TaxTMI 
TaxTMI 
2011 (8) TMI 1157
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has bought land from various farmers for developing a colony called 'Platinum Greens" near Mehla Town close to NH 8 between cities of Jaipur and Ajmer. 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 land owners in cash and cheque alongwith the name and address of the seller and other 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 cheque! bank draft and amount of Rs. 9,46,07,549/- was paid in cash. In view of these cash payments, the AD. has given show cause to the assessee for invoking the provisions of section 40 A (3) and thereby disallowing 20% out of cash payments. The A.R of the assessee has submitted that; i) Company has purchased agricultural land from different agriculturist farmers residing in remote rural areas and moreover the land being fixed 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from the case of M/s Saral Motors & General Finance Ltd vs. ACIT (2009)121 ITD 50 (Delhi) and decision of ITAT, Jaipur 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 6DD. It was submitted that the payments were made some of the farmers in villages where they ordinarily reside which is not served by any bank on the date of payment. The transaction 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 farmers are illiterate and they would not sign the registered deed unless they received payment in cash. Considering the various decisions particularly of Kantilal Purhottam & Company vs. CIT 155 ITR 519 wherein it was held that seller insisted on cash payment and the payment was genuine, provisions of section 40A (3) cannot be involved. 7. After considering the submissions and perusing the material on record, the ld. CIT (A) gave the following findings :- " 3.4 1 have considered the argument of Id. A.R and have perused the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e section. The expenditure for purchasing stock in trade is one of such outgoings. The value of the stock in trade has to be taken into account while determining the gross profits under section 28 on principles of commercial accounting. The payment made for purchases would also be covered by the word expenditure and such payments 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 read alongwith section 404(3). The rule also contemplates payments made for stock in trade and raw materials." (Emphasis supplied now). 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 financing motor vehicles on hire purchase, gave loan to the various parties in cash. On these facts, the Hon'ble ITAT held that the amount has not been claimed as expenditure since it was loan transaction and accordingly provisions of section 40A (3) are not applicable. Now coming to the argument of the appellant that 40A(3) is not attracted if the parties are identifiable and payments ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e other hand it is seen from the available details that some of the sellers of the land are residing in Jaipur City to whom the appellant has made cash payment e.g. heavy substantial 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 Banipark Jaipur. Similarly, substantial sum being Rs. 2.63 crores has 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 sellers are residing in village but it is seen that appellant has made payment to them through demand draft and cheque also. Accordingly, it cannot be said that those sellers are normally residing in villages which are not covered with banking facilities. If the seller was usually residing in the place which was not covered with banking facilities, then the seller could not have taken part payment through cheque or demand draft and they would have taken all the payment in cash. Accordingly, this argument of the appellant is totally devoid of any merit and is rejected. Regarding contended insistence by the seller to receive payment in cash, the argument itself is contradi....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., these further noticed cash payments are also held to be covered u/s 40A(3) requiring disallowance of 20% out of these further noticed cash payments of Rs. 2,69,28,892/-. Accordingly, disallowance is enhanced by Rs. 53,85,778/-." 8. Now the assessee is in appeal here before the Tribunal. 9. The submissions made before ld. CIT (A) were reiterated 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 came from the village and they were not having any bank account in the town. Therefore, the 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 consideration. As per provisions of section 40A(3) the deduction will not be allowed upto 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 disallowance. 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.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 observed 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 view of principles of accountancy any purchases of stock-in-trade has to be treated as claimed in the trading account. In our view these observations of ld. CIT (A) are not correct 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, therefore, in our view there was no trading during the year under consideration. 11.1 It is also a well settled proposition in law that the entries in the books of account are not determined in nature to hold that any expenditure has been claimed or not as held by Hon'ble Supreme Court in case of Jute Corporation of India. Therefore, merely on the basis of entries in the books of account it cannot be determine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d circumstances, we 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 payments were made to various farmers in villages where no bank facilities were available, we find that assessee deserves to succeed on this alternate contention in part. Except payments to three parties i.e. Shri Vedvrat Sharma at Rs. 2,21,20,000/-, Mehla Real Estate Pvt. Ltd. at Rs. 3,57,13,900/-, and to Shri Anil Chordia at Rs. 2,85,000/- which has been made in cash. They are residents of Jaipur. Therefore, provisions of section 40A(3) can be applied on these payments. However, in case of other parties, provisions of section 40A(3) cannot be applied as they are residing in villages where no banking facilities were available. 18. Similar issue came up before the Tribunal in case of M/s. Rishabhdev Township & Developers P. Ltd. The Tribunal while deciding the 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 perusing the material on record, we find no infirmity in the finding of ld. CIT ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eir residence for the simple reason that they would like to avoid the risk of receiving cash at the 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-Registrar that full payment 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 convenience, in the receipt the place is mentioned as the town where the document is registered. The AO has not made any effort to examine any of the sellers to verify as to whether the payments were received at the villages or at the town. Considering the entire facts the proposition that the 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 banking facilities were available, the case of the appellant-company would still fall under the exception of r. 6DD. Rule 6DD(h) has to be interpreted liberally so as not to frustrate the object of the legislature. The object o....