TaxTMI 
TaxTMI 
TaxTMI 
2020 (11) TMI 480
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.... the seller was residing and moreover by ignoring that the seller (Smt. Teja Devi) did not have any bank account and thereby the payment so made was fully covered within the exceptions provided in Rule 6DD of I T Rules. Hence the addition so made deserves to be deleted. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the unsecured loans of Rs. 9,00,000/- taken from Smt. Manju Devi Baid, Rashmi Baid, Subhadra Kumari Munot & Varsha Goyal as unexplained and have further erred in ignoring the evidences adduced and submissions made, thus the additions as made deserves to be deleted in toto. 2.1 That the Ld. CIT(A) has further erred in ignoring the confirmation along with PAN details submitted during the course of assessment proceedings and the fact that summons u/s 131 as issued were duly served and further the payment was received through banking channels. Hence the addition so confirmed deserves to be deleted." 2. Regarding Ground No. 1, briefly stated, the facts of the case are that during the year under consideration, the assessee has purchased a piece of land from Smt. Teeja Devi situated at Village Chosla, Tehsil Nava, Dis....
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....annot be spelt out. However, some of these circumstances as spelt out in the said circular which would seem to meet the requirements of the said rule includes the transactions which are made at a place where either the purchaser or the seller doesn't have a bank account. It was accordingly submitted that case of the assessee is covered by exception provided under rule 6DD read with CBDT circular in so far as the seller did not have any bank account at all, say what about the place where transaction was executed and thus disallowance made by ld. AO is not in accordance with law more particularly when genuineness of the transaction as well as identity of the seller was accepted beyond doubt. It was further submitted that in case of ITO vs. Shyam Apparels (P) Ltd. (supra) where the payment was made on Sunday, the Coordinate Bench has deleted the addition as the same was covered in exception and in the instant case as well, the payment was made on 18.08.2013 which happens to be Sunday and hence, covered under the exception which has not been appreciated by the lower authorities. In respect of second transaction executed with Smt. Nana Devi where out of total sale consideration of Rs. 4....
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....covered within Rule 6DD of Income Tax Rules, and thus disallowance of Rs. 30,60,000/- made by Assessing Officer needs to be deleted. 4. Per contra, the ld. D/R submitted that as regards the first transaction of purchase of land, per the sale deed, it is mentioned therein that the assessee has paid in cash a sum of Rs. 29,60,000/- to Smt. Teeja Devi on the date of execution of agreement dated 18.08.2013 and the said agreement has been executed in Jaipur. Therefore, the plea of the assessee that Rule 6DD comes to the rescue of the assessee cannot be accepted as the banking facilities are available in Jaipur. Further, the ld. D/R submitted the case law relied by the assessee in case of ITO vs. Shyam Apparels (P) Ltd. (supra) where the payment was made on Sunday and disallowance was deleted by the Tribunal is not applicable as in this case, the payment was not made on any holiday. Further, the reliance placed by the ld. A/R on decision in case of M/s Daga Royal Arts, Jaipur vs. ITO, Jaipur (supra) is against distinguishable as there was no business expediency as the transaction was made after 4 months of signing of the agreement. The ld. D/R supported the order of the lower authoriti....
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....s of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and 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 : Provided further that in the case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-sections (3) and (3A) shall have effect as if for the words "twenty thousand rupees", the words "thirty-five thousand rupees" had been substituted. (4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be ma....
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....n his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer 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. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD t....
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.... necessary evidence to the satisfaction of the Assessing Officer as to the genuineness of the payments and the identity of the payee has held that: "The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer 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. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule." 25. Here, it is relevant to note that there has been no change in the provisions of section 40A(3) in so far as considerations of business expediency and other relevant factors are concerned, as existed at relevant point in time and as considered by the Hon'ble Supreme Court and the provisions of section 40A(3) as exist now an....
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....expenditure should not suffer disallowance. 28. Further, the Courts have held from time to time that the Rules must be interpreted in a manner so as to advance and not to frustrate the object of the legislature. The intention of the legislature is manifestly clear and which is to curb the chances and opportunities to use or create black money and to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. And Section 40A(3) continues to provide that no disallowance shall be made in such cases and under such circumstances as may be prescribed having regard to the nature and extent of the banking facilities available, consideration of business expediency and other relevant factors. In our view, given that there has been no change in the provisions of section 40A(3) in so far as consideration of business expediency and other relevant factors are concerned, the same continues to be relevant factors which needs to be considered and taken into account while determining the exceptions to the disallowance as contemplated under section 40A(3) of the Act so long as the intention of the legislature is not violated. We find that our said view find....
