TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 630
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.... Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in confirming the order of ld. AO to the extent of Rs. 24,500/- being payment made to M/s Shrini Automobiles. 3.1 That the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has passed the order mechanically and without taking on record the specific reasons for the year under appeal for payment of remuneration to the directors. 3.2 That the Id. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in confirming the decision of the ld. AO who has erroneously considered that the enhancement in remuneration should lead to enhanced benefits to the company in the very same year. 3.3 That the ld. AO has disallowed 30 per cent of the Total of directors' salary which is ad hoc in nature and is not in accordance with the facts of the case and the provisions of law. 2. Ground no.1 is general in nature which has not been pressed by the Ld. AR of the assessee during the course of hearing therefore, no specific adjudication is required on this ground. 3. Ground no. 2 is regarding disallowance of Rs. 2,75,000/- u/s 40A(3) of the Act on account of ....
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....t. He has relied upon the decision of Hon'ble Rajasthan High Court in case of Smt. Harshila Chordia vs. ITO 298 ITR 349 and submitted that the Hon'ble High Court has observed that the assessee has proved the payment are made to the seller and identity of the payee have also been proved. Once the assessee produced all the details and record for the purpose of proper identification to enable the ITO to satisfy himself about the genuineness of the transactions then the disallowance u/s 40A(3) is not justified. The ld. AR relied upon the judgment of Hon'ble jurisdictional High Court in case of CIT vs. Achal Alloys (P) Ltd. 218 ITR 46 and submitted that the Hon'ble High Court has held that where the payments in cash were duly signed by the payee and the instance on making cash payments was founded on fulcrum that payees did not have any bank account . Further the genuineness of the payments was not exposed to any doubt then the disallowance u/s 40A(3) is not justified. Thus, Ld. AR has pleaded that when the transaction is genuine and identity of the payee is not in dispute then the disallowance is not justified. He has also relied upon the order of this tribunal date 11.04.2019 in asses....
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....rsons and balance purchase consideration was paid through Cheques as per details given in the sale deed itself. Therefore, the payment was made as token amount at the time of initial negotiation which is almost three months prior to the date of sale deed and thus we find merit and substance in the explanation of the assessee that the token payment was made at the time of initial negotiation with the land owner and thereafter the sale deed was executed wherein the payment of total consideration of Rs. 4,05,30,000/- has been explained with full details including these payments of Rs. 25000/- each to these co-owners. Similarly a sum of Rs. 1 lac was paid by the assessee to one Shri Sevaram and subsequently the sale deed dated 27.03.2014 was executed between the assessee and said Shri Sevaram wherein the total consideration of Rs. 79,10,000/- has been shown including a sum of Rs. 1 lac paid in cash. Therefore, the explanation of the assessee that these cash payments were made as token money at the time of initial negotiation of deal with land owners and thereafter the land were purchased by the assessee through registered sale deed. These facts as evident from the registered sale deed ....
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....t 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 asses- see 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 the business transactions and to prevent the use of unaccounted money or reduce the chances to use black- money for business transactions. See: Mudiam Oil Company v. ITO, [1973] 92 ITR 519 A.P. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether 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....
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....ssee in his trading activities. Sec. 40A(3) only empowers the AU 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 not absolute. Considerations 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 AO the circumstances under which the payment in the manner prescribed in s. 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 s. 40A(3) and r. 6DD that they are intended to regulate business tr....
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.... the facts of the present case, rigors of s. 40A(3) of the Act must belifted. 24. We notice that the Division Bench of the Rajasthan High Court in case of Smt. Harshila Chordia vs. ITO (2007)208 CTR (Raj) 208 (2008) 298 ITR 349 (Rai) had observed that the exceptions contained in r. 6DD are not exhaustive and that the said rule must be interpreted liberally." 12. The Hon'ble High Court has observed that if section 40A(3) is read together with rule 6DD it will be clear that the provisions are not intended to restrict business activities. The payment by crossed cheque or crossed bank draft is insisted to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. Considerations 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. The Hon'ble High Court further observed that provision of section 40A(3) and Rule 6DD are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the changes to use black money for business transactions. A similar view has been taken by Hon'ble R....
