these procedures hence the failure to submit the ROI. Sworn Statement of Sri M. Raja Venkateswara Rao Q. 3 Please explain the full details of brokerage income? A. 3 I use to brokerage lands for Abhinandana. In very few cases, I did so for others. Per year, the income on brokerage will be around Rs. 2 to 2.5 lakhs. I use to get at lease Rs. 5,000 per acre and up to Rs. 35,000. I assisted in purchasing land for one Mr. Su....
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....m Hari Babu Q. 5 Please furnish the details of source of your income. A. 5 I cultivate on behalf of my own and my deceased brother-in-law's agricultural land. Out of the same, 1 acre on my wife's name. My another source of income is commission of real estate broking. During the year 2008-09, 1 earned about Rs. 1.30 lakhs. In the previous years, it was about Rs. 40 to 50 thousand. In 2010, I took Rs. 37,000/- and in 2011 till today, 1 got around Rs. 20,000/-. Q. 6 Please furnish full details of your commission income. What was the basis of determination of commission income and what are the duties and responsibilities as commission agent? A. 6 I am doing real estate works since 2004. I offer services only for Abhinandana. In very few cases, I offered to private parties. Per acre I earn up to Rs. 20,000. Mekala Srinivasa Rao (Kunchanapalli), Thotakura Srinivas (Poranki) (to my memory goes). 14. The DR submitted that from the above statements it is apparent that the above said parties are not the agents of the company but they worked as middlemen and offered the services to other parties as well and this distinguishes the brokers from the agents and hence, the c....