AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 1283
X X X X Extracts X X X X
X X X X Extracts X X X X
....es towards discrepancies found during survey, which was found offered to tax in the return filed subsequently. During the course of verification, it is found that the assessee has purchased land from the parties mentioned below and made payments exceeding Rs. 20,000/- against provisions of Section 40A(3):- SL NAME AMOUNT IN Rs. 1. Shri Romnath Nishad & Others 32,16,000/- 2. Shri Dwarika Nishad 24,25,000/- 3. Shri Bisaher Faguva 2,50,000/- 4. Shri Radhashyam Vishram. 2,15,000/- TOTAL 61,06,000 The land being stock in trade the expenditure was of revenue in nature. Therefore, the assessee was asked to explain why disallowance of the above expenditure should not be made being paid in violation to provision of Section 40A(3) of the Act. No plausible explanation was given. Accordingly, aggregate of the above sum at Rs. 61,06,000/- is disallowed u/s 40A(3) of the Act and added to the total income of the assessee." 3. Before the learned CIT(Appeals) the assessee submitted that the seller Shri Bisaher and Shri Radheshyam are villagers and do not have any bank account and thus, full payment of purchase consideration was made in cash before the Regis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction was explained in a Circular no. 6P, dated 6th July, 1968. "76. Sub-section (3) of new section 40A makes a provision of the disallowance of expenditure incurred in business and profession for which payment is made in an amount exceeding Rs. 2,500/-, otherwise than by a crossed cheque drawn on a bank or a crossed bank draft. This provision will apply i9n respect of payments made after a date to be notified by the Government being a date not later than 31 March, 1969. This provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the Department as to the identity of the payee and the reasonableness of the payment." 3.5 The objective of section 40A(3) requiring such payment to be made by crossed cheque or draft has been repeatedly stressed by the Court, as for example, in Walford Transport (Eastern India) v/s. CIT as under : "From a perusal of decision of different High Courts referred to above, it clearly emerges that the purpose of section 40A(3) of the Act is not to penalize the assessee for making cash payment of an amount of Rs. 2,500 or above. The purpose is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der section 40A(3) has been rightly made. Submissions of the learned counsel of the assessee in this regard are summarized as under : "A. The brief facts of the case are as under : a. The fact that the sellers are illiterate villagers has not been doubted by the department and same is evident from sale deeds. b. The fact that the full payment has been made to the sellers for the purchase of land is also not doubted by the Ld. A.O. c. The Ld. A.O. has not doubted the genuineness/identity of the Sellers. d. The sellers are new to the assessee thus demanded payments in cash for the purpose of their security. They intimated assessee that they do not possess any bank account. e. In case of purchases under consideration : i) It is worthwhile to note that out of total purchases of Rs. 5,40,31,391/- during the year, payment for sum of Rs. 61,06,000/- (11.305) has been made in cash. The assessee strives to make all the payment through account payee cheques. However since the villagers are illiterate, they sometimes force for cash payment. Usually the assessee makes cheque payment but if the seller do not agree, payment in cash out of business compulsion has to be made. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ails of his bank account in the year 2008 all the subsequent payments were made in Cheques. viii) In case of 4rd and 4th purchase from Shri Bisaher Faguva & Shri Radheshyam Vishram , it is undisputed that the sellers are small villagers and do not have bank account, thus full payment of purchase consideration was made in cash before the competent authority, thus covered by Rule 6DD. Thus cash payment were made in exceptional and unavoidable circumstances of the business exigency, convenience of security of the subject property. f. Disallowance of expenses paid in cash, mechanically and automatically in a blanket manner would lead to gross receipts being taxed as income which cannot be justified. The Income-tax Act is intended only to levy tax on the correct income being the real income and not imaginary sums assumed by the Revenue towards gross receipts by disallowing expenses. B. Present case is pari material sity the case of Saraswati Housing & Developers v/s. Additional Commissioner of Income-tax (2013) 142 ITD 0198 - ITAT Delhi Bench 'G' C. It is also worthwhile to look into the object behind insertion of Sec. 40A(3); "76. Sub-section (3) of new section 40A makes a pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om whom the land has been purchased are illiterate and some times insists on cash payment. It has been claimed that it was the business compulsion of the assessee that the assessee had to accept the insistence of the villagers as the assessee has purchased a large chunk of land and wanted to acquire the adjacent land in vicinity for launch of its project. It had to agree to some of the villagers in their demand of cash payments although the assessee was able to make major purchases by cheque. Moreover it is also on record that photos of sellers duly signed by them are recorded on the sale deed which was registered before the Sub Registrar. Hence there is no iota of doubt about the genuineness of payment and the identity of persons receiving the payments. The cash payments along with the dates are also mentioned in the sale deed. In these circumstances, in our considered opinion there is considerable force in the assessee's submission that there was reasonable cause for the assessee's failure to make payment otherwise than by crossed cheques. In this regard we find that similar issue was considered by ITAT, Delhi Bench in the case of Saraswati Housing and Developers v/s. Addl. CIT 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g facilities at the place of payment. As per submissions of the DR if it is assumed that the payment was made at the tehsil and district headquarter, the admitted position is that the sellers did not have any bank accounts at such town and they did not reside or carry on any business or farming activity at such town. The AO and the learned CIT(A) have observed that the appellant company could have opened bank accounts at such town in the name of the sellers. In our view, it would be too much to expect that the appellant company would be able to compel the villagers to open bank accounts at the town which ultimately they will not be able to operate as they do not reside at such town. 12. If such a myopic view is taken regarding the interpretation of r. 6DD(h), in our view, the very object of the legislature would be frustrated. There is no dispute regarding the identity of the payees and the genuineness of the land transaction in respect of which payments have been made. At this point, it is notable that r. 6DD(k) provides an exception in respect of cash payments which are made on a day on which the banks were closed. This exception provides that the object of the legislature is t....