TaxTMI 
TaxTMI 
2017 (11) TMI 1308
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.... in ITA No. 742/JP/2014 "1. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the disallowance of Rs. 28,84,313/- made by Ld. AO u/s 40(a)(ia) by holding that the appellant did not deduct Income Tax at Source (TDS) on the interest paid to NBFC(s) without appreciating that the entire amount stood "paid" during the year itself and no amount remained outstanding as on 31.03.2012. Thus, the provisions of section 40(a)(ia) are not attracted in the facts & circumstances of the case, and hence the addition of Rs. 28,84,313/- deserves to be deleted. 1.1 That, the Ld. CIT(A) has further erred in ignoring the binding order of Hon'ble Jurisdictional Bench of ITAT, Jaipur in the case of ACIT Vs. Girdharilal Bargoti ITA No. 757/JP/2012 which was binding upon the Ld. AO as well as Ld. CIT(A), particularly when the ITAT has after taking into consideration all the relevant and contradictory judgments rendered by various High Courts, has decided to follow the judgment of Hon'ble Allahabad High Court in the case of CIT Vs. Vector Shipping Services (P) Ltd. [357 ITR 642] (affirmed by Supreme Court) by follo....
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....y, we condone the delay and heard the appeal on merits. 3. The brief facts of the case are that the return of income declaring total income at Rs. NIL was filed by the assessee on 29/09/2012 (after claiming set off of brought forwarded losses of Rs. 18,41,151/-). The assessee is a Private Limited Company, engaged in the business of real estate, selling plots of land for residential as well as farm house purposes and also providing common facilities like club house, swimming pool, road etc. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (in short the Act) at a total income of Rs. 2,65,62,990/- by making certain additions / disallowances. The ld. CIT(A) partly allowed the appeal of the assessee. Now the revenue and the assessee are in appeals before the ITAT 4. Ground No.1.1 of the assessee's appeal is not pressed, therefore, the same stands dismissed as not pressed. 5. The ground No. 1, 1.2 and 1.3 of the assessee's appeal are against upholding the disallowance of Rs. 28,84,313/- made by the Assessing Officer U/s 40(a)(ia) of the Act. The ld. CIT(A) has sustained the addition by holding as under: (i) I have duly considered the submissions of th....
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.... and was actually paid within the previous year. In the result the question is decided in favour of revenue and against the assessee.'' (iv) The same view was taken by the Hon'ble Calcutta High Court in the case of CIT vs. Crescent Export Syndicate, (2013) 216 Taxman 258 (Calcutta) wherein it was held that: "It is noticeable that Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term 'payable' legislature included the entire accrued liability. If assessee was following mercantile system of accounting, then the moment amount was credited to the account of payee on accrual of liability, TDS was required to be made but if assessee was following cash system of accounting, then on making payment TDS was to be made as the liability was discharged by making payment. The TDS provisions are applicable both in the situation of actual payment as well of the credit of the amount. It becomes very clear from the fact that the phrase, 'on which tax is deductible at source under Chapter XVIIB', was not there in the Bill but incorporated in the Act. This was not without any purpose.'' ....
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....ase of Merilyn Shipping &Transports, which has been suspended by Hon'ble Andhra Pradesh High Court, has not been approved by the Hon'ble Allahabad High Court. Therefore, subordinate judicial forum are not required to follow the ratio order laid down in the case of Merilyn Shipping & Transports (supra), as it was overruled by the other High Court. (Para8)" (vii) It was another contention of the appellant that 2nd proviso to section 40(a) (ia) though inserted on the statute w.e.f. 01.04.2013, the same being curative is to be treated as applicable from 01.04.2005. The above contention deserves to be rejected because if the intention of the legislature was to make the said proviso applicable from 01.04.2005, it could said so while inserting the second proviso. Further, even if it is presumed for the time being that it was retrospective in nature, still no benefit can be given to the appellant as it failed to produce the required certificate from the chartered accountant as stipulated in 1st proviso to section 201 of the Act. Here it may be mentioned that as per the proviso to section 201 inserted w.e.f. 01.07.2012, the appellant would not be treated as assessee in defa....
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....balance disallowance, it is submitted that in first proviso to subsection 1 of section 201 assessee has never been treated as "assessee in default" and therefore in view of the second proviso to section 40(a)(ia) inserted w.e.f. 01.04.2013 no disallowance could be made in the hands of assessee. Though the amendment in section 40(a)(ia) inserting the second proviso has taken place w.e.f. 01.04.2013 i.e. from AY 2013-14 however, it is a beneficial provision and insertion of the same in the statute clearly shows the intention of the legislature to give relief in the case where the payee has paid due taxes, further disallowance in the hands of the payer caused to the serious hardship. The intention behind the insertion of provision of section 40(a)(ia) was to brought those persons in the tax net in whose case no TDS is deducted though they are enjoying the taxable income, thus where the payee has already paid the due taxes on the payments on which no TDS is deducted by payer, there remained no reason to make disallowance in the hands of the payer. The Hon'ble Apex court in the case of CIT (Central-1) Delhi Vs. Vatika Township Pvt. Ltd. reported in 367 ITR 466 (relevant para 30-37) (APB....
