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| The Tax Publishers2020 TaxPub(DT) 1135 (Jp-Trib) INCOME TAX ACT, 1961
Section 40A93) Rule 6DD
Where assessee decided to pay token money in cash to sellers who were rural agriculturist to make them agree to sell their land, it was clearly a business decision taken by assessee and test of business expediency had been established. Both cash and cheque transactions were recorded in registered sale deed and were available on record. Therefore, identity of persons from whom purchases have been made and genuineness of transactions of land purhcase had been established. Accordinlgy, there was no jusification to make disallowance under section 40A(3).
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Business disallowance under section 40A(3) - Cash payment exceeding prescribed limit - Cash payment of token money towards purchase of land - Business expediency
AO in case of assessee engaged in real estate business made disallowance of Rs. 22,00,000 under section 40A(3) on account of consideration paid in cash exceeding prescribed threshold towards purchase of land. As per AO, land so purchased had been held by assessee as stock-in-trade, since assessee was legally bound to make purchases by a crossed cheque or by a bank draft which he failed to do so and case of assessee did not fall within any of the exceptions provided under rule 6DD. Assessee submittd that land had been purchased by assessee from agriculturist through two registered sale deeds and initial token money had been paid in cash and subsequent payments had been made through cheques as because farmers did not had any previous dealing with assessee, they insisted on initial cash pament to agree to the deal. Similarly, assessee was also of belief that initial cash payment would provide assurance to sellers and make them agree to sell their land.Held: Where as part of negotiations, a deal in-principle was agreed upon, it is customary to pay token amount to block the deal till all legal and other formalities are completed. In the instant case, where assessee decided to pay token money to sellers who were rural agriculturist to make them agree to sell their land, it was clearly a business decision taken by assessee and test of business expediency had been established. Both cash and cheque transactions were recorded in registered sale deed and were available on record. Therefore, identity of persons from whom purchases have been made and genuineness of transactions of land purhcase had been established. Accordinlgy, there was no jusification to make disallowance under section 40A(3).
Followed:Attar Singh Gurmukh Singh v. ITO (1991) 191 ITR 0667 (SC) : 1991 TaxPub(DT) 1528 (SC) and Harshila Chordia v. ITO (2007) 208 CTR 208 (Raj) : 2007 TaxPub(DT) 716 (Raj-HC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2013-14
IN THE ITAT, JAIPUR BENCH
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