Tax Appellate Tribunal. The Tribunal By Its Order Dated05-10-2012 Affirmed The Order Of The Commissioner Ofincome Tax (Appeals) With Regard To The Disallowance v. The Income Tax Officer

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE / DAY OF SEPTEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD ILT.A. NO.32 OF 2013 BETWEEN: M/S. NAM ESTATES PVT. LTD.,NO.150, 1 FLOOR, EMBASSY POINT|BANGALORE-560001 (REPRESENTED BY ITS GENERAL MANAGER|ACCOUNTS AND TAXATIONSRI. D. VIJAYAKUMAR|AGED ABOUT 53 YEARS.S/O R. DHARMALINGAM ). — ADPELLANT. (BY SRI. CHYTHANYA K.K. ADV.,) AND: THE INCOME TAX OFFICER|WARD-12(1), # 14/3, 4 FLOOR|RASHTROTHANA BHAVANNRUPATHUNGA ROAD, BANGALORE-560001.. .. RESPONDENT (BY SRI. E.I1. SANMATHI, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 05.10.2017 PASSED IN [TA|NO.705/BANG/2011 FOR THE ASSESSMENT YEAR 2006-07,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN.» (1) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THEITAT, BANGALORE “C’ BENCH BEARING C.O.NO.14/BANG/2012 IN|ITA NO.705/BANG/2011 DATED 05-10-2012 IN THE INTEREST OF|JUSTICE AND EQUITY. THIS ITA COMING ON FOR ADMISSION, THIS’ DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax| Act, 1961 (hereinafter referred to as the Act for short) Nas been preferred by the assessee. Tne subject matter of the appeal pertains to the Assessment year 2006-07.The appeal was admitted by a bench of this Court videorder dated 10.07.2013 on the following substantialquestion of law: WhetherOP)thefactsand|circumstances of the case, the Tribunal|was right in law in applying the provisions|of Section 40A(3) of the Income Tax Act, 1961 in respect of cash payments made by|the assessee to the agriculturists/farmers|for purcnase of land? 2. The facts leading to filing of this appeal in a nut) Shell are that assessee is private limited company registered under the Companies Act, 1956 engaged inthe business of real estate development. The assesseefiled its return of income on 12-06-2007 declaring anincome of Rs.3,48,240/-. A survey was conducted underSection 133A of the Act in the business premises of theassessee. The case of the assessee was selected forscrutiny and an order of assessment under Section143(3) of the Act was passed on 29-12-2008 by whichthe Assessing Officer disallowed business expenditure tothe tune of Rs.17,52,527/- holding that the paymenttowards purchased of land during the assessment yearwas hit by Section 40A(3).. 3.The assessee filed an appeal before theCommissioner of Income Tax (Appeals), who by anorder dated 23-02-7011 confirmed the order of theAssessing Officer with regard to the disallowance ofbusiness expenditure of the assessee. The assesseefiled its cross objections against the aforesaid order inthe appeal preferred by the revenue before the Income. Tax Appellate Tribunal. The tribunal by its order dated05-10-2012 affirmed the order of the Commissioner ofIncome Tax (Appeals) with regard to the disallowance ofbusinessexpenditure.In|theaforesaidfactualbackground, the instant appeal has been filed. aLearned counsel for the assessee submittedthat the purpose and intent of Section 40A(3) is to curbtax evasion by establishing the identity of the partiesand the genuineness of the transaction. It is furtherSubmitted that the Tribunal has erroneously invoked theprovisions of Section 40A (3) when the identity of theparties and the genuineness of the transaction were notin question. It is also pointed out that it was not thedefence of the assessee that transactions took place atthe place where there was no Danking facility. However,the authorities have erroneously assumed the aforesaidfact and have deprived the assessee of the benefit ofSection 40A(3) of the Act. It is urged that the Tribunalhas failed to appreciate that the transactions were made aLearned counsel for the assessee submittedthat the purpose and intent of Section 40A(3) is to curbtax evasion by establishing the identity of the partiesand the genuineness of the transaction. It is furtherSubmitted that the Tribunal has erroneously invoked theprovisions of Section 40A (3) when the identity of theparties and the genuineness of the transaction were notin question. It is also pointed out that it was not thedefence of the assessee that transactions took place atthe place where there was no Danking facility. However,the authorities have erroneously assumed the aforesaidfact and have deprived the assessee of the benefit ofSection 40A(3) of the Act. It is urged that the Tribunalhas failed to appreciate that the transactions were made in cash due to the business expediency of the assessee,which exempts the expenditure incurred from theapplicability of Section 40A(3) as per the second provisoto Section 