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12-06-2019, B. Naga Mahesh, Section 40A(3), 254, 263, Tribunal Hyderabad
This appeal filed by the Revenue is directed against the order of CIT(A), Kurnool, dated, 05/10/2018 for AY 2009-10.
2. Brief facts of the case are, the assessee, an individual filed his return of income for the AY 2009-10 admitting a total income of Rs. 3,51,004/-. Subsequently, the case was selected for scrutiny and scrutiny assessment was completed u/s 143(3) of the Income-tax Act, 1961 ( in short ‘the Act’) on 30/08/2011 by determining the assessee’s total income at Rs. 3,91,004/-.
2.1 Subsequently, the Commissioner of Income Tax-III, Hyderabad passed an order u/s.263 of the I.T. Act, 1961 dated 28.02.2014 setting aside the assessment order u/s.143(3) dated 30.08.2011 with following observations:
“1. The assessee, who is a dealer in purchase and sale of land, had made cash payment of Rs.9,00,000/- for the purchase of land which attracts the provisions of section 40A(3) read with Rule 6DD but the AO had not examined.
2. The assessee had claimed interest of Rs.2,34,367/- on creditors for finance which the assessing office allowed without making any enquiry into the genuineness of the credits.
3. As per the AIR information, in the assessee's SB A/c with ING Vysya Bank, there was cash deposits of Rs.24,90,000/-. However, the sales turnover of the
assessee during the year was only Rs.9 68 800/- and assessee had no other known sources for the cash deposits. The AO completed the assessment without
carrying out any verification for the source of these cash deposits.”
2.2 Aggrieved with the order of CIT, the assessee contested before Hon'ble ITAT, Hyderabad Bench 'A'. The Hon'ble ITAT passed an order in ITA No.936/HYD/2014, dated.18.02.2015 allowing grounds at (2) and (3) above. In respect of ground (1) concerning disallowance of Rs.9,00,000 u/s 40A(3), the Hon'ble ITAT set aside the matter with a direction to examine whether the cash payments fall within the exemptions of Rule 6DD of the Income Tax Rules, 1962 and only thereafter, to decide whether to apply section 40A(3) to such payments.
2.3 Subsequently, the AO, consequent to the order of ITAT, passed an order u/s 143(3) r.w.s 254 by holding that the impugned payment of cash of Rs.9,00,000/- towards sale consideration of land was in violation of provisions of section 40A(3) of the I.T Act, 1961 and made a disallowance of Rs.9,00,000/- u/s.40A(3) of the I.T. Act.
3. Aggrieved by the order of AO, the assessee Preferred an appeal before the CIT(A).
4. Before the CIT(A), the assessee filed written submissions, which were extracted by the CIT(A) in his order at pages 3 to 6. For the sake of clarity, the same are
"The assessee, a dealer in purchase and sale of land, filed on 21-08-2009 his return of income admitting a total income of Rs.3,51,004/-. The assessment u/s
143(3) was completed on 30-08-2011 by determining the total income at Rs.3,91,004. An order u/s 263 was passed on 28-02-2014 setting aside the assessment to be redone on three issues. On an appeal against this order, the Hon'ble ITAT, in their Order d . 18 02-2015, modified the order u/s 263 by restricting the direction to the disallowance u1s 40(A3) in respect of the payment of RS.9 lakhs towards purchase of land.
2. During the course of consequent assessment proceedings, the assessee explained that the provisions of section 40A(3) are not applicable to this payment. The assessee's contentions and the Assessing Officer's conclusions are reproduced below, from the assessment order for the sake easy reference:
"8. In essence, the assessee's contentions are that the registration of land took place in the afternoon of 07-03- 2009 that the day happens to be Saturday followed by public holiday Sunday; that the vendor N. Kesava Reddy stated that he was in need of money and so insisted on payment of cash, that the deal was earlier postponed twice and if is only as a final opportunity that the registration was fixed for 07-03-2009 further postponement whereof might adversely affect assessee's business interests and therefore prudency and commercial expediency demanded payment of sale consideration of Rs. 9,00,000 in cash. Therefore, the AR argued that rule 6DD applies to assessee’s case and therefore application of section - 40A(3) is not warranted.
10. I have considered the facts and explanation submitted by the assessee. The assessee lays stress on payment of sale consideration in cash in exceptional
circumstances on 07-03-2009. And the entire explanation revolves around the same. But this is not correct. The cash payment was actually made on 02-03-