The Principal Commissioner Of Income Tax 3 v. Rjd Buildcon Limited

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 297 of 2019 =============================================THE PRINCIPAL COMMISSIONER OF INCOME TAX 3 Versus RJD BUILDCON LIMITED ============================================= Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1============================================= CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAand HONOURABLE MR.JUSTICE A.C. RAO Date : 08/07/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.This Tax Appeal under Section 260-A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Appellate Tribunal “B” Bench, Ahmedabad dated 03.12.2018 in I.T(ss).A. No.171/Ahd/2017 for the Assessment Year 2011-12. 2.The Revenue has proposed the following question as the substantial question of law in its memorandum of the Tax Appeal : “Whether the Appellate Tribunal has erred in law and on facts in confirming the decision of CIT(A) deleting the disallowance of Rs.2,86,20,701/- made by the Assessing Officer under section 40A(3) of the Act?” 3.The Tribunal recorded the following findings as regards the proposed question : “4. Dissatisfied with the addition, assessee carried the matter in appeal before the CIT(A). It raised two fold of contentions. In the first fold of contention, on the strength of Hon’ble Gujarat High Court decision in the case of Principal Commissioner of Income Tax vs. Saumya Construction P.Ltd. reported in 387 ITR 529, it was contended that income u/s. 153A of the Act is to be determined on the basis of material found during the course of search or a requisition was made u/s. 132A of the Act. In the present case, no material was found during the course of search on the basis of which disallowance u/s. 40A(3) of the Act could be made. In the second fold of contention, it was submitted that sub-section(3) to section 40A of the Act contemplates that where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day otherwise that by an ‘A/c. payee cheque’ drawn on a bank or an ‘A/c. Payee bank draft’ exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. It was pointed out that payment should not exceed Rs.20,000/- in a day. The assessee has not paid anyone more than Rs.20,000/- in a day, therefore no disallowance could be made. Learned first appellate authority has accepted both the contentions and deleted the addition. It is worth to note the finding recorded by the Ld.CIT(A) which reads as under : “6. Ground of appeal No.2 is against the addition of Rs.2,86,20,701/- on account of cash payments made to farmers. During assessment proceedings, the A.O. noted that the appellant had purchased lands by making cash payments to farmers. He held that the same was against the provisions of section 40A(3) of the Act and added the same to the total income of the appellant. The appellant’s submissions have been reproduced in para 4.1 above, it has been contended that not only was the addition not sustainable since no payment in a single day exceeded Rs.20,000/-, but also because the same was a business expediency since the land sellers did not have bank accounts. It has also been stated that the assessment completed u/s 143(3) rws 153A was legally invalid. “6. Ground of appeal No.2 is against the addition of Rs.2,86,20,701/- on account of cash payments made to farmers. During assessment proceedings, the A.O. noted that the appellant had purchased lands by making cash payments to farmers. He held that the same was against the provisions of section 40A(3) of the Act and added the same to the total income of the appellant. The appellant’s submissions have been reproduced in para 4.1 above, it has been contended that not only was the addition not sustainable since no payment in a single day exceeded Rs.20,000/-, but also because the same was a business expediency since the land sellers did not have bank accounts. It has also been stated that the assessment completed u/s 143(3) rws 153A was legally invalid. 6.1 A careful perusal of the various case laws relied upon by the appellant shows that it has been clearly held by various courts, including the jurisdictional High Court in the case of Saumya Construction cited supra, that additions can be made u/s 153A only in those cases where during the course of search, incriminating documents or books of accounts have been found and seized and has to be based on such evidences and documents. It is seen from the impugned order that though a loose paper file was seized from the appellant’s premises during the search proceedings, the addition has been made on the basis of books of accounts called for and examined during the assessment proceedings and no reference has been made by the A.O. to seized documents or material while making the impugned addition. 6.1.2 Notwithstanding the above, even on merits, it is seen from the submissions made by the appellant during appellate proceedings that none of the payments in cash on a single day exceeded the limit of Rs.20,000/-. In fact, even the A.O. has noted this fact in his order. Further, it is seen that the total payment for purchase of land during the year under consideration by the appellant, is Rs.13,43,40,451/-, out of which Rs.2,86,20,701/- has been made in cash. Thus, the appellant’s argument that the cash payments were made out of business expediency in some cases, stands to reason. The appellant’s case is also covered by the case laws that have been relied on by it. 6.1.3 Considering the facts as discussed above, I am of the view that the A.O. was not justified in making the addition of Rs.2,86,20,701/- u/s 40A(3) of the Act, and the same is deleted. Ground of appeal No.2 is allowed.” 5. With the assistance of Ld. Representatives, we have gone through the record carefully. We deem it pertinent to take note of sub-clause (3) to Section 40A of the Act as was applicable in AY 2011-12, which reads as under :- “(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in day otherwise that by a 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.” 6. A perusal of the above clause would indicate that disallowance out of expenditure could be made if payment or aggregate of payments made to a person in a day exceeds twenty thousand rupees. Ld. first appellate authority has examined this aspect and recorded a categorical finding of fact that payments made by the assessee on a single day did not exceed twenty thousand rupees to a person, if that be so, then how disallowance u/s.40A(3) of the Act could be made. Thus, for the time being, if we do not tale cognizance of the first fold of submission that addition ought to be made on the basis of seized material, then also, otherwise on merit this addition could not be made. Ld. first appellate authority has rightly appreciated the facts and circumstances and no interference is called for in the order of the Ld.CIT(A).” Thus, for the time being, if we do not tale cognizance of the first fold of submission that addition ought to be made on the basis of seized material, then also, otherwise on merit this addition could not be made. Ld. first appellate authority has rightly appreciated the facts and circumstances and no interference is called for in the order of the Ld.CIT(A).” 4.Thus, the finding of fact has been recorded by two revenue authorities that the payments made by the assessee on a single day did not exceed Rs.20,000/- to a person and if, that be so, there could not have been any disallowance under Section 40A(3) of the Act. We do not find any error not to speak of any error of law in the impugned order passed by the Tribunal warranting any interference in this Tax Appeal. 5.In the result, this Tax Appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) (A. C. RAO, J) Dolly