Shree Salasar Overseas (P) Ltd. v. Dy. CIT

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The Tax Publishers2012 TaxPub(DT) 0947 (Jp-Trib) : (2012) 044 (II) ITCL 0415 : (2012) 150 TTJ 0496 : (2012) 066 DTR 0009 INCOME TAX ACT, 1961 --Business disallowance under section 40A(3)--Cash payments exceeding prescribed limitsPayment to farmers in villages after banking hours--The assessee-company was a colonizer and developer and its business is to buy agricultural land and get it converted into residential and commercial purpose by obtaining approval from Jaipur Development Authority in accordance with provisions of Rajasthan Land Revenue and JDA. The assessee divides the land in plots of various sizes and carries various developmental activities like roads, water facility, electric facility as per norms of JDA. The assessee sells plots directly or through broker to the customers. The assessee filed its return of income for both the years and both the years were selected for scrutiny. During the assessment proceedings, the assessing officer noticed that assessee had made cash payments to farmers in villages from whom the lands were shown to have been purchased. The assessing officer also noted that to some farmers the payments were made by cheque also. However, on returning the cheques, cash payments were made. Such cash payments were noticed by the assessing officer at Rs. 1,47,85,550 for assessment year 2006-07 and cash payments of Rs. 2,47,76,880 for assessment year 2007-08. The assessing officer issued show-cause notice to the assessee to explain as to why in view of provisions of section 40A(3) an addition @ 20 per cent of such cash payments made otherwise than by cross-cheque or bank draft be not added to the total income. Detailed written submissions were filed on behalf of the assessee. This explanation was rejected by the assessing officer. In view of these facts and circumstances, the assessing officer made an addition @ 20 per cent of such cash payments made by the assessee to the seller farmers under section 40A(3) for both the years respectively. On appeal, the Commissioner (Appeals) confirmed the finding of the assessing officer. *Held:* The seller of land was a resident of a particular village which was not served by any bank and that the seller of land was a farmer and insisted for cash payment in the first instance or later when the cheques issued to him were returned dishonoured the payments in cash had been made after the banking hours. Accordingly, the case of the assessee was covered by sub-rules (e), (g), (h), and (k) of rule 6DD of IT Rules. Being a prudent businessman, the assessee though it proper to make cash payment so that their agreement of purchase of land may not be cancelled or agriculturists may refuse to sell the land to assessee the next day. In view of these facts and circumstances, case of the assessee falls under the exceptional clause of rule 6DD of IT Rules. Sub-clause (e) of rule 6DD is about the payment made for purchase of agricultural or forest produce. The assessee has not purchased any agricultural or forest produce, therefore this sub-clause does not help the assessee. [Para 14.1] Sub-clause (k) is relevant for the payment made through any agent. It is claimed on behalf of the assessee that the payment has been made by the managing director Shri G, however, no evidence whatsoever has been filed that Shri G was appointed as agent for making purchases on behalf of the company. Therefore, the explanation of the assessee, was rightly rejected by assessing officer and Commissioner (Appeals). [Para 14.2] Sub-clause (g) is about the payment made in a village or in a town which on the date of such payment is not served by any bank. [Para 14.3] Sub-clause (j) is in respect to the payment made on a day on which the bank was closed either on account of holiday or strike. [Para 14.3] These two clauses may be helpful to the assessee as the case of the assessee was that the purchases of lands were made from the persons who reside in the Villages where on the date of payment the Village was not served by any banking facility and in some cases the payments had been made after banking hours to the villagers and in support of this contention it was submitted that the time of payment has been mentioned on the payment voucher itself. The assessing officer and Commissioner (Appeals) had rejected the contention of the assessee that they had not filed any supporting evidence. The observations of assessing officer as well as of Commissioner (Appeals) in this respect are not correct. It was seen that all the purchases were made from the persons who were residing in Villages. The list of farmers or persons are mentioned in the written submissions which were tabulated somewhere above in this order. The names of Villages are also mentioned. The amount of payment is also mentioned and it has been categorically mentioned that in these Villages there is no banking facility. Nowhere from the orders of assessing officer and Commissioner (Appeals), it emerges that they have made any enquiry that these Villages have any banking facilities or not. Tribunal has seen the vouchers at pp. 97 to 108. At p. 97, a cash receipt of Rs. 5,00,000 was placed and time of payment has been mentioned at 10.30 p.m. Similarly, at p. 98 cash payment of Rs. 5,00,000 has been mentioned and time is mentioned at 10.30 p.m. At p. 99, a cash receipt of Rs. 2,26,000 is placed and time of payment is mentioned at 11.30 p.m. [Para 14.5] Many persons in these days are indulging in development of schemes and they were buying land in nearby villages where there is a scope of developing the schemes and they are forced to make cash payment because there is a competition in