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.... as additional evidence). Since the assessee has furnished proof that the recipients have paid tax on the interest paid by the assessee as additional evidence, it is humbly prayed that the disallowance to such extent deserves to be deleted. 07. On the other hand, the ld Sr. DR has relied on the orders of the authorities below. 08. We have heard both the sides on this issue. The ld. CIT(A)'s observation that no certificate as prescribed under proviso to Section 201(1) r.w. Rule 31ACB of the Rules certifying that the taxes in respect of interest income were duly paid by NBFCs was filed. The record shows that the assessee has submitted certificate from a Chartered Accountant namely M/s Dua Manral & Associates placed at page No. 20 to 21 of the paper book, as per the proviso to Section 201(1) r.w. Rule 31ACB of the Rules certifying that the taxes in respect of interest income of Rs. 20,42,045 were duly paid by NBFCs Religare Finvest Ltd. The Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. has held as under: Section 40(a)(ia) of the Income-tax Act, 1961, is aimed at ensuring that an expenditure should not be allowed as deduction ....
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....issions of the appellant, assessment order and the material placed on record. The facts of the case are that the appellant company is engaged in the business of real estate mainly dealing in purchase of land and selling the plots and farm houses of small sizes, after developing the land viz common facilities and roads etc. During the assessment proceedings, it was observed by the AO that the appellant made cash payments exceeding Rs. 20,000/- in violation of provisions of section 40A(3) of the Act as per the following details: Name of party Total amount paid Registry/ agreement Date of payment as per registry Date of payment as per cash book Ramesh Chand Agrawal 23,13,324/- 15.09.2011 (Thursday) No mention of specific date 15.09.2011 (Thursday) Hira Lal Khetan 9,62,658/- -do- -do- -do- Hira Lal Khetan 4,00,000/- -do- -do- -do- Smt. Shanta Devi 11,75,000/- -do- -do- -do- Shiv Pal Singh 4,50,000/- 20.07.2011 (Wednesday) 20.07.2009 (Wednesday....
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....e the identity of the seller cannot be challenged. It was the contention of the appellant that the object of the provisions of section 40A(3) is to check evasion of taxes so that the payment is made from disclosed sources only or in other words, the object of enacting section 40A(3) is to ensure that payments in respect of which deductions are claimed by the taxpayers are genuinely made and accommodation payments are not allowed as deduction. In the assessment order, the AO has never questioned about the genuineness of the source of cash payment nor the authenticity of the transaction. The purpose of the 40A(3) is not to penalize the appellant for making cash payments of an amount exceeding the stipulated limit. The purpose is only preventive and to check evasion of tax and flow of unaccounted money or to check the transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transaction. (iv) It was the contention of the appellant that in the case of Shri Ashok Agarwal, POA holder of his daughter Ms. Anshita Agarwal, the transaction for purchase of land was entered during the financial year 2009-10 against which the advance pa....
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.... also made out of circumstances arising out of unavoidable business scenario. (v) It was submitted that the terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the appellant to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. (vi) It was further submitted that the Rule 6DD of the Income Tax Rules, 1962, provides that an assessee can be exempt from payment by a crossed cheques or bank draft in the circumstances specified in the rule. The CBDT has issued certain guidelines giving certain circumstances and those circumstances are illustrative and not exhaustive and the underlying idea of the circular is that if the identity of the payee is known, it would be possible for the ITO to cross check whether the transaction had in fact taken place. In the present case of the appellant company, the AO never try to cross examine the transaction done by the company, ....
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.... 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 expediency and other relevant factors : (xa) The relevant extract of Rule 6DD is reproduced as under: 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A 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 the cases and circumstances specified hereunder, namely:- (xi) It is evident from the above that the Rule 6DD has specified the circumstances in which payments exceeding the prescribed limits can be made in cash. In is noted from the letter of Shri Ashok Agarwal dated 01.03.2012 placed on record that in the said lett....
