TaxTMI 
TaxTMI 
2018 (10) TMI 1340
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.... the business of construction and sale of flats. During the previous year, the assessee purchased an immovable property admeasuring 267 sq.yds for a consideration of Rs. 59,10,000/- from Smt. Voleti Kanakavalli & Others. The assessee debited the purchase cost of the site to trading account in five names of Rs. 11,82,000/- each and claimed it as business expenditure. It is also noticed from the sale deed that out of the purchase consideration of Rs. 59,10,000/-, the assessee had paid Rs. 17,00,000/- vide demand drafts and the remaining amount of Rs. 42,10,000/- by way of cash. The details of payments made in cash ought to have been verified in the light of section 40A(3) of the Act and Rule 6D of the Income Tax Rules, 1962. However, it is seen from the assessment record that assessee's claim of expenditure has been allowed without subjecting the payments made in cash to any scrutiny or verification. Thus, the assessment order dated 16/02/2015 passed under section 143(3) is prima-facie erroneous and prejudicial to the interests of the Revenue and therefore, the same is proposed to be revised under section 263 of the Act. Accordingly, a show-cause letter dated 05/04/2016 has been issu....
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....do not fall within the exceptions provided under Rule 6DD of the I.T. Rules. Ignoring all these aspects, the Assessing Officer has allowed the entire expenditure of Rs. 59,10,000/- without verifying the applicability of provision of section 40A(3) in respect of cash payments to the tune of Rs. 42,10,000/-. The expenditure to the tune of Rs. 42,10,000/- ought to have been disallowed while making the assessment for the subject year, but the Assessing Officer has failed to do so and therefore, the assessment so made is not only erroneous but also prejudicial to the interests of the Revenue. Accordingly, the ld. Commissioner has directed the Assessing Officer to disallow the said expenditure of Rs. 42,10,000/- being cash payments made to the land owners in violation of section 40A(3) of the Act as the said payment do not fall under the exceptions provided in Rule 6DD of the IT Rules and added to the income already assessed in the assessment order dated 16/02/2015. 4. On being aggrieved, the assessee carried the matter in appeal before the Tribunal. 5. Ld. counsel for the assessee has submitted that the Assessing Officer during the course of assessment proceedings has called the asse....
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....ash. The Assessing Officer completed the assessment under section 143(3) of the Act on 16/02/2015 after calling the details, such as, sundry creditors, bank statements, details of sale deed, ledger copies of various claims, purchase deeds, unsecured loans and other details. Subsequently, the ld. Commissioner called the entire file of the assessee and examined the same and found that the Assessing Officer has failed to examine the cash payments made by the assessee and therefore, it attracts section 40A(3) of the Act, which the Assessing Officer has failed to do. Therefore, the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the revenue and issue a show-cause notice dated 05/04/2016 calling explanation from the assessee why the order passed by the Assessing Officer cannot be revised. The relevant portion of the notice is extracted as under:- "3. Further, it is noticed that the assessee, proprietor of M/s Sritanuja Builders and Developers, was engaged in the business of construction and sale of flats. During the previous year, the assessee purchased an immovable property admeasuring 267 sq.yards for consideration of Rs. 59,10,000/- from Smt V....
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....e.. It is also noticed by the ld. Commissioner that return of income filed for computation of short term capital gain on alleged conversion of capital asset into stock-in-trade during the year, even if it is nil, is not reported in the relevant schedule of ITR (Schedule-CG of ITR). Therefore, the claim of the assessee that the property was initially acquired as a capital asset is only an afterthought to escape the rigors of section 40A(3) and no credence can be given to such self-serving document. The ld.Commissioner further observed that cost of acquisition was claimed as deduction in the profit & loss account in the return of income filed by the assessee for Assessment Year 2012-13 relevant to the Financial Year of purchase i.e. 2011-12 which also clearly establishes that the property was purchased as a business asset only and was used as stock-in-trade during the year of purchase itself and hence the provisions of section 40A(3) are squarely applicable to the expenditure claimed in profit & loss account against the purchase of the said property. The ld.Commissioner further observed that the assessee has not explained the extenuating circumstances for payment of part of the cons....