the market for buying agricultural land. Therefore, assessee approached the villagers in the evening or in the night when they are available and they entered into agreement verbally or in writing and some payments made in cash. Therefore, there was an exceptional circumstance in making cash payments which falls under the exceptional clause of rule 6DD of IT Rules. [Para 14.7] It was also noted that the payments to some villagers have been made after banking hours and in cash voucher itself the time of payment has been mentioned. Some of the examples have been given somewhere above in this order where time of payment has been noted. Therefore, the assessing officer and Commissioner (Appeals) were not correct in observing that no supporting evidence was filed that the payments were made after banking hours. Neither any person was called nor enquiry was made that the payments were made after banking hours or they resided in the Villages. [Para 14.8] The provisions of section 40A(3) are very stringent and, therefore, it is the duty of the assessing officer that before attracting stringent provision he should have made enquiry about the persons whether they live in the villages or not and whether payments have been made after banking hours or not. There is no dispute that payments had been made from disclosed sources as all the payments had been accounted for. The provision of section 40A(3) was brought on statute initially to curb the practice of introducing black money. However, the provisions of section 40A(3) say that if the cash payment exceeds Rs. 20,000 and they do not fall under the exception clause of rule 6DD, then addition @ 20 per cent of such cash payment had to be made. However, the background of the case has to be seen and it should be enquired whether there is any real difficulty with the assessee to make payment in cash. In the present case it is seen that assessee was forced to make cash payment as agriculturists were not ready to accept the cheques as many other purchasers were available in the market and willing to pay in cash. Being a prudent businessman, the assessee thought it proper to make cash payment so that their agreement of purchase of land may not be cancelled or agriculturists may refuse to sell the land to assessee the next day. In view of these facts and circumstances, case of the assessee falls under the exceptional clause of rule 6DD of IT Rules. [Para 14.9] Facts in the present case for both the years are similar. Therefore, in view of the above facts and circumstances and in view of the consistency as on similar facts, the Tribunal has deleted the additions made under section 40A(3), Commissioner (Appeals) was not justified in confirming the action of the assessing officer in making addition under section 40A(3) for both the years. Accordingly, the entire additions for both the years are deleted. [Para 15] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0947 (Jp-Trib) : (2012) 044 (II) ITCL 0415 : (2012) 150 TTJ 0496 : (2012) 066 DTR 0009

INCOME TAX ACT, 1961

--Business disallowance under section 40A(3)--Cash payments exceeding prescribed limitsPayment to farmers in villages after banking hours--The assessee-company was a colonizer and developer and its business is to buy agricultural land and get it converted into residential and commercial purpose by obtaining approval from Jaipur Development Authority in accordance with provisions of Rajasthan Land Revenue and JDA. The assessee divides the land in plots of various sizes and carries various developmental activities like roads, water facility, electric facility as per norms of JDA. The assessee sells plots directly or through broker to the customers. The assessee filed its return of income for both the years and both the years were selected for scrutiny. During the assessment proceedings, the assessing officer noticed that assessee had made cash payments to farmers in villages from whom the lands were shown to have been purchased. The assessing officer also noted that to some farmers the payments were made by cheque also. However, on returning the cheques, cash payments were made. Such cash payments were noticed by the assessing officer at Rs. 1,47,85,550 for assessment year 2006-07 and cash payments of Rs. 2,47,76,880 for assessment year 2007-08. The assessing officer issued show-cause notice to the assessee to explain as to why in view of provisions of section 40A(3) an addition @ 20 per cent of such cash payments made otherwise than by cross-cheque or bank draft be not added to the total income. Detailed written submissions were filed on behalf of the assessee. This explanation was rejected by the assessing officer. In view of these facts and circumstances, the assessing officer made an addition @ 20 per cent of such cash payments made by the assessee to the seller farmers under section 40A(3) for both the years respectively. On appeal, the Commissioner (Appeals) confirmed the finding of the assessing officer. Held: The seller of land was a resident of a particular village which was not served by any bank and that the seller of land was a farmer and insisted for cash payment in the first instance or later when the cheques issued to him were returned dishonoured the payments in cash had been made after the banking hours. Accordingly, the case of the assessee was covered by sub-rules (e), (g), (h), and (k) of rule 6DD of IT Rules. Being a prudent businessman, the assessee though it proper to make cash payment so that their agreement of purchase of land may not be cancelled or agriculturists may refuse to sell the land to assessee the next day. In view of these facts and circumstances, case of the assessee falls under the exceptional clause of rule 6DD of IT Rules.