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....y the exception provided under rule 6DD(j) which has been extracted by the Assessing Officer above. Further, the sale deed was also executed on March 30, 2010. Therefore, in our opinion, the cash payment would covered by the exception under rule 6DD(j) and accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete this addition." (xii) In view of the above discussion, it is held that the payments to Shri Ashok Agarwal are covered by the provisions of Rule 6DD(j) of the IT Rules as the appellant was required to make payment in cash on Sunday and thus the AO was not justified in making disallowance of Rs. 1,82,40,000/- u/s 40A(3) of the Act, hence, the same is deleted. (xiii) The balance cash payments of Rs. 53,00,982/- was made on (Thursday) in violation of provisions of section 40A(3) to the remaining four sellers as per following details: Name of the Seller Amount in Rs. Whether agreement to sell registered Date and time of sale deed presentation before sub registrar Shri Heera Lai Khetan 4,00,000/- Yes 15.09.2011 at 5.30PM Smt. Shanta Devi Mittal ....
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....) of the Act. (xv) It is noted from the registered sale deed executed by the appellant in favour of M/s Ocean Seven Buildtech P Ltd on that the said sale deed was presented before the Sub Registrar at 6.20 PM on 15.09.2011. It is further noted that the total consideration for the said sale was Rs. 2.44 Crore and not Rs. 2.09 Crore as stated by the appellant and the said sale deed does not reflect that the payment of Rs. 2.09 Crore was paid in cash on 15.09.2011 itself. In the sale deed, it is stated that the appellant has received full consideration of Rs. 2.44 Crore and nothing is left to be paid by the buyer. Thus, it is held that the appellant was not able to establish that it received a sum of Rs. 2.09 Crore in cash from M/s Ocean Seven Buildtech P Ltd on 15.09.2011 itself. Hence, the contention of the appellant that it made payment in cash amounting to Rs. 48,50,982/- for purchase of land on 15.09.2011 out of the sale proceeds of land received in cash from M/s Ocean Seven Buildtech P Ltd on 15.09.2011 cannot be believed and rejected in the absence of any documentary evidence to support its contention and in view of the above discussion. The appellant has not sta....
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....982 During the course of assessment proceedings, it was submitted that, the said payments were made either under business exigencies, or on holidays or due to pressure and threats by the concerned parties to cancel the deal and forfeiture of advances paid. The assessee had also submitted before the ld. AO, copy of a letter/ notice received from one such seller (APB 29-30). With regards to the above payments alleged to have made in contravention to provisions of section 40A(3), it was explained that, payment to Shri Ashok Agarwal, who was POA holder of his daughter, the transaction was entered into during the financial year 2009-10, against which the advance payment was made in that year itself and the balance payment was to be made within a year. But due to title problems regarding the concerned land in the hands of seller, the assessee did not make the balance payment for the next two years, in spite of repetitive reminders received from the seller. Finally after receiving the final notice from the seller to either pay the balance amount or the deal would be cancelled and the advance money would be forfeited, the assessee met with the seller to resolve ....
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....and sold to M/s Ocean Buildtech (P) Ltd. was done after the execution of the above said purchase deeds. In this regard it is humbly submitted that, both sale and purchase deeds were registered on the same day (15.09.2011) is not disputed nor the fact that these were registered after banking hours was doubted by Ld. AO or Ld. CIT(A). Both the sale and purchase deeds were put forth before the registrar and were registered on the same day, in fact this further strengthens the contention of the assessee that, the cash received from one party was indeed utilized to pay the other four parties, who in turn got the land registered immediately in the name of assessee, and this proves beyond doubts, the business exigency that compelled the assessee to make cash payment for the purchase of land parcels from them. Further the fact that assessee had received cash from sale of its land to M/s Ocean Seven Buildtech (P) ltd is verifiable from the cash book [APB 89-110] placed on records of the Ld. AO wherein cash deposit of Rs. 2.09 Cr. and Rs. 13.50 lacs [this was for another sale of a small piece of land made to M/s Ocean Buildtech (P) Ltd. on the same date] is duly appearing on 1....
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....the transactions were with the intention to evade tax. Thus it is clear that under Rule 6DD, it is open to the assessee to explain to the assessing authority, the circumstances which compelled payment in cash of an amount exceeding the stipulated limit, and also explain the genuineness of transaction. The contention of the assessee gets support from the following pronouncements: Walford transport (Eastern India) ltd vs. CIT [1999 (240 ITR 905) Gau] [APB 210-215] where the transaction is found to be genuine and the identity of the payee is established a liberal view of compelling and mitigating circumstances should be taken. CIT vs. K.K.S.K Processor (P) ltd [2007] 292 ITR 669] [APB 216-220] The object of the Rule 6DD is to relax the rigours of sec 40A(3) in genuine and bonafide cases to avoid hardships and harassment Reliance is also placed on the decision of the Apex Court in the case of Attar Singh Gurmukh Singh vs. ITO [191 ITR 667 (SC)] [APB 221-223] which was followed by the Allahabad High Court in the case of CIT vs. Raja Pal Automobiles [320 ITR 185] [APB 224-227] wherein it has been held that, the terms of sec 4....