Disallowance u/s 40A(3) if Cash payments exceeding prescribed limit is done due to exceptional circumstances
Where assessee, land developer, made payment to purchase agricultural land, in cash to farmer(s) on Sunday for his real estate business could not be disallowed under section 40A(3) because Sunday was bank holiday and exceptional circumstances under clause (J) of rule 6D was clearly attracted in assessee|s case, and payment was made due to commercial expediency.
Assessee was engaged in real estate business and during relevant year purchased various pieces of land for its residential and commercal projects. In respect of purchasing land from farmers cash payment was made on Sunday. AO observed that payment in cash made on Sunday was not bona fide. Assessee contended that it was covered by rule 6DD(j) CIT(A) also confirmed order of AO.
It was noted that assessee-company had made advance payment for purchase of various land to farmers as a token money for execution of deal on Sunday, i.e., day which was public holiday for banks. Assessee-company had not option but to make immediate payment due to business expediency and thus covered by proviso to section 40A(3). Payment was made on 5-8-2012, i.e., ‘Sunday’ which was not disputed by AO as well as CIT(A) and rule 6DD(j) specifically provides exception for disallowance under section 40A(3) on day on, which banks were closed. Payments were made to farmers for purchase of their agricultural land and payments were duly supported by various documents in form of conveyance deed, etc. Once the transaction were considered genuine and bona fide, then same were taken out of purview of section 40A(3).
In assessee’s favour.
Relied: Hotel Nagas (P) Ltd. v. CIT T.C.A. No. 317 of 2008, dt. 7-4-2016), Sri Laxmi Satyanarayana Oil Mills v. CIT (2014) 367 ITR 200 (T&AP), ITO Ward 3 (2), Jaipur v. Shyam Apparels (P) Ltd. & Vice-Versa (ITA No. 497- 549/JP/2016, dt. 7-11-2017), ITO v. Marigold Merchandise (P) Ltd. (ITA No. 5170/Del/2014, dt. 11-9-2017), Gurdas Garg. CIT ITA no. 413 of 2014, dt. 16-7-2015 and Harshila Chordia v. ITO (2008) ITR 349 (Raj)