No disallowance u/s 40A(3) if it was mandatory to purchase material in cash on holidays to complete construction in time: Delhi ITAT

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No disallowance u/s 40A(3) if it was mandatory to purchase material in cash on holidays to complete construction in time: Delhi ITAT

No disallowance u/s 40A(3) if it was mandatory to purchase material in cash on holidays to complete construction in time: Delhi ITAT

Facts

 

  1. a) Assessee-real estate developer had made payments in cash in excess of Rs. 20,000 for purchase of construction materials on bank holidays.

 

  1. b) Assessee said that exception provided under rule 6DD(j) would be applicable to said payments as it was required to make such payments on bank holidays/national holidays.

 

  1. c) However, Assessing Officer (AO) made additions in respect of such payments under section 40A(3). It was contended by AO that there was no compulsion on the part of the assessee to make such payments on bank holidays.

 

  1. d) On appeal, CIT(A) upheld order of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

 

The Tribunal held in favour of assessee as under:

 

1) Provisions of rule 6DD(J) provide that provisions of section 40A(3) would not be applicable where the payment is required to be made on a day on which the banks are closed on account of holidays or strikes.

 

2) Assessee, being a developer of commercial/ residential projects, was bound to complete the construction to offer the possession in agreed time to avoid penalties. Therefore, It had carried out the construction activities round the clock even on sundays and holidays.

 

3) Although there was no compulsion on the part of the assessee, yet, it was an admitted fact that the construction activities of the assessee were carried on during holidays also. Therefore, there was merit in the arguments advanced by the assessee that it had to procure materials on sundays/ public holidays to avoid any break in the process of construction.

 

4) It was also an admitted fact that the payments were made in cash during holidays as well as working days. Therefore, it couldn’t be said that the assessee had made cash payments only on bank holidays to avoid the provisions of section 40A(3).

 

5) Therefore, AO wasn’t justified in disallowing said payments under section 40A(3).

 

 [2019] 101 taxmann.com 16 (Delhi – Trib.)

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