AI Drafter 
TaxTMI 
TaxTMI 
2024 (8) TMI 1021
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.... - Section 40A(3): 3. During the year under consideration, the assessee has purchased land for a total amount of Rs. 1,87,74,200/-, out of which an amount of Rs. 62,65,010/- has been paid in cash. From perusal of cash book and "land owners" account, it was found that the assessee had made the following cash payments exceeding Rs. 20,0000/-: Date Bill particulars Particulars Amount (In Rs. ) 15.05.2012 Mr. Sudershan Singh To cash Rs. 20,00,000/- 20.09.2012 Mr. Sudershan Singh To cash Rs. 3,00,000/- 01.11.2012 Mr. Arun Maurya To cash Rs. 31,00,000/- 06.03.2013 Mr. Sudershan Singh To cash Rs. 8,65,010/- Total Rs. 62,65,010/- 4. The AO disallowed the amount u/s 40A(3) of the Income Tax Act, 1961. 5. Aggrieved, the assessee filed appeal before the ld. CIT(A). 6. The assessee has produced additional evidences before the ld. CIT(A) and remand reports have been obtained from the AO. 7. During the remand proceedings, the Assessing Officer directed the assessee to produce the two individuals to whom the amounts has been paid in cash for purchase of land. The assessee could produce only one se....
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....ments so received were utilized for payment of medical bills. Hence, this explanation of the assessee is not found tenable that cash was required by the sellers for immediate settlement of medical bills." 10. The next submission of the assessee is that business expediency compelled him to make cash payments. The ld. CIT(A) held that the assessee has not put forward any such evidence or instance which could prove that business exigencies or expediency warranted him to make cash payments in violation of section 40A (3). 11. Aggrieved, the assessee filed appeal before the Tribunal. 12. The ld. AR reiterated the arguments taken up before the ld. CIT(A) and mentioned in the order of the ld. CIT(A). "The submission of the appellant assessee is that since no banking facilities were available in the villages, the sellers of the land insisted on cash payment. It is also contended that the provisions of section 40A(3) were introduced to curb evasion of tax and also to ascertain whether the relevant transactions were genuine and the investment made therein was from disclosed sources. It is further submitted that the cash payments were made from declared sources of income and the tran....
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....on the decision of the Hon'ble High Court of Gauhati in the case of Walford Transport (Eattern India) Ltd. Vs. CIT (1999) 240 ITR 902 wherein the Court stressed upon the requirement of such payments to be made by crossed cheque or draft. Further, in the case of Attar Singh Gurmukh Singh vs. ITO (1991) 191 ITR 667 , the Hon'ble Supreme Court held that section 40A(3) r.w. Rule 6DD are not arbitrary and do not amount to restriction on the fundamental rights to carry on business. In fact, the assessee has also relied on this case law to substantiate his position. But, in my firm view, it strengthens the stand of the A.O. much more than that of the assessee. It also needs to be mentioned here that the provisions of section 40A(3) have overriding effect which operate in spite of anything to the contrary contained in any other provision of the Act. This has been so held in the case of Shree Sajjan Mills Ltd. Vs. CIT (1985) 156 ITR 585(SC).This surely goes to prove that the finding of the A.O. was well reasoned and in tune with the provisions of section 40A(3). Hence, in view of the facts and in the circumstances of the case and also relying on the ratio of the above discussed case laws, t....
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....ndia or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949); (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender; (c) where the payment is made by- (i) any letter of credit arrangements through a bank; (ii) a mail or telegraphic transfer through a bank; (iii) a book adjustment from any account in a bank to any other account in that or any other bank; (iv) a bill of exchange made payable only to a bank; (v) to (vii) 3[ *** ] Explanation.-For the purposes of this clause a....
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....payment is made by an authorized dealer or a money changer against purchase of foreign currency or travelers cheques in the normal course of his business. Explanation.-For the purposes of this clause, the expressions "authorised dealer" or "money changer" means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.]" 16. Out of the four people, one person namely Sh. Arun Mourya has been produced before the AO and confirmed of receiving the money in cash. He acknowledged the fact that the assessee has purchased the land and paid in cash. The second vendor Sh. Sudarshan Singh has since expired but his son Sh. Baldev Singh furnished an affidavit with regard to the receipt of cash having in know the affairs of his father. Thus, both the parties confirmed the receipt of the consideration in cash and contingencies thereof. The ld. CIT(A) overlooked the justification as regards genuineness of transaction though the transaction was registered with the Sub-Registrar Stamps, Kichha and duly corroborated by the Revenue Authority. 17. Co-ordinate Bench of the Tribunal in the case o....
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....equired to be made in cash for absence of banking facilities. Therefore, we hold that in the present case, the assessee made cash payment to the agricultural land seller villagers which are covered under second proviso to section 40A(3) of Rule 6DD(h) of the Rules." 18. The above decision has been given in the context of clause (h) of Rule 6DD of the Income Tax Rules, 1962 and may kindly be considered in the same ratio for clause (g) of Rule 6DD of the Income Tax Rules, 1962 in the instant case. 19. The intention of the legislature as laid down in the case of Attar Singh Gurmukh Singh vs. ISO [1991] 191 ITR 667/59 Taxman 11 (SC) wherein the Hon'ble Supreme Court has held as under: "In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of Rule 6-DD. The section must be read along with the rule, if read together, it will be dear 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 n....
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....als were made in urban area of Rudrapur etc, based only on the place of registration of sale deed, but he has not disproved that the sellers were residing in village area which did not have banking facilities. The Appellant has demonstrated the business expediency as mentioned in the proviso to Section 40A(3) read with Rule 6DD, for making such payment Further Rule 6DD(g) only refers to the place where such person normal reside or carry out their vocation, therefore his objection on above the contentions of the Appellant are found to be acceptable and it is held that these payments are covered under the exception provided under Rule 6DD(g) and accordingly not disallowable under Section 40A(3), the disallowance is accordingly deleted." 21. There cannot be discrimination between the assessee who are similarly place and Department cannot take a different stand for different assessee. Reliance is also placed on the following case laws: * Damodar J. Malpani vs. CCE [2002 (146) ELT 483 (SC)] * Mallur Siddesware Spinning Mills (P) Ltd. vs. CCE [2004 (166) ELT 154 (SC)] * Quinn India Ltd. vs. CCE [2006 (198) ELT 326 (SC)] * SPL Siddhartha Ltd. vs. CCE....