TaxTMI 
TaxTMI 
2016 (5) TMI 1515
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....the assessee was in the nature of business venture, ignoring the fact that the appellant had purchased the said land by way of invetment and not as a business venture, without distinguishing catena of supporting case laws cited by the appellant. 2. That the ld. CIT(A), Amritsar has erred in law and on facts, in holding that the AO was right in denying the set off unabsorbed brought forward short term capital loss against the short term capital gain of the current year. 3. That the ld.CIT(A) Amritsar has erred in law and on facts, in confirming the disallowance of Rs. 12860890 by the AO u/s 40A(3) completely ignoring the fact that the transaction was snot in the nature of business but was in the nature of investment as a restult of which the provisions of section 40A(3) are not applicable. 4. That the Ld.CIT(A), Amritsar has erred in law and on facts, in confirming the disallowance of Rs. 1,28,60,890 by invoking the provisions of section 40A(3) inspie of the fact that assessee had made payment of only Rs. 25 lacs to seller of the land and balance payment was made directly by the ultimate buyers of the land and not by the appellant. 5. That the ld.....
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....to sell the land to other buyers in lieu of which the sellers would give some part of profits earned from sale of such land to assessee. It was also submitted that assessee was not a regular dealer in Real Estate and keeping in view the facts that this was only transaction of purchase and sale of land the asseessee's income cannot be taxed as business income. However, the Assessing Officer was not satisfied with the submissions of the assessee and he held the transactions as business transactions by holding as under: 3.2 The arguments of the assessee have been considered. The following points emerge from the scrutiny of the assessee's transactions in land:- a) The assessee purchased 246.50 Marlas of land vide an agreement to purchase land. Advance sum of Rs. 25 lakh was paid by the assessee on 26.05.2009 as per this agreement. b) The assessee did not get the purchased land registered or transferred in his name. c) He further sold the land in parts, in form of 12 plots, the details of which have been given above in para 3.0(4). d) The modus operandi of the sale was that the assessee got direct registries of sale made between the original ....
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.... indicate that it was a business venture. 3.3 The assessee has relied upon some cases also. It is seen that the facts are very different in those cases. In the case of 1 SOT 937 ITAT Amritsar, the long period of nine years is involved. The Hon'ble Tribunal had said that there was not enough material to hold it business income. In present case the material to hold so is abundant. In the case of Suresh Chander Goyal (High Court MP) also, the assessee is selling 'own' land. In present case it is regarding the land purchased on agreement. There are so many other factors also as listed above. The question that whether a transaction is falling under business head, is dependent on facts. In the present case the facts make it amply clear that the said transaction is of business nature. Infact the legal position in this matter is also very clear. There are several cases including those of the Hon'ble Apex Court where it has been held that such transactions are business ventures. The following are cited for example: 1. Smt. Indramani Bai vs. Additional Commissioner of Income-tax 200ITR 594 (SC)/[1993] Section 2(13) of the Income-tax Act, 1961 - Adventure i....
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....nterest on which was much higher than the income from the said properties and sold part of the said properties within a short time of their purchase, it was held that the purchase and sale of the properties was an adventure in the nature of trade and was in the course of a profit-making scheme - In the present case, the land was never intended to be held am investment as it was not transferred in the name of the assessee at all. In fact the name of the assessee nowhere appears on official records of land registering authorities. The true intention of the assessee was discovered from the impounded agreement and other papers during survey. The land was sold in plots, the sale was made in a very short time. The sale was made after cutting into plots. Thus all elements are present in the transactions of the assessee for treating the same as business transaction. 3.4 In view of the above, the sale of land should be assessed as adventure in the nature of trade covered under business income instead of Short Term Capital Gain. Thus the computation of profit would be as under: Sale of land (121.78 Marlas) Rs. 1,92,23,000/- Less : purchase of land (121.78 Marla on ....