40A (3). In support of the aforesaidsubmissions, reliance has been placed onCOPY OF|CIRCULAR No.6-P, DATED 06.07.1968, COPY OFCIRULAR NO.22 OF 1969, COPY OF CIRCULARNO.220, DATED 31.05.1977, COPY OF CIRULARNO.717 OF 1995, ‘ATTAR SINGH GURMUKH SINGHVS.ITO’,(1991)|191|ITR66/7(SC),"M.K.AGROTECH (P) LTD. VS ACIT’, (2019) 412 ITR351 (KAR), ‘ACIT VS. SRI.SARASWATHI IRONFOUNDRY,|(2006)28/ITR313°(KARN.),"SMT.SAIRA BANU VS. ACIT IN ITA 228/2009DATED26.06.2015, *‘PR.CITVS,|SAMWONPRECISION MOULD’, (2018) 401 ITR 486 (DELHI),‘CIT VS. KEERTHI AGRO MILLS (P) LTD., SLP(C)NO.17441-42/2018,‘CIT|VS,KEERTHTIAGROMILLS (P) LTD.’, (2018) 405 ITR 192 (KER), “GURDAS GARG VS. CIT’, (2015) 63 TAXMANN.COM289 (P & H), ‘SRI.LAXMI SATYANARAYANA OILMILLYS,CIT’,(2014)36/7ITTR200(AP),‘SMT,HARSHILACHORDIAVS,INCOME-TAXOFFICER’, (2008) 298 ITR 349 (RAJ), WALFORDTRANSPORT (EASTERN INDIA) LTD. VS CIT,(1999)240ITTRQO)(GAU.),‘CIT|VS.JHESOLUTION’, (2016) 382 ITR 337 (RAJ), ANUPAMTELE SERVICES VS. ITO, (2014) 366 ITR 122(GUJ), ‘HONEY ENTERPRISES VS. CIT’, (2016) 236TAXMAN 519 (DEL), GIRIDHARILAL GOENKA VS.CIT’, (1986) 179 ITR 122 (CAL), R.C.GOEL VS.CIT’, (2013) 213 TAXMAN 305 (DEL), ‘HOTELNAGAS PVT. LTD. VS. CIT’, 2016-TIOL-1012-HC-MAD-IT, KAMATH MARBLES VS. ITO’, (2003) 260ITR 470 (KER.), ‘CIT VS. SMT.SHELLY PASSI INITA 179/2012 DATED 06.10.2012 (P& H), ‘CIT VS.R.S.SURIYA‘’, (2015) 232 TAXMAN 126 (MAD), ‘CITVS. ARTHUR ANDERSEN & CO.’, (2009) 318 ITR 229 (BOM), "KALYANKUMAR RAY VS. CIT’, (1991)191 ITR 634 (SC), ‘CIT VS. KHEMCHAND RAMDAS“,(1938) 6 ITR 414 (PRIVY COUNCIL). 5.|On the other hand, learned counsel for therevenue has submitted that Section 40A(3) provides fordisallowance of cash expenditure incurred in excess ofRs.20,000/- and that the aforesaid provision cannot bemade applicable only if the case of the assessee fallswithin the exceptions provided under Rule 6DD of theIncome Tax Rules. It ts further submitted that theassessee has failed to prove by any cogent evidencethat it was covered by any exceptions provided underSection 40A(3) of the Act read with Rule 6DD of theIncome Tax Rules. It Is also submitted that nosubstantial question of law arises in this appeal and thatthe order of the Tribunal is based on meticulousappreciation of evidence and it is not open for this courtin the exercise of its appellate jurisdiction to interferewith the findings of fact made by the authorities. In Support of the aforesaid submissions reliance has beenplacedON)‘VIJAY|KUMARTALWARVS,COMMISSIONER OF INCOME TAX’, (2011) 330 ITROOO1 6. We have considered the submissions made by|learned counsel and have perused the record. Beforeproceeding further, it is apposite to take note of Section.40A(3) of the Act and Rule 6DD of the Rules, which readas under: Support of the aforesaid submissions reliance has beenplacedON)‘VIJAY|KUMARTALWARVS,COMMISSIONER OF INCOME TAX’, (2011) 330 ITROOO1 6. We have considered the submissions made by|learned counsel and have perused the record. Beforeproceeding further, it is apposite to take note of Section.40A(3) of the Act and Rule 6DD of the Rules, which readas under: 40A(3) Where the assessee incurs any|expenditure in respect of which payment oraggregate of payments made to a person in aday, otherwise than by an account payeecheque drawn on a bank or account payeebank draft, or use of electronic clearing:system through a bank account or throughsuch other electronic mode as may beprescribed, exceeds ten thousand rupees, nodeduction shall be allowed in respect of suchexpenditure. Rule 6DD No disallowance under sub- Section (3) of Section 40A shall be made no-payment shall be deemed to be the profitsand gains of business or profession undersub-Section (3A) of Section 40A where apayment or aggregate of payments made to a.person in a day, otherwise than by an accountpayee cheque drawn on a bank or account:payee bank draft or use of electronic clearingsystem through a bank account or throughsuch other electronic mode as_ prescribedunder Rule 6ABBA, exceeds ten thousandrupees In|theCaS@BSandcircumstances specified hereunder namely: (a)where the payment is made to —|(I)the Reserve Bank of [India orany banking company as definedin Clause (c) of Section 5 of theBanking Regulation Act, 1949(10 of 1949),(I)the Reserve Bank of [India orany banking company as definedin Clause (c) of Section 5 of theBanking Regulation Act, 1949(10 of 1949), (iI)The State Bank of India or anySubsidiary bank as defined insection 72 of the State Bank ofIndia (Subsidiary Banks) Act,1959 (38 of 1959).Subsidiary bank as defined insection 72 of the State Bank ofIndia (Subsidiary Banks) Act,1959 (38 of 1959). (iI)Any co-operative bank or land mortgage bank; (iv)Any primary agricultural creditsociety or any