Sub-clause (e) of rule 6DD is about the payment made for purchase of agricultural or forest produce. The assessee has not purchased any agricultural or forest produce, therefore this sub-clause does not help the assessee. [Para 14.1] Sub-clause (k) is relevant for the payment made through any agent. It is claimed on behalf of the assessee that the payment has been made by the managing director Shri G, however, no evidence whatsoever has been filed that Shri G was appointed as agent for making purchases on behalf of the company. Therefore, the explanation of the assessee, was rightly rejected by assessing officer and Commissioner (Appeals). [Para 14.2] Sub-clause (g) is about the payment made in a village or in a town which on the date of such payment is not served by any bank. [Para 14.3] Sub-clause (j) is in respect to the payment made on a day on which the bank was closed either on account of holiday or strike. [Para 14.3] These two clauses may be helpful to the assessee as the case of the assessee was that the purchases of lands were made from the persons who reside in the Villages where on the date of payment the Village was not served by any banking facility and in some cases the payments had been made after banking hours to the villagers and in support of this contention it was submitted that the time of payment has been mentioned on the payment voucher itself. The assessing officer and Commissioner (Appeals) had rejected the contention of the assessee that they had not filed any supporting evidence. The observations of assessing officer as well as of Commissioner (Appeals) in this respect are not correct. It was seen that all the purchases were made from the persons who were residing in Villages. The list of farmers or persons are mentioned in the written submissions which were tabulated somewhere above in this order. The names of Villages are also mentioned. The amount of payment is also mentioned and it has been categorically mentioned that in these Villages there is no banking facility. Nowhere from the orders of assessing officer and Commissioner (Appeals), it emerges that they have made any enquiry that these Villages have any banking facilities or not. Tribunal has seen the vouchers at pp. 97 to 108. At p. 97, a cash receipt of Rs. 5,00,000 was placed and time of payment has been mentioned at 10.30 p.m. Similarly, at p. 98 cash payment of Rs. 5,00,000 has been mentioned and time is mentioned at 10.30 p.m. At p. 99, a cash receipt of Rs. 2,26,000 is placed and time of payment is mentioned at 11.30 p.m. [Para 14.5] Many persons in these days are indulging in development of schemes and they were buying land in nearby villages where there is a scope of developing the schemes and they are forced to make cash payment because there is a competition in the market for buying agricultural land. Therefore, assessee approached the villagers in the evening or in the night when they are available and they entered into agreement verbally or in writing and some payments made in cash. Therefore, there was an exceptional circumstance in making cash payments which falls under the exceptional clause of rule 6DD of IT Rules. [Para 14.7] It was also noted that the payments to some villagers have been made after banking hours and in cash voucher itself the time of payment has been mentioned. Some of the examples have been given somewhere above in this order where time of payment has been noted. Therefore, the assessing officer and Commissioner (Appeals) were not correct in observing that no supporting evidence was filed that the payments were made after banking hours. Neither any person was called nor enquiry was made that the payments were made after banking hours or they resided in the Villages. [Para 14.8] The provisions of section 40A(3) are very stringent and, therefore, it is the duty of the assessing officer that before attracting stringent provision he should have made enquiry about the persons whether they live in the villages or not and whether payments have been made after banking hours or not. There is no dispute that payments had been made from disclosed sources as all the payments had been accounted for. The provision of section 40A(3) was brought on statute initially to curb the practice of introducing black money. However, the provisions of section 40A(3) say that if the cash payment exceeds Rs. 20,000 and they do not fall under the exception clause of rule 6DD, then addition @ 20 per cent of such cash payment had to be made. However, the background of the case has to be seen and it should be enquired whether there is any real difficulty with the assessee to make payment in cash. In the present case it is seen that assessee was forced to make cash payment as agriculturists were not ready to accept the cheques as many other purchasers were available in the market and willing to pay in cash. Being a prudent businessman, the assessee thought it proper to make cash payment so that their agreement of purchase of land may not be cancelled or agriculturists may refuse to sell the land to assessee the next day. In view of these facts and circumstances, case of the assessee falls under the exceptional clause of rule 6DD of IT Rules. [Para 14.9] Facts in the present case for both the years are similar. Therefore, in view of the above facts and circumstances and in view of the consistency as on similar facts, the Tribunal has deleted the additions made under section 40A(3), Commissioner (Appeals) was not justified in confirming the action of the assessing officer in making addition under section 40A(3) for both the years. Accordingly, the entire additions for both the years are deleted. [Para 15]