TaxTMI 
TaxTMI 
2026 (9) TMI 1437
X X X X Extracts X X X X
X X X X Extracts X X X X
....law as well as in the facts on making and Hon'ble CIT(A) erred in confirming the addition of Rs. 21,55,000/- u/s 40A(3) of the I.T. Act, 1961 on account of disallowance of the amount paid by the assessee for the purchase of land by ignoring the explanation and documents given during the course of proceedings. 3. That, on the facts and circumstances of the case, the Ld. CIT(A) has erred in interpreting the provision envisaged u/s 40A(3) of the I.T. Act, 1961. 4. That, on the facts and circumstances of the case, the Ld. A.O. has erred in law as well as in the facts on making and Hon'ble CIT(A) erred in confirming the addition of Rs. 3,83,800/- by not accepting the income from agriculture and treated the same under the head income from other sources by ignoring the explanation and documents given during the course of assessment proceedings." 2. The assessee has submitted detailed note on the entire facts matrix which is reproduced as below: "The assessee is Public Limited Company, having income from business. The assessee has filed its return of income on 27.11.2013 showing net income of Rs. 1,07,26,804/-. Subsequently the return of income of asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and other relevant factors the assessee has made the payment in cash. In fact assessee has absolutely no option to make the payment otherwise than cash. We would like to also inform you sir that all the payment made to Shri Ravindra Rameshwar Shirke and Shri Shankar Rameshwar Shirke has been duly accounted for in the regular books of accounts by the assessee company. From the ledger account it is absolute clear that the assessee M/s. Shree Ganesh Builder Lids. Had made the payment in cash was at the request of vendor and not with any intention of evasion of taxes. The total consideration was clearly mentioned in the sale deed and both the parties have shown the payments and the receipts of cash. Section 40 A(3) reads as under: 40A. Expenses or payments not deducible in certain circumstances (1) ....... (2) (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate or 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, no deduction shall be allowed in respect of such expenditure. Provided that no di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enditure. No disallowance shall be made in respect of payments made otherwise than by cash for purchase of land. However during the course of assessment proceeding the learned assessing officer has alleged that the assessee is a company and the sole business of the assessee is of a Builder, Developer Real Estate and Construction activities. It is seen from the accounts that in respect of the land purchased by the assessee, initially; the same is accounted for and reflected in the balance sheet as fixed asset/ advances for purchase of land. Whenever the construction activity is started on the land, the same is transferred from the fixed assets/advances and shown as purchase in the P&L account during the year of commencement of the project. It is to be worthwhile mentioned here your honour that the assessee company has purchase agriculture land from farmers who are mainly resident of village and at time they need some cash and looking to the business expediency and other relevant factors the assessee company has no option but to make the payment in cash as per their request, otherwise, there is all possibility the assessee company may lose the land transact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....37 of the Act and that cost price of goods is covered by Section 28 of the Act and hence Section 40A(3) of the Act will not apply, was rejected by several Hon'ble High Courts. It was laid down that the expression 'expenditure' used in Section 40A(3) of the Act should not be given too narrow a meaning to restrict it from applying to payments for purchase of goods and that to give such a narrow interpretation to the expression 'expenditure' and to exclude from its meaning, payments made for goods purchased, is to make it difficult for the revenue to properly investigate the payments; to open the door wide to allow evasion and thus to defeat the very object which the provision was designed to achieve. The authorities are as below: i) CIT VS Grewal group of Industries (P&H) 110 ITR 278 ii) U.P. Hardware Store Vs CIT (All.) 104 ITR 664 iii) CIT Vs Kishan Chand Maheshwari Dass (P&H) 121 ITR 232 iv) Sajowanlal Jaiswal Vs CIT (Ori.) 103 ITR 706 v) Hari Chand Virender Paul Vs CIT (P&H) 140 ITR 148 vi) Madhav Govind Dulshete v. ITO [2018] 99 taxmann.com 56/259 Taxman 149 (Bom.), vii) Vaduganathan Talkies v. IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not disputed in the assessment, to the extent of ownership of land, agricultural activity having been carried out as well as availability of irrigation facility and payment of land revenue. The AO had, rightfully, had asked supporting documents in the form of "details of expenses incurred regarding agricultural activity and sale bills of agricultural income". The AO has noted that "the ownership of agricultural land may not be in doubt". The AO has also observed that the AR of the assessee (appellant) had admitted unavailability of details of expenses incurred regarding agricultural activity and sale bills of agricultural income required during the assessment proceedings. 5.5.3. The facts and circumstances of the case suggest that the most of the crops purportedly grown and sold by the appellant are cash crops. The land is apparently located in vicinity of Nagpur city/district. The appellant also appears to be a corporate entity and not a wretched illiterate farmer. The AO was right in seeking verification of claim of agricultural income in scrutiny proceedings. Faced with admission inability on the part of the appellant to demonstrate any evidence to satisfy the AO abou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ous conditions circumscribed. Hence, the decision is quite apposite to the present adjudication. 6. Moreover, the ld. AR has also submitted that even though the exemption under Rule 6DD may not be strictly applicable nevertheless the commercial expediency cannot be ignored. 7. Per contra, the ld. Sr. DR relied upon the orders of lower authorities. It is a trite law that whens the assessee has not claimed the impugned sum as an expenditure that cannot be any question of disallowance because the same has not been reduced while calculating the profit, hence that entire disallowance of Rs. 21,58,000/- is directed to be deleted. As regards Ground no. 4 in treating the income from agriculture under the head "Income from Other Sources". The ld. AR in all fairness submitted that it is a revenue natural exercise for a company because both the income are taxable at the maximum marginal rate, hence, he pleaded that he is not very serious in pressing the ground so, the ground is dismissed. Accordingly the appeal is partly allowed. ITA No. 626/Nag/2024 8. The assessee has raised the following grounds of appeal: "1. That, on the facts and circumstances of the case, the order....