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....fall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration which has been overlooked by the Tribunal. 31. It was accordingly held by the Hon'ble High Court that it is the relevant consideration for the assessing authority under the Income Tax Act that before invoking the provisions of section 40A(3) in light of Rule 6DD as clarified by circular of the CBDT that whether the failure on the part of the assessee in adhering to requirement of provisions of section 40A(3) has any such nexus which defeats the object of provision so as to invite such a consequence. This is particularly so, because the consequence provided u/s 40A(3) for failure to make payments through bank is not absolute in terms nor automatic but exceptions have been provided and leverage has been left for little flexing by making a general provision in the form of clause (j) in rule 6DD. Thereafter, the Hon'ble High Court refers to the clause 6DD(j) and the circular dated 31st May, 1977 issued by the Board in the context of what sh....
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....oliday or strike; 18. It could be appreciated that s. 40A and in particular sub-cl. (3) thereof aims at curbing the possibility of on-money transactions by insisting that all payments where expenditure in excess of a certain sum (in the present case twenty thousand rupees) must be made by way of account payee cheque drawn on a bank or account payee bank draft. 19. As held by the Apex Court in case of Attar Singh Gurmukh Singh (supra). "..In our opinion, there is little merit in this contention. Sec. 40A(3) must not be read in isolation or to the exclusion of r. 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Sec. 40A(3) only empowers the A.O. to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources, The terms of s. 40A(3) are n....
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.... (ii) the assessee was, therefore, required to make cash payments only; (iii) Tata Tele Services Ltd. assured the assessee that such amount shall be deposited in their bank account on behalf of the assessee; (iv) It is not disputed that the Tata Tele Services Ltd. did not act on such promise; (v) if the assessee had not made cash payment and relied on cheque payments alone, it would have received the recharge vouchers delayed by 4/5 days and thereby severely affecting its business operations. We would find that the payments between the assessee and the Tata Tele Services Ltd. were genuine. The Tata Tele Services Ltd. had insisted that such payments be made in cash, which Tata Tele Services Ltd. in turn assured and deposited the amount in a bank account. In the facts of the present case, rigors of s. 40A(3) of the Act must be lifted. 23. We notice that the Division Bench of the Rajasthan High Court in case of Smt. Harshila Chordia vs. ITO (2007) 208 CTR (Raj) had observed that the exceptions contained in r. 6DD are not exhaustive and that the said rule must be interpreted liberally." 34. In case of M/s Ajmer Food Products Pvt. Ltd., Ajmer vs. JCIT (supra), a similar iss....
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....at the earliest and not to postpone them; that the appellant did not know the vendors and obviously therefore, insisted for payment in cash and that as a result thereof, payments had to be made immediately to settle the deals. The Tribunal did not doubt this case. The Tribunal, however, held that the claim for deduction was not sustainable. In view of Section 40A(3) as the payments which were over Rs. 20,000/- were made in cash. The Hon'ble High Court accordingly observed that "the Tribunal has not disbelieved the transactions or the genuineness thereof nor has it disbelieved the fact that payments having been made. More importantly, 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." 36. The Co-ordinate Bench in case of M/s Dhuri Wine vs DCIT (ITA No. 1155/chd/2013 & others dated 09.10.2015) has held that the proposition so laid down by the Hon'ble High Court in case of Gurdas Garg (supra) is quite unambiguous to the effect that even if the case of the assessee does not fall in any of the clau....
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.... seller, date of sale deed, plot no., purchase value, stamp duty, Court fee and mode of payment - cash/cheque. Therefore, as far as the identity of the persons from whom the purchases have been made and genuineness of the transactions of purchase of various plots of land and payment in cash is concerned, the same is evidenced by the registered sale deeds and there is no dispute which has been raised by the Revenue either during the assessment proceedings or before us. The identity of the sellers and genuineness of the transactions is therefore fully established in the instant case. 40. From perusal of the assessment order, it is further noted that the AO, on perusal of the details of the properties purchased, as per copies of the sale deed furnished, held that the assessee had made cash payments regularly and no specific circumstances have been brought to his knowledge that the cash payments were made due to some unavoidable circumstances. It was held by the AO that maximum cash payments were made to persons residing in Jaipur city and in single family, repeated cash payments were made which itself shows that there were no unavoidable circumstances to make cash payments to the se....
