Splitting of cash payment to circumvent the provisions of law attracts Section 40A(3)

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IN THE ITAT JODHPUR BENCH

Vaishali Builders & Colonizers

v.

Additional Commissioner of Income-tax,

IT APPEAL NO. 391 (JODH.) OF 2011

[ASSESSMENT YEAR 2008-09]

JULY 25, 2012

 

The assessee did not produce sale deed or the agreement during the course of arguments to prove that part cash payments were made in instalments for purchase of land. If it was advance money given to the villagers for purchase of land in instalment, there was no necessity to make payment in cash in instalment. It could be paid by cheques/drafts. Further if the amount was paid at the time of execution of sale deed, the villager/seller would not accept cash payments in instalments everyday during the whole year after the execution of sale deed. Therefore, it is clear that the books of account of the assessee have been manipulated to circumvent the provisions of law. The assessee has, thus, failed to prove genuine payments in instalments to the villagers in cash. Hon’ble Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 and in the case of Sumati Dayal v. CIT[1995] 214 ITR 801 held that “the Courts and Tribunals have to judge the evidences before them by applying the test of human probabilities after considering the surrounding circumstances.”

Regarding the business expediency, the assessee has not filed any evidence before the authorities below and nothing is clarified as to what were the other relevant factors, for which the cash payment has been made and no specific Rule has been explained u/r 6DD, which is applicable to the case of the assessee. The ld. counsel for the assessee argued that for purchase of agricultural land and payment made to the villagers, the provisions of section 40A(3) may not be applied as provided in exception to Rule 6DD. We have gone through the Rule 6DD applicable now and prior to amendment also, in which none of the exception has been provided for making payment in cash for purchase of land. It is, however, provided that above rule can be avoided if payment is made for purchase of agricultural produce which is not the case of the assessee at all. The assessee is dealing in real estate and in land and as such, it was for the assessee to establish that the cash payments have been made for business exigencies, which the assessee has failed to prove in this case. Further Rule 6DD(j) would not apply in this case because the assessee failed to prove that on the date of payment whether banks were closed either on account of holiday or strike. The ld. CIT(A), therefore, rightly noted in his finding that the assessee has not satisfied as to under which Rule, the assessee’s case would fall. In the case of Trivedi Corporation Pvt. Ltd. (supra), ITAT Ahmedabad Bench considered the issue of disallowance u/s. 40A(3) in respect of cash payment made to Gujrat State Electricity Board, which was considered as one of the undertaking of the State Government. Therefore, it was considered to be a payment made to Government Body and was falling in exception. The case law cited by the ld. counsel for assessee would not support the case of the assessee because they are based on their own facts and that the theory of real income would not apply for dealing with the issue of section 40A(3) of the IT Act. Considering the facts and circumstances and above discussion, it is very clear that the assessee consciously split up the payments in whole of the year, which is impracticable, illogical as noted above and it was done just to circumvent the provisions of law. There was no justification for the assessee to split up the transactions of crores of rupees in small payments of Rs. 15,000/- to Rs. 20,000/- everyday. Whatever plea was taken before the authorities below was not supported by any evidence. Therefore, the assessee failed to prove any business expediency or other facts for making staggered payments in cash. The case of the assessee would not fall in any exception to Rule. The assessee deliberately and consciously split up the payments in part so as to circumvent the provisions of law. We, therefore, do not find any justification to interfere with the orders of the authorities below. There is no merit in these grounds of appeal by the assessee. Same are accordingly dismissed.