TaxTMI 
TaxTMI 
2023 (1) TMI 761
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....ion 40A(3) of the Act. 4. The assessee is a private limited company and engaged in the business of Development &Sale of Residential Units. The assessee for the year under consideration declared income at NIL. The AO during the assessment proceedings observed that the assessee was making cash payment in excess of Rs. 20,000/- in violation of provisions of section 40A(3) of the Act with respect to certain expenses such as salary, labour expenses, materials purchases and land purchases. The AO, accordingly, proposed to disallow the amount of cash payment over Rs. 20,000/- to a single party in a day aggregating to Rs. 31,64,040/- only. 5. The assessee in response thereto submitted that majority of cash payment over Rs. 20,000/- in a day to a single party was made to labour/ labour contractor who were uneducated/unorganized and not maintaining bank accounts. Furthermore, in the construction line of business, the assessee is required to make payment in cash in the case of the supplier of petty construction materials and laborers as most of them do not maintain bank accounts. The assessee also submitted that the provision of section 40A(3) of the Act will not attract on the payment made....
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....e next set of payment includes cash payment exceeding Rs. 20,000/- which aggregates to Rs. 13,03,000/- made to different farmers against purchase of land property. Such payment exceeding Rs. 20000/- in a single day to a single party covered under exception clause provided under rule 6DD(g) of the income tax rule 1962, where it was provided that the provision of section 40A(3) will not be made applicable in case of cash payment to a person who residesin a village or town which is not served by the banking facility. The assessee also furnished affidavit from the farmers stating that they were not having bank accounts. 10. With regard to cash payment aggregating to Rs. 7.2 lakh against director salary, it was submitted that such party is very much identifiable and filling return of income. Therefore, considering the intention behind introduction of the provisions of section 40A(3) of the Act i.e. to ensure that payment exceeding specified limit to be made through banking channel so that the revenue authority can easily identify the recipient and can make examination with regard to genuineness of such transaction, in the given case, the director to whom the payment was made is clearly....
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....und that the assessee cannot be held outside the purview of section 40A(3) merely on reasoning that the party is identifiable. As such the assessee has to establish that there was unavoidable situation in which cash payment was made. 15. The assessee in rejoinder to remand report made similar submissions. 16. The learned CIT(A) after considering the facts in totality confirmed the finding of the AO except cash payment aggregating to Rs. 6,97,340/- as no claim was made in the profit and loss account by observing as under: "A careful perusal of the assessment order, the submission of the appellant and the evidences and detailed chart produced by the appellant shows that the various payments in cash totaling to Rs.31,64,040/- pertained different types of payments. (i) It is seen that the appellant has contended that an amount of Rs.1,90,000/- paid to Shri Mahesh Rangwani and Shri Girish Shrimali is on account of rectification of an error committed in the earlier year which is mentioned in the cash book. However, this claim of the appellant cannot be accepted, because, firstly the appellant itself is not aware of the purpose of the said payments because the same has not been cla....
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....efore the appellant's contention in respect of the amount of Rs.6,97,340/- is accepted and addition to this extent is deleted. (iv) The amount of Rs.13,03,000/- pertains to those cash payments which, as per the appellant's submission, were made to various parties who did not have bank accounts. However, the contention of the appellant is not supported by any documentary evidences. As has been noted by the AO during assessment proceedings, the areas that have mentioned in the agreement and affidavits are those areas which are adequately covered by banking networks. It is also seen that the appellant has merely furnished affidavits from the parties concerned stating that they had no bank accounts. However, not having bank account does not mean that the areas pertaining to these parties were not covered by banking networks. Thus, the appellant does not fall under the exemptions provided by Rule 6DD(g) of the I.T. Rules. Moreover, no business expediency has also been given by the appellant in respect of these payments. The disallowance made by the AO to this extent is confirmed. (v) The amount of Rs. 7,20,000/- comprises of those payments which, as per the appellant's own....
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....were certain payments reflecting in the cash book exceeding Rs.20,000.00 per day to a single person which was in violation of the provisions of section 40A(3) of the Act. These payments can be categorized in the manner as detailed below: i. Rectification entry of Rs. 1,90,000/- ii. Payment for the purchase of land of Rs. 2 Lacs +13,03,000/- iii. Payments towards the director's salaries amounting to Rs. 7,20,000/- only iv. Payment towards supply of bricks amounting to Rs. 53,700/- 20.1 With respect to the rectification entry, it was contended before me that the assessee has shown excess receipt of Rs.1,90,000/- from two parties namely Shri Mahesh Rangwani and Shri Girsih Shrimali against the sale of plots in the financial year 2010-11. In other words, the excess receipt from the above parties have been rectified in the year under consideration by showing the payments to the same parties. In this regard, the cash book for the year under consideration as well as the relevant pages of the cash book of the earlier year has been placed on pages 36 to 38 of the paper book. On perusal of the cash book of the earlier year, I find that the assessee has shown receipt of cash from....
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....40A(3) of the Act as applicable during the relevant point of time. Admittedly, it is hard to believe that the assessee will make the payment for the purchase of land over a period of time in the instalment of Rs.20,000/- only in the given facts and circumstances as the seller of the land stays far away from the place of the assessee. However, the onus lies upon the revenue to justify that the payment was made by the assessee over and above Rs.20,000/- by conducting necessary enquiries from the concern party. But no such enquiry has been conducted by the revenue authorities. Accordingly, I am not convinced with the finding of the authorities below. 20.3 With respect to the cash payment for the purchase of land for Rs. 13.03 lacs, it is noted that there is affidavit available on record of the vendor of the land stating that he was not holding any bank account during the relevant point of time. Thus in such a situation, the assessee cannot be held guilty for the violation of the provisions of section 40A(3) of the Act. As such, the case of the assessee falls under the exception provided under rule 6DD(g) of the income tax rule 1962. 20.4 With respect to the cash payment for the sala....
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....nd advances amounting to Rs.63,68,000/- and Rs.28,84,604/- aggregating to Rs. 92,52,604/- only. Thus the AO computed the amount of interest at Rs. 12,95,695/- being 14% on the interest-free loans and advances provided by the assessee and added to the total income of the assessee. 23. Aggrieved assessee preferred an appeal to the learned CIT-A, who confirmed the order of the AO by observing as under: "7.2 I have carefully considered the assessment order, facts of the case and the submissions made by the appellant. A perusal of the same shows that the appellant has not given any nexus to show that the advances were made from its own funds. However, the appellant has given a working stating that while the AO has disallowed Rs. 12,95,695/- u/s. 36(1)(iii) of the Act, the appellant itself had added the entire expenses on account of interest amounting to Rs.16,85,348/- which include the impugned amount disallowed by the AO to its closing stock as on 31.32012, which in effect meant that its income had increased to this extent already. Thus, it was claimed that the addition made by the AO amounted to double taxation. I am of the view that this is a matter of verification by the AO. The ....