primary creditsociety as defined under Section56 of the Banking RegulationAct, 1949 (10 of 1949)society or any primary creditsociety as defined under Section56 of the Banking RegulationAct, 1949 (10 of 1949) (v)The Life Insurance CorporationOf|[IndiaestablishedunderSection 3 of the Life [InsuranceCorporation Act, 1956 (31 of1956);Of|[IndiaestablishedunderSection 3 of the Life [InsuranceCorporation Act, 1956 (31 of1956); (b) where the payment is made to the|Government and under the rules framedby 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. (il)admallOr>telegrapnictransferthrougn a bank. (ill) a DooK aajustment from any account|in a bank to any other account in that or anyother bank. (iv) a bill of exchange made payable| only to a bank| (v) to (vil) 3[ *** | Explanation.—For the purposes of this|clause and clause (g), the term “bank” means.hy|bank,bankingCOMmMmPaOF|societyreferred to in sub-clauses (ji) to (iv) of clause(a) and includes any bank [not being abanking company as defined in clause (c) ofsection 5 of the Banking Regulation Act, 1949.(10 of 1949)/, whether incorporated or not,which is established outside India; (d) where the payment is made by way|of adjustment against the amount of anyliability incurred by the payee for any goodsSupplied or services rendered by the assesseeto such payee; (e) where the payment is made for the|purchase of— (1) agricultural or forest produce; or| (ii) the produce of animal husbandry|(including livestock, meat, hides and skins) oraairy or poultry farming; or (iii) fish or fish products; or. (iv) the products of horticulture or apicu/lture,ionthecultivator,GrowerOF|producer|ofSUCh|articles,produce|Orproducts; (f) where the payment is made for the|purchase of the products manufactured orprocessea without the aid of power in acottage industry, to the producer of suchproducts; (d) where the payment is made by way|of adjustment against the amount of anyliability incurred by the payee for any goodsSupplied or services rendered by the assesseeto such payee; (e) where the payment is made for the|purchase of— (1) agricultural or forest produce; or| (ii) the produce of animal husbandry|(including livestock, meat, hides and skins) oraairy or poultry farming; or (iii) fish or fish products; or. (iv) the products of horticulture or apicu/lture,ionthecultivator,GrowerOF|producer|ofSUCh|articles,produce|Orproducts; (f) where the payment is made for the|purchase of the products manufactured orprocessea without the aid of power in acottage industry, to the producer of suchproducts; (g) where the payment is made in avillage or town, which on the date of suchpayment is not served by any bank, to anyperson who ordinarily resides, or is carrying—on any business, profession or vocation, inany such village or town; (h) where any payment is made to an|employee of the assessee or the heir of anysuch employee, on or in connection with theretirement,retrenchment,resignation,|discharge or death of such employee, on.account.ofgratuity,retrenchment|compensation or similar terminal benefit andthe aggregate of such sums payable to the.employee or his heir does not exceed fifty thousand rupees; (i) wnere the payment is made by an|assessee by way of salary to his employeeafter deducting the income-tax from salary in-accordance with the provisions of section 192.of the Act, and when such employee— (i) is temporarily posted for a continuousperiod of fifteen days or more in a place otherthan his normal place of duty or on a ship;and (ii) does not maintain any account in anybank at such place or ship; (G) 4 *** J (kK) where the payment is made by anyperson to his agent who Is required to makepayment in cash for goods or services onbenalf of such person; (!) where the payment is made by an|authorised dealer or a money changer againstpurchase of foreign currency or _ travellercheques in the normal course of his business. Explanation.—For the purposes of this| clause, the expressions “authorised dealer” or“money changer” means a person authorisedas an authorised dealer or a money changerCO dealIn|foreignCUFFEPICyOrforeignexchange under any law for the time being in.force.