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..... Hynoup Food and Oil Industries Pvt. Ltd. 290 ITR 702 where it was held that provision section 40A(3) will apply to transactions outside the books of account and where income from and undisclosed business is brought to tax. In appellate proceedings, the assessee has relied mainly on the issue that section 40A(3) does not apply to cases where the assessee is able to establish the identity of the party and genuineness of the transaction. The assessee has relied in this regard on following judgments. a) CIT vs. Avtar Singh & Sons: 194 ITR 81 (P&H): In the instant case, the identity of the party to whom payments were made was beyond question. Nor was there any doubt with regard to the genuineness of the payments. There was also, in addition, an affidavit from the chief accountant of the supplier company regarding these payments having been received in cash and duly accounted for in the company's books of account and that these payments were received in cash as money was urgently needed by the company after banking hours and the receipt of it by crossed cheque or draft would have delayed payment and caused unnecessary hurdles in the proper conduct of the company s business....
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....ase that being within the purview of rule 6DD(j), no addition under section 40A(3) v/as justified. It was further held that since the identity of the payee has been successfully established, i.e., the liquor to be purchased by the assessee, a liquor contractor from the distillery could only be made on issuing of permits, identifying the distillery and for that reason too no disallowance could be made under section 40A(3) of the Act. The order of the Tribunal was affirmed by the High Court. (d) ITO vs. Som Putt: 165 Taxmann 99 (P&H): Whether where assessee had filed certificate from party to effect that cash payments were insisted by party, assessee had also filed receipts of payments of amount before authorities and year in question was first year of its business, it could be concluded that assessee did not have any option but to make payments in cash and, therefore, addition made on cash payments under section 40A(3) of the Act was liable to be deleted. (e) M Basu Distributor (P) Ltd. vs. ACIT : 206 Taxman 45 (Delhi)fMAG.) (Del HC) :In the facts of that case there was no dispute regarding the identity of the payee and genuineness of the payments and the revenue h....
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.... the reasons for carrying out these transactions in cash through these parties have not been informed to the department and the transactions were also not recorded in regular books of account. In case survey proceedings were not carried out by the department, these transactions would not have come in the knowledge of the department. The assessee's other contention that he has merely facilitated the transaction of sale of land and the expenditure in cash incurred by the purchaser is devoid of merit as assessee is claiming deduction of purchase expenses out of sale proceeds on account of sale of land and in view of the fact that payment has been made to the seller otherwise then by a account pay cheque or account pay bank draft exceeding Rs. 20,000/-, the deduction of such expenditure can not be allowed. However, I agree with the assessee's contention regarding payment of Rs. 25,00,000/- which has been paid by assessee in cash and has been offered as income under the head 'income of other sources' in the return of income itself. In view of same, it can not be disallowed u/s 40A(3) as it will amount to double taxation of same income and under the circumstances, disallowance under 40A(....
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....ment proceedings the assessee had filed a letter dated 30.11.2012 by which he had had filed photo copies of sale deeds executed by the sellers in favour of different persons and in these sale deeds, there is no mention of the name of assessee and therefore, Assessing Officer had only assumed that assessee had made payments first and then sold whereas the fact remains from the material on record that the sale deeds were executed directly by sellers in favour of various persons and therefore, it was argued that the addition u/s 40A(3) is not based upon the facts as assessee had not made any payments at all other than the advance of Rs. 25,00,000. 8. Without prejudice to the above, the learned AR submitted that even if it is presumed that assessee had made payments in cash even then the disallowance u/s 40A(3) cannot be made, in view of the judgment of Hon'ble Punjab & Haryana High Court in the case of Gurdas Garg vs. CIT, Bathinda, in ITA No. 413 of 16 07.2015. It was submitted that in that case the Hon'ble Tribunal had decided the issue against the assessee for making cash payments in excess of Rs. 20,000/- and the Hon'ble High Court had held that where identity of the payees was....
