TaxTMI 
TaxTMI 
2020 (11) TMI 480
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....ere were no banking facility available at the place where 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....
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....circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot 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 tra....
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.... assessee under business exigencies and exceptional circumstances and therefore are 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 mo....
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....que drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains 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 con....
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....g 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. 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....
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....the exceptional or unavoidable circumstances and the fact that the payment in the manner aforesaid was not practical or would have caused genuine difficulty to the payee and furnishing the 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....
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....for the appropriate authority to examine and provide for a mechanism as originally envisaged which provides for exceptional or unavoidable circumstances to the satisfaction of the Assessing officer whereby genuine business 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 ....
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....and draft or by pay order. It was further held by the Hon'ble High Court that: "......Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequences, which were to befall 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....
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....ent shall be deemed to be the profits and gains of business or profession under the said section. Amongst the various clauses, cl. (j) which is relevant, read as under: (j) where the payment was required to be made on a day on which the banks were closed either on account of holiday 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 whi....
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.... (b) In the present case, the appellant assessee was compelled to make cash payments on account of peculiar situation. Such situation was as follow- (i) the principal company, to which the assessee was a distributor, insisted that cheque payment from a co-operative bank would not do, since the realization takes a longer time; (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....
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....e Act was not attracted. The Hon'ble High Court further observed that the Tribunal did not upset these findings including as to the genuineness and the correctness of the transactions and it is also important to note that the Tribunal noted the contention on behalf of the appellant that there was a boom in the real estate market and therefore it was necessary, therefore, to conclude the transactions 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 vie....
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....nt amounting to Rs. 59,48,920/- were made in cheque to various persons, and Rs. 8,15,700/- and Rs. 6,84,296/- were paid in cash towards stamp duty and court fee respectively. During the course of assessment proceedings, the assessee submitted copies of the sale deed, the particulars of which find mention on page 7 and 8 of the assessment order. On perusal of the said details, it is observed that the said details contains the name of the 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 f....
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.... - - 11,57,000 8-May-12 19,00,000 23,00,000 42,00,000 1,56,00,000 8-May-12 38,55,000 15,02,000 12-May-12 - - - 1,56,00,000 - - 15,02,000 14-May-12 - - - 1,56,00,000 - - 15,02,000 15-May-12 - - - 1,56,00,000 - - 15,02,000 16-May-12 - 15,00,000 15,00,000 1,71,00,000 - - 30,02,000 17-May-12 - 15,00,000 15,00,000 1,86,00,000 17-May-12 30,69,000 14,33,000 Total 63,50,000 1,42,50,000 1,86,00,000 1,71,67,000 41. It was submitted by the 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 s....
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....n High Court in case of Harshila Chordia (supra), the consequences, which were to befall 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. The intent and the purpose for which section 40A(3) has been brought on the statute books has been clearly satisfied in the instant case. Therefore, being a case of genuine business transaction, no disallowance is called for by invoking the provisions of section 40A(3) of the Act." 6. In the instant case, we find that the 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 ....
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....39;ble Rajasthan High Court in its subsequent decision in case of CIT vs Solutions reported in 80 Taxmann.com 246 wherein it was held as under: "11. The Appellate Authorities have relied upon the judgment rendered in the case of Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667/59 Taxman 11 (SC), where the hon'ble apex court has observed as under (page 673) : "The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. 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 that they are intended to regul....
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.... as complete address of the parties was mentioned, and genuineness and creditworthiness of the transactions has also been proved since summons were duly served upon all the parties and none of them had denied the fact that they have lent money to the assessee. Also all the loans were received through banking channels and all the creditors were regular taxpayers. 11. As regards non- appearance of the four creditors stated above, it was submitted that common men always hesitate in appearing before Income Tax Department for the fear of getting into unnecessary litigation. It is also a matter of fact that the assessee being a borrower always has the subdued position and could not compel/pursue the lender for physical appearance 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. A....
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.... was again asked to submit details. The assessee thereafter reached out to these six parties and two of them responded and necessary details were submitted and in respect of remaining four parties, the AO proceeded and made addition u/s 68 holding them as not satisfactory explained. We therefore find that where the parties to whom the notices were issued u/s 133(6) and who have chosen not to respond as the notices didn't returned unserved, the AO has proceeded to make the addition in the hands of the assessee and the parties which have responded to such notices, the AO has accepted the transactions as genuine and no addition has been made in the hands of the assessee. We therefore find that merely on account of non- receipt 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 nec....
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....68 of the Act. The assessee having discharged its onus, it was upon the AO to bring material or evidence to discredit the same. In the present case, from the assessment order, it is evident that no adverse material is available with the AO. There is no allegation against any of the above 4 shareholders of doing anything wrong on record. The AO has drawn adverse inference as he did not receive reply from the 4 aforesaid shareholders in response to notice issued by him under Section 133(6). On this issue, firstly, the Ld. AR has drawn our attention to the replies along with evidences submitted by these 4 shareholders to the AO to discredit the allegation of the AO that he did not receive reply in response to notice issued by him under Section 133(6). De horse the non-receipt of the reply, even for the sake of argument we assume that the AO has not received the reply, still the fact remains that 133(6) notice were served on these four shareholders. On going through the assessment order we note that it is not the case of the AO that notices have come back unserved or these shareholders were not available at the address given by the assessee. If that be so, we are of the view that no ad....