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.... ld AR that in order to secure the deal, assessee had no other option but to make the payment in cash. Cash payments were made from the disclosed sources being the amount withdrawn from bank. It was for sheer insistence of the seller that the payments were made in cash. Had the assessee denied the cash payment looking to the provisions of sections 40A(3), the deal could not have been finalized. In such circumstances, in the business interest and to complete the deal, the assessee had chosen to make the payments in cash fortified through registered sale deed. The payment has been made out of the explained sources, through the registered document and as a disclosed transaction. 42. We find force in the contentions so raised by the ld AR. The transactions have been executed by the assessee within a span of one and half month and there are transactions where the payment has been made through cheque and there are transactions where the payment has been made through cash. The said contentions are supported by the fact that on the same day, there are cash and cheque payments as evidenced from the details of the transactions appearing at page 7 and 8 of the assessment order. It is ther....
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.... identity of the persons namely Smt Teja Devi and Smt Nana Devi from whom the purchase of land have been made by the assessee has been established and the source of cash payments is duly reflected in assessee's regular books of accounts and the said details were submitted before the lower authorities and have not been disputed by them. It is not the case of the Revenue that any unaccounted or undisclosed income of the assessee has been utilised in making the cash payments. The genuineness and the bonafide of both the transactions have been established as evidenced by sale deeds and assessee's books of accounts wherein the transaction particulars have been duly reflected. In terms of business expediency, the assessee has explained that the seller Smt Teeja Devi is a resident of village Chosla which has no banking facility and therefore, she doesn't had an occasion to open any bank account in absence of any bank and in fact, she doesn't have any bank account opened and maintained in her name as on the date of execution of the sale deed and therefore, in such circumstances, the assessee had no option but to discharge the sale consideration in cash. In support, the ld A/R has submitted....
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....icer 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. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions." 12. The aforesaid observation does apply in the instant case. The Assessing Officer on the facts noticed has been unable to make out a case of involvement of unaccounted money. 13.It is also a finding of fact recorded by the Commissioner of Income-tax (Appeals) that copies of the ledger accounts were produced before the Assessing Officer who has not found any discrepancy in such books of account and no unaccounted transaction has been reported/noticed by the Assessing Officer." 7. In the entirety of facts and circumstances of....
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....earance or give any further documents as asked for or file the necessary documents again, more particularly when they had already furnished confirmation of loan, their PAN and complete address through AR of assessee. It is further submitted that since they are assessed to tax, their creditworthiness could also not be doubted more particularly when the assessee had paid interest after deduction of tax at source and necessary returns of TDS were also filed before ld. AO. In this regard, reliance was placed on the Co-ordinate Bench decision in the case of Umbrella Projects Pvt. Ltd. vs. ITO (ITA No. 5944/Del/2014) in support of the proposition that no adverse inference can be drawn against the assessee merely because the reply to notices issued u/s 133(6) have not been complied with. It was accordingly submitted that addition made by the AO solely for non-compliance to notice u/s 131 deserve to be deleted more particularly where the summons were duly served and amount was transacted through banking channels and the lenders were duly assessed to tax. 12. Per contra, the ld. DR submitted that during the course of assessment proceedings, the summons were issued to the parties u/s 131(1)....
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.... of response to notices u/s 133(6) from these parties, the additions has been made by the AO. The AO has not doubted the details and other particulars so submitted by the assessee in respect of these parties. The assessee has submitted name and address of these parties, their PAN numbers, the amount received through banking channel, the quantum of unsecured loan, the rate of interest paid on such loan transactions and TDS done on such interest payments and necessary confirmation of these parties have been submitted wherein they have acknowledged the transaction and the outstanding balance in their respective loan accounts. We find that similar details were furnished in respect of other loan transactions and which have been accepted by the Assessing officer and therefore, there cannot be a different benchmark in terms of examining these transactions unless there is something adverse which is noticed by the Assessing officer. The notices have been duly served on these parties and therefore, it is not a case where wrong name and address have been furnished by the assessee. Where the assessee is in the financing business and there are loan transactions to the tune of Rs. 13.64 crores ....