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....arious persons was filed with the Assessing officer vide letter dated 30.11.2012 and this fact is also mentioned by Assessing Officer in his assessment order at page 2 of his order. The photo copies of such sale deeds is also placed at paper book page 11 to 39. The examination of sale deeds shows that on various dates the following sale deeds were executed. Date of Sell Name of Buyer Name of Seller 3.08.2009 Smt. Geeta Verma Sh. Parsotam Lal as power of attorney holder of Smt. Rani Mahajan. 28.10.2009 Sh. Yogesh Kumar Sh. Ram Murti 28.10.2009 Sh. Vishal Gupta Sh. Ram Murti 28.10.2009 Narendra Kumar as power of attorney holder of Sh. Dev Raj Sh Vineet Gupta 27.01.2010 Smt. Shakuntla Devi Sh. Ram Murti 27.01.2010 Sh. T Mohan Lal Sh. Ram Murti 02.03.2010 Sh. Atam Prasad as power of attorney holder of Rani Mahajan Sh. Tarun Thakur Further we find that the above sale deeds were executed in the presence of Sub-Registrar, Pathankot and Photographs of sellers and buyers is also affixed on the sale deeds and below the photographs of sellers and buyers, there is no mention of the name of the assessee. Therefore,....
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.... assumed that assessee must have first purchased the land and had made payments in cash even then the disallowance u/s 40A(3) cannot be made in view of the judgment of Hon'ble Punjab & Haryana High Court in the case of Sh. Gurdas Garg in ITA 413 of 2014. The Hon'ble High Court in this case had framed the following question of law:- "(1) Whether the Tribunal rightly held that the appellant was not entitled to the deduction in respect of cash payments in excess of Rs. 20,000/- made to the vendors for land in view of Section 40A of the Income Tax Act, 1961 (for short 'the Act')." The Hon High Court has decided the question in favour of assessee by holding as under: "3. The appellant is engaged inter alia trading in properties in his individual name. As noted in the assessment order, during the course of assessment proceedings, the details of the closing stock as on31.03.2009 alongwith details of sales/purchases were placed on record. The consideration, which in respect of each of the transactions was admittedly in excess of Rs. 20,000/-, was paid in cash. Payment by demand draft was made only in respect of one of the transactions. These payments in cash were....
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....tion was not sustainable in view of Section 40A(3) as the payments which were over ^20,000/- were made in cash. The Tribunal, therefore, disallowed the same only on a construction of Section 40A(3). The Tribunal restricted the ambit of the proviso to the circumstances mentioned in Rule 6DD of the Income Tax Rules, 1962. We find it convenient to let the order of the Tribunal speak for itself:- "There is no intention of the legislature to make a list of nature and extent of banking facilities available and other factors to be drafted by the assessee at their whims and fancies and as suits to the assessee. Therefore, Rules have been prescribed which are Rule 6DD of I. T. Rules, 1962 and nothing beyond that, xxx xxx xxx The Ld. CIT(A) has not taken the said proviso in the right spirit and has just accepted the submissions and arguments made by the assessee and has deleted the addition, which is against the facts of the case and against the provisions of law. 6. Rule 6DD(j) is not exhaustive of the circumstances in which the proviso to Section 40A(3) is applicable. It is only illustrative. 7. The respondent/assessee's case is suppor....
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....e from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of Rule 6DD(j). 18. It appears that fulfilment of the conditions of paragraph 5 of the circular has clearly escaped the attention of the Tribunal. The circular clearly indicates that ordinarily where the Income-tax Officer is satisfied about the genuineness of the transaction and payment and identification of the cash payment is established, the Income-tax Officer shall record his satisfaction about the fulfillment of the conditions for allowing the benefit of Rule 6DD(j). Apparently, Section 40A(3)was intended to penalize the tax evader and not the honest transactions and that is why after framing of Rule 6DD (j), the Board stepped in by issuing the aforesaid circular. 19. This clarification, in our opinion, is in conformity with the principle enunciated by the Supreme Court in CTO v. Swastik Roadways as noticed above. 20. In....
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....the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business." 9. At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency. 10 In the circumstances, the order of the Tribunal in this regard is set aside. The payments cannot be disallowed under Section 40A(3) of the Act." From the above judgment we find that the Hon'ble Court has held that where the identity of the persons who has received payment in cash is established and genuineness of transactions is established, no disallowance c....