TaxTMI 
TaxTMI 
2019 (1) TMI 397
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....,11,96,568/-. The assessee filed return in response to notice u/s. 153A. The assessment was completed u/s 143 (3)/153 A vide order dated 22.07.2011 determining the total income at Rs. 3,15,20,512/-. The assessment order was set aside by the CIT (Central), Kanpur u/s 263 of the IT Act vide order of 28.3.2014. Accordingly fresh notice u/s 143 (2) was issued. On the basis of various details filed by the assessee the Assessing Officer in the order dated 31.03.2015 passed u/s 143 (3)/263/254/153A of the IT Act determined the total income at Rs. 3,51,82,390/- wherein the Assessing Officer apart from other additions made addition of Rs. 54,52,697/- u/s 40A(3) of the I. T. Act, 1961 which is subject matter of appeal before the Tribunal. 3. In appeal Ld. CIT(A) upheld the action of the Assessing Officer by observing as under :- "I have carefully considered the written submission filed and finding of the Assessing Officer in the assessment order. The appellant has argued that cash payments made by him should be allowed because his case falls under rule 6J of I. T. rules for all the years and 6J and 6K both for A. Y. 2005-06. During this appeal proceeding, the appellant could not ....
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.... 5. That without prejudice to ground No.1, 2 and 3 on the facts and in the circumstances of the case, Ld. CIT(A)-IV, Kanpur erred in confirming the addition u/s 40 A (3) of the Income Tax Act 1961 ('the act') without appreciating that disallowance cannot be made under section 40A (3) of the expenses recorded in the material seized during the course of search and seizure as section 40 A 93) is not applicable on the search cases. 6. That without prejudice to ground No.1, 2 & 3 on the facts and in the circumstances of the case, Ld. CIT(A)-IV, Kanpur erred in confirming the addition u/s 40A(3) of the Income Tax Act 1961 ('the Act') of Rs. 19,67,536/- without appreciating that all the cash expenses were incurred as a decision of business expediency thus disallowance cannot be made under section 40A(3). Rule 6DD is not exhaustive but illustrative. 6. The Ld. Counsel for the assessee referring to the decision of Hon'ble Supreme Court in the case of Jute Corporation of India Limited Vs. CIT reported in 187 ITR 688 and NTPC Vs. CIT reported in 229 ITR 383 submitted that the above additional grounds being purely legal in nature should be admitted. He submitted that assessee did n....
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.... 4,58,93,281 3,76,20,152 9. The Ld. Counsel for the assessee submitted that all the expense computed on the basis of seized records were duly accepted by the AO. However disallowance was made of expenses incurred in cash in excess of INR 20,000/- under the provision of section 40A(3) of the act. The details of expenses and disallowances are as under:- 2006-07 2007-08 2008-09 2009-10 Total Cash Expenditure in excess of Rs. 20,000 2,72,63,485 2,51,04,985 2,88,10,156 2,02,09,000 10,13,87,626 Initial Addition u/s 40A(3) by the Ld. AO (20% for AY 2006-07 & 2007-08 and 100% for AY 2008-09 2009-10) 54,52,697 50,20,997 2,88,10,156 2,02,09,000 5,94,92,850 Relief by AO u/s 154 of Rule 6DD(b) 1,33,34,160 Othetr Relief by the LD. AO 20,93,067 12,40,143 1,07,26,664 37,64,991 1,78,24,865 /Balance Disputed Cash expenditure in excess of Rs. 20,000 2,51,70,418 1,05,30,682 1,80,83,492 1,64,44,009 7,02,28,601 Final Addition u/s 40A(3) (20% for A Y 2006-07 & 2007-08 and 00% for AY 2....
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....therefore, it is bound to complete the construction to offer the possession in agreed time to avoid penalties. The assessee, therefore, carries the construction activities round the clock even on Sundays and holidays. The assessee had procured the materials on Sundays and public holidays to avoid any break in the process of construction. He submitted that the customers generally visit the sites of the builders on holidays. Since the assessee received cash on holidays from the customers, therefore, payments were made to the suppliers on holidays for procurement of the materials. Therefore, in view of the availability of cash majorly on holidays, the assessee was bound to make cash payments of pending dues of the suppliers on the holidays itself. 12. He further submitted that the assessee did not make any payment whether on holidays or working days through account payee cheques / demand drafts as the assessee made the payments out of unaccounted "on money". Therefore, the question of making the payment by crossed account payee cheques/ bank drafts does not arise. He accordingly submitted that the payments made on national/ bank holidays are covered by rule 6DD(J) of the IT Act and....
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....s was appointed as agent by M/s. Surya Merchants Limited for supplying Marbles vide agreement dated 11.04.2004. Referring to various decisions he submitted that the provisions of section 40A(3) are not applicable when the payment is made is cash to the agent for goods or services on behalf of such persons. 16. So far as the third category of payments are concerned he submitted that the provisions of section 40A(3) is not applicable on the expenses recorded in unaccounted books or materials found during the course of search and seizure operation. He submitted that these payments could not be made otherwise than in cash as the income and expenses both were not recorded in regular books of accounts but these were recorded in materials seized during the course of search proceedings. Referring to the decision of Hon'ble Supreme Court in the case of Revenue Presidential Poll AIR 1975 1682, he submitted that the Hon'ble Supreme Court in the said decision has held that there is no obligation to do impossible things. The law does not compel one to do that which one cannot possibly perform. Further, the payments of cash expenses of Rs. 20,000 were made from "on money". Relying on various ....
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.... the seized documents, therefore, the provision of section 40A(3)are not applicable. 20. So far as the payments made in cash in excess of Rs. 20,000/- on bank holidays/ national holidays are concerned, we find there is no such payment in A. Y. 2006-07. However, the assessee has incurred such expenses in A. Y.2007-08 Rs. 39,12,033/-, in A. Y. 2008-09 of Rs. 1,26,24,000/- and Rs. 84,60,000/- in A. Y. 2009-10. The above payments are not in dispute. The Assessing Officer in the remand report also accepted that such payments have been made on bank holidays/national holidays. However, it is the case of the revenue that there was no compulsion on the part of the assessee to make such payments on bank holidays. It is the submission of the Ld. Counsel for the assessee that assessee being a developer of commercial/ residential projects is bound to complete the work in a time bound manner and construction activities are carried out continuously even during holidays. Therefore, when the assessee receives cash from the customers during holidays and purchases materials on the same day or makes the payments to the suppliers the same should not be disallowed under section 40A(3) of the IT Act. ....
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....days. The provision of rule 6DD(J) provides that provisions of section 40A(3) shall not be applicable where the payment was required to be made on a day on which the banks were not open on account of holidays or strike. Since the assessee in the instant case has admittedly made the payments on a day on which the banks were not open on account of holidays and the Assessing Officer has also admitted that such payments were made on bank holidays therefore under the facts and circumstances of the case we are of the considered opinion that provision of section 40A(3) are not applicable to the payments made in excess of Rs. 20,000/- on bank holidays which are as under :- 1. 2007-08 Rs.39,12,033/- 2. 2008-09 Rs.1,26,24000/- 3. 2009-10 Rs.84,60,000/- We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to remove the above expenses from the purview of provision of section 40A(3) as these expenses are covered under Rule 6DD(J) of the IT Rules. 22. Now, coming to the second category of payments i.e. the payments made to the agent of the assessee M/s. Surya Marbles is concerned, we find from the copy of the agreement dated 01.04.200....