Delhi High Court Rules No Section 40A(3) Disallowance for Cash Payment on Seller's Demand for Land

Court Name : ITAT Pune

Parties : Monika Chitrasen Patil Vs ITO

Decision Date : 10 October 2022

Judgement ref : ITA No. 1425/PUN/2019

आयकर अपीलीय अधिकरण “एक सदस्य मामला” न्यायपीठ पुणे में ।

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, PUNE

श्री एस.एस. विश्वनेत्र रवि, न्याविक सदस्य के समक्ष ।

BEFORE SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER

आिकर अपील सं. / ITA No.1425/PUN/2019

वनर्ाारण िर्ा/ Assessment Year : 2012-13

Mrs. Monika Chitrasen Patil,

Near Government Rest House,

Dudh Sagar Marg, Chalisgaon,

Jalgaon – 424201

PAN : BERPP2927P

.......अपीलार्थी / Appellant

बनाम / V/s.

The Income Tax Officer,

Ward – 1(2), Jalgaon

......प्रत्यर्थी / Respondent

Assessee by : Smt. Deepa Khare

Revenue by : Shri M.G. Jasnani

सुनवाई की तारीख / Date of Hearing : 23-09-2022

घोषणा की तारीख / Date of Pronouncement : 10-10-2022

आदेश / ORDER

PER S.S. VISWANETHRA RAVI, JM :

This appeal by the assessee against the order dated 29-07-2019

passed by the Commissioner of Income Tax (Appeals)-2, Nashik [‘CIT(A)’]

for assessment year 2012-13.

2. The assessee raised three grounds of appeal amongst which the only

issue emanates for my consideration is as to whether the CIT(A) justified in

confirming the disallowance of Rs.21,33,333/- u/s. 40A(3) of the Act.

3. Brief facts relating to the case are that the assessee is an individual

engaged in the business of purchase and sale of agricultural land, plots,

etc. The assessee conducts her business under the name and style as

“M/s. Sarth Associates”. The assessee filed return of income declaring a

total income of Rs.4,08,119/- and under scrutiny, the AO determined the

same at Rs.25,41,452/- inter alia making addition on account of cash

payment in violation of section 40A(3) of the Act. The CIT(A) confirmed the

same.

4. Heard both the parties and perused the material available on record.

The ld. AR submits that the assessee along with her co-purchasers

purchased three different lands with two groups. First one is More group

and another one is Wagh group. I note that the assessee’s submissions

were reproduced by the CIT(A) at page 4 of the impugned order regarding

the More group. According to the ld. AR that total sale consideration was

Rs.55,00,000/- in respect of land at SS No. 18/2 of Pachora (More group).

Out of said Rs.55,00,000/-, the assessee along with co-purchasers paid

Rs.25,00,000/- in cash. The ld. AR argued that there being two

purchasers, the share of assessee in cash payment is only Rs.12,50,000/-.

It was argued vehemently that the assessee made cash payment to the

sellers as they have no bank accounts standing to their name as on the

date of registration of sale deed and only after the receipt of consideration in part as post dated cheques, the sellers opened the bank accounts. This fact is not disputed by both the authorities below. Further, I note that copies of identity proof of sellers, affidavit of one of the sellers and copy of purchase deed also filed before the CIT(A) as well before this Tribunal from pages 1 to 92 of the paper book. The ld. AR argued that the cash payment to the tune of Rs.12,50,000/- was made due to business exigency at the instance of sellers. Further, she argued that both the lower authorities did not dispute the genuineness of the said transaction. I note that in support of the cash payment the sellers filed identity proof and also affidavits acknowledging the cash payment with regard to the sale of their land. Further, it is also not disputed that the said cash payment to the share of assessee was not reflecting in the sale deed.

5. Coming to the other Wagh group, I note that the assessee along with

two others purchased agricultural land at Gat No. 663, Madsangwi,

Nashik, through two sale deeds. I note that the details of payment

regarding the first sale deed for Rs.79,50,000/- for 1 hectare and 2 ares at

page 8 of the impugned order. The ld. AR submits that there was a Civil

Suit pending in connection with the dispute amongst legal heirs of Wagh

family. The parties therein agreed for settlement, but, one of such party

agreed for settlement on a condition that out of sale consideration in both

the sale deeds concerning 1 hectare and 2 ares and other for 85 ares,

insisted for payment of Rs.22.5 lacs from both the transactions. The ld.

AR submits that other two co-purchasers having residing in Nashik

immediately drew a demand draft for Rs.22,50,000/- and amongst which

Rs.7,50,000/- and Rs.3,75,000/- for first deed and likewise, Rs.7,50,000/-

and Rs.3,75,000/- for the second deed. The details of which reproduced

by the CIT(A) in pages 8 and 9 of the impugned order. The contention of

ld. AR is that the assessee did not pay any cash payment to the sellers to

both the transactions involving two sale deeds but however, made cash

payments to the other two co-purchasers who purchased two demand

drafts for amounting to Rs.22,50,000/- form their bank accounts. The ld.

AR vehemently argued that provisions u/s. 40A(3) is not attracted to the

said transactions, the assessee paid amount to her co-purchasers in the

capacity of her agents and drew my attention to Rule 6DD of the Rules.