| J |From.perusaloftheCirculardated|06.07.1998 issued by Finance Department, it is evidentthat object of incorporation of Section 40A(3) was tomake a provision to counter evasion of tax throughclaims for expenditure shown to have been incurred incash witn a view to frustrating proper investigation bythe department as to the identity of the payee and thereasonableness of the payment. The Supreme Courtdealt with the ambit and scope of Section 40A(3) readwith Rule 6DD and held that Section 40A(3) onlyempowers the assessing officer to disallow the deduction.claimed as expenditure in respect of payments is madein cash. It was further held that consideration ofbusiness expediency and other relevant factors are not excluded and genuine and bonafide transactions are not.taken out of the sweep of the Section and it is open forthe assessee to furnish to the satisfaction of theassessing officer the circumstances under which thepayment in the manner prescribed under Section 40A(3)was not practicable or would have caused genuinedifficulty to the payee. It is also open to the assessee toidentify the person who has received the cash payment.Rule 6DD provides that an assessee can be exemptedfrom requirement of payment by a crossed cheque or acrossed bank daraft in the circumstances specified in theRule. It was further held that from conjoint reading ofSection40A(3) and Rule 6DD, it is evident that they areintended to regulate the Dusiness transactions and toprevent the use of unaccounted money or reduce thechances to use black money for business transactions.|8.|In the aforesaid well settled legal principles,we may now examine whether the assessee in the factsof the case Nas complied with the aforesaid requirement so as to enable him to claim exemption from provisionsof Section 40A(3) of the Act. The Assessing Officer inthe order dated 29.12.2008 inter alia has held as under: Cash payment on account of land|purchase: It is noticed during he course of scrutiny|assessment that the assessee has meadepayment.In|eXCeSSofRs.20,000/-—In|contravention to the provision of Section40A(3) of the Income-Tax Act 1961, whilemaking payment towards purchase of land,during the year. The amount so _ paid iquantified at Rs.87,92,635/-. This aspect wasdiscussed with the assessee’s gquthorizedrepresentative. Who in his submission dated18.17.2008 has filed the reason for the sameas ‘Payments made at the place which wasnot served with any banking facilities.” 9 |Thus, from the perusal of the relevant extractof the order passed by the assessing officer, it is evident that the assessee’s authorized representative in hiswritten submission dated 18.17.7008 had disclosed the| reason for payment in cash on the ground that thepayments were made at place which was not servedwith any banking facility. The assessing officer has foundthat the place at which the payment was made hadbanking facility and therefore, has held that theassessee failed to prove that it was covered in theexception clause as provided under Section 40A(3) readwith Rule 6DD. The aforesaid finding has been affirmedby Commissioner of Income Tax (appeals) vide orderdated 23.07.7011. The relevant extract reads as under: Considering the various fats, I find that|the appeliant could not demonstrate withcogent evidences that there was business.expediency or sufficient cause for such cashpayments to various parties in the relevantassessment year. Tne explanation of theappellant that the transaction has taken placein Devenahalli Taluk which lacked the banking»facilities in| and around the place is notacceptable in the light of the fact that thesetransactions have taken place in the vicinity ofBangalore District, Devenanhalli Taluk, which had umpteen number of banks and branches.Further, the contention of the appellant thatthe recipients had insisted on cash payment is_not acceptable. Though the parties wereidentifiable and cash payments were genuine,these payments were squarely hit by theprovisions of Section 40A(3).. 10. Thus, it is evident that the Commissioner ofIncome Tax (Appeals) have also found that the assesseenas failed to prove tne stand taken by him that thetransaction took place at the place where there were nobanking facilities. The aforesaid finding has beenaffirmed.bytheIncome.TaxAppellate|Tribunal.|Therefore, the contention of the appellant that it hadtaken a defence before the authorities that the partieswere identifiable and the transactions were genuinecannot be accepted, as the aforesaid contention is being.raised for the first time in this appeal, which evenotherwise is contrary to the material on record, whichhas already been referred to supra. The aforesaid findings are findings of fact and this court as a generalrule would not interfere except in cases where theparties have ignored material evidence or have acted onno evidence, or have drawn wrong inference fromproved facts by applying the law erroneously. Theassessee has not been able to show that its case falls inany of the aforesaid categories. In view of precedinganalysis, the substantial question of law framed bybench of this court vide order dated 10.07.2013 isanswered in the negative and against the assessee. In the result, we do not find any merit in this)appeal. The same fails and is hereby dismissed. Sd/-—JUDGE. Sd/-—JUDGE.