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....xplanation submitted by the assessee on its own merit. 17. Significantly paragraph 5 reproduced herein below gives a clear indication that Rule 6DD(j) has to be liberally construed and ordinarily where the genuineness of the transaction and the payment and identity of the receiver is established, the requirement of Rule 6DD(j) must be deemed to have been satisfied. Paragraph 5 of the Circular reads as under [1977] 108 ITR (St.) 8, 9: 5. It can be said that it would, generally, satisfy the requirements of Rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above 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 Of....
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....tors. The Appellate Tribunal found that the genuineness of the payee has not been doubted by the Assessing Officer. It was found that the payment of the exceeding the limit was made under exceptional and unavoidable circumstances. Placing reliance on Porwal Udyog (India) v. CIT (1982) 135 IIR.991 (MP) it was found that no disallowance was permissible. Why should every exercise begin with mistrust or no trust? In 1979, Ireland abolished wealth-tax, Germany, substantially lowered it. The U.S.A. cut capital gains tax and the UK reduced its maximum rate of personal tax from 83 to 60 per cent. In 1982, Sweden reduced its marginal rate of personal income-tax from 85 to 50 per cent. In this country, the Government purpons to simplify the income-tax law but pursues the course, may be due to compulsions, in the opposite direction. The provision on hand is intended to destroy intentions of dealing with unaccounted moneys, the purpose behind insistence on cross-cheque or cross-draft is to assure and ensure "genuiner" of dealing and proper assessment of taxable income Even this provision has a permiso to mitigate the hardships. We notice from the appellate order that the appellate aut....
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....e records placed before us and gone through the paper book filed by the assessee. The issue raised in this appeal by the assessee revolves around the disallowance of Rs. 5,40,000/- u/s 40A(3) of the Act. We observe that the assessee is into the business of purchase and sale of land and civil construction business. It purchased land from Smt. Anar Bai for a total consideration of Rs. 36,00,000/-. Out of the total purchase consideration of Rs. 36,00,000/- assessee paid cash of Rs. 6,20,000/- (verifiable from the Essarjee Constructions Pvt.Ltd ITA No.900/Ind/2016 Registered sale deed as well as affidavit placed in the paper book). Out of the cash payment of Rs. 6,20,000/- Ld. A.O has disputed only sum of Rs. 5,40,000/- which in view of Ld. A.O was payment for expenditure in cash exceeding Rs. 20,000/-. The total transaction of purchase of land for Rs. 36,00,000/- is not disputed and the complete details of consideration paid in cash and cheque are mentioned in the registry sale deed which has been executed before the Registering Authority and therefore the genuineness of the transaction cannot be doubted. 9. It is pleaded before us that the seller Smt. Anar Bai was not having a ban....
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....two directors amounting to Rs. 28,94,400/-. On appeal the Ld. CIT(A) has confirmed the disallowance made by the AO. 17. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. An identical issue has been considered by this Tribunal in assessee's own case for A.Y. 2012-13 vide order dated 31st July 2023 in ITANo.8/Ind/2023 in para 28 to 30 as under: "28. We have considered the rival submission as well as relevant material on record. The details of qualification & experience of the directors and payments of the salary to them are given at page 84 to 86 as under: 29. Thus, the assessee has explained the qualification and work experience as well as business knowledge of the directors who are responsible for overall business affairs of the assessee company. we further note that the AO has made disallowance of 40% of enhancement without doing any exercise to determine what should be the fair salary to the directors having regard to the services they have render to the assessee company. The Chennai Benches of the Tribunal in case of Carmel Softech Pvt. Ltd. vs. ITO (supra) has considered an identical issue in para 6 as under: "6. We have heard r....