She further placed on record the orders of this Tribunal in the cases of

Dnyaneshwar Jagannath Dhamne in ITA No. 202/PN/2016 and M/s.

Dhanshree Ispat in ITA No. 794/PUN/2013. She contends in all the

transactions with More group, the transactions were admitted before the

registering authority by the sellers and they filed confirmation, identity and sale deed also in support of claim. She argued vehemently there as no

cash payment in Wagh group as alleged by the AO taking into account

entries in the cash book. The finding of Tribunal in the above said cases

are applicable to the facts on hand and no disallowance u/s. 40A(3) is

warranted.

6. I note that the Hon’ble Supreme Court in the case of Attar Singh

Gurmukh Singh Vs. ITO reported in (1991) 191 ITR 667 (SC) held that the

provisions u/s. 40A(3) of the Act must not be read in isolation or to the

exclusion of Rule 6DD. Further, it was observed that the provisions u/s.

40A(3) of the Act are not intended to restrict the business activities. It is insisted only to enable the AO to ascertain whether the cash payments

made are out of the income from disclosed sources. Further, it is held the

terms of section 40A(3) of the Act are not absolute. I find the collective

reading of provisions u/s. 40A(3) of the Act along with Rule 6DD of the

Rules provides where an assessee can be exempted from the requirement

of payment by a crossed cheque or bank draft in the circumstances

specified under which the assessee is unable or not practicable causing

genuine difficulty. I note that the payment in cash was part of sale

consideration which is incorporated in the purchase deed. The ld. AR

placed on record a copy of purchase deed before this Tribunal from pages 9

to 62 of the paper book.

7. This Tribunal in the case of ITO Vs. M/s. Dhanshree Ispat (supra) by

following the decision of Hon’ble Supreme Court in the case of Attar Singh

Gurmukh Singh (supra) deleted the addition made u/s. 40A(3) of the Act

vide para 7 of the said order by holding when the transaction is genuine no

disallowance is warranted. In the present case also the cash payment

forming part of sale consideration was incorporated in the purchase deed

and a contention was made before the CIT(A) that on the demand of the

sellers cash payment to the tune of Rs.12,50,000/- was paid concerning

More group. Cash payment to the extent of Rs.1,33,333/- of Wagh group

concerning two sale deeds. Admittedly, the said sellers were identified and

confirmed receipt of cash payment before the Registering authority. It is

also noted that the AO did not dispute the same. Therefore, in my opinion,

the finding of this Tribunal in the case of M/s. Dhanshree Ispat (supra) is

applicable to the facts on hand when the transaction is genuine no

disallowance could be made u/s. 40A(3) of the Act.

8. Further, this Tribunal in the case of Dnyaneshwar Jagannath

Dhamne (supra), the Tribunal in para 11 at page 7 of the said order clearly

held the cash payment of Rs.3 lakhs were part and parcel of total sale

consideration which was admitted before the Government authority i.e.

Sub-Registrar of State of Maharashtra. The Tribunal held the disallowance

u/s. 40A(3) of the Act is not maintainable if the cash payment is part and

parcel of total sale consideration. In the present case also the cash

payment was part and parcel of total sale consideration which is not

disputed by both the lower authorities. Therefore, the finding of this

Tribunal in the case of Dnyaneshwar Jagannath Dhamne (supra) is

applicable.

9. Further, to the decision of Hon’ble High Court of Bombay in the case

of Madhav Govind Dhulshete Vs. ITO in Income Tax Appeal (L) No. 2128 of

2018 vide order dated 08-10-2018, the contention of ld. AR is that the

Hon’ble High Court of Bombay did not observe that Rule 6DD is not

exhaustive. On perusal of the relevant para 9 of the said decision, I note

the Hon’ble High Court of Bombay was pleased to observe that Rule 6DD of

Rules enables the assessee to urge that the exceptional or unavoidable

circumstances led to payment made in cash. Therefore, I find force in the

arguments of ld. AR that Rule 6DD is exhaustive and it is open to the

assessee the exceptional and unavoidable circumstances which made the

assessee to make payment in cash. I find the assessee did not pay cash as

already discussed above, the contention of the assessee before the CIT(A)

that the sellers demanded the assessee to pay in cash of Rs.12,50,000/-

and Rs.1,33,333/- being assessee’s share which is part and parcel of total

sale consideration. Further, there is no dispute with regard to

identification of the sellers as well as their confirmations in respect of

payment in cash from the assessee. It is also not disputed that the said

cash payment is not part and parcel of total sale consideration which is

reflected in all the purchase deed. Further, the sellers also admitted the

payment of cash before the registering authority under due process. The

contention of ld. AR is that the payment vide cheque or draft is not at all

practicable due to circumstances on demand of settlement of purchase

consideration in cash from the sellers of the properties. Therefore, the

ratio laid down by the Hon’ble Supreme Court in the case of Attar Singh

Gurmukh Singh (supra) is applicable and the disallowance of

Rs.21,33,333/- as confirmed by the CIT(A) in the hands of assessee on

account of section 40A(3) of the Act is deleted. Thus, grounds raised by

the assessee are allowed.

10. In the result, the appeal of assessee is allowed.

Order pronounced in the open court on 10th October, 2022.

Sd/-

(S.S. Viswanethra Ravi)

JUDICIAL MEMBER

Pune; Dated : 10th October, 2022.