Hi Tech Land Developers & Builders, ... vs Assessee

ITA No. 901/Chd/2013 Assessment Year: 2010-11

M/s Hi Tech Land Developers VS The Addl. C IT, & Builders, G.T. Road, Range, Khanna Khanna

PAN No.AADFH7914D

(Appellant) (Respondent)

Appellant By : Shri Sudhir Sehgal Respondent By : Shri Manjit Singh

Date of hearing : 23.12.2014 Date of Pronouncement : 12.01.2015

ORDER

PER T.R.SOOD, A.M.

The appeal filed by the assessee is directed against the order dated

15.7.2013 of CIT(A)-II, Ludhiana.

2. In this appeal the assessee has raised the following grounds:-

1. Th a t th e Wo r th y Co m mi s sio n e r o f I n co m e T a x (Ap p ea l s ) h a s er red in co n fi r min g th e a d d it io n o f Rs . 3 9 ,6 2 ,5 0 0 /- b e in g th e a d d i tio n ma d e b y th e A ss es s in g b y d i sa l lo win g exp en d itu re u / s 4 0 A (3 ) o f th e I n co me Ta x Ac t, 1 9 6 1 .

2. Th a t a d d i tio n /d i sa l lo wa n ce o f e xp en d i tu re u / s 4 0 A(3 ) h a s b e en co n fi r med b y th e Wo r t h y CI T (A ) b y n o t co n s i d er in g o u r su b mi s sio n s ma d e d u rin g th e co u r se o f h ea rin g p ro p e r ly a n d th e d isa llo wa n ce wa s n o t ju st if ied s in ce it i s c o ver ed in cla u se (j ) o f r u le- 6 D D.

3. Th a t th e Wo rth y CI T ( A) h a s a l so e r red in co n fi r min g th e a d d itio n o f R s. 4 ,7 9 ,2 3 0 /- ma d e b y th e A s se s sin g Of fi ce r b y d i sa llo win g p ro p o rt io n a te in te re s t o n a lleg ed in te re s t fr ee a d va n ce s u / s 3 6 (1 ) ( i ii ) o f th e I n co me Ta x Act.

2 4. Th a t th e d isa llo wa n ce o f p ro p o rt io n a te in te re s t h a s b een ma d e b y th e Wo r th y CI T (A ) a g a in s t th e fa ct s a n d ci r cu m sta n c e s o f th e ca se a n d b y n o t co n s id e rin g p ro p e rl y th a t th e a ss e ss ee h a d n o t b o r ro wed a n y in te re s t b ea r in g fu n d s f ro m th e Ma rk et a n d a m o u n t a d va n ced to si s te r co n ce rn wa s o u t o f h is n o n - in te re s t b ea r in g fu n d s.

3. Ground Nos.1 & 2; After hearing both the parties we find that during

assessment proceedings it was noticed that assessee has paid cash for purchase

of land to certain persons and therefore the assessee was asked to explain the

circumstances for cash payment. In response to the same, it was submitted vide

letter dated 23.1.2013 as under:-

" A s en q u i red b y yo u r g o o d reg a rd in g th e p u rch a se o f la n d . I n th is reg a rd I wa n t to sta t e th a t my cl ien t i s ru n n in g th e b u sin e s s o f co l o n iz er . Du r in g th e F. Y. 2 0 0 9 - 1 0 my c lien t p u rch a se a g ri cu l tu ra l la n d fro m S . Dil b a g S in g h S /o Keh a r S in g h re sid en t o f 6 5 , We ste rn N ew O ff ice r Co lo n y, Pa lia la Teh si l & D i st t. Pa t ia l a ( se lf ) a n d S h . S u kh wi n d erp a l S in g h S /o S h . Ni r ma l S in g h re sid en t o f V il l. Bija Te h s il Kh a n n a , D i st t. Lu d h ia n a a t to rn ey o f S m t. Na ch h te r Ku a r Wid o w o f S h . Ku lwa n t S in g h , S h . S h in g a ra S in g h S /o S h . Ku l wa n t S in g h a n d S h . Te jw in d e r S in g h S /o S h Ku l wa n t S in g h r es i d en t o f Vil la g e Bu llep u r Teh s il Kh a n n a D is tt. Lu d h ia n a vid e a g re eme n t d a ted 1 6 .1 2 .2 0 0 9 fo r wh i ch t i tle d eed reg is te red o n d a ted 3 0 .0 3 .2 0 1 0 (p h o to c o p y o f th e a g ree men t d a t ed 1 6 . 1 2 .2 0 0 9 i s a t ta ch ed h e r ew ith )

My cl ien t p a id Rs . 2 ,0 0 , 0 0 0 /- (R s. T wo la c o n ly ) in ca sh to th e se lle r s o n d a ted 1 6 .1 2 .2 0 0 9 . Th ro u g h h is a g en t S h . I n d e rj it S in g h r e sid en t o f Kh a n n a , Rs . 3 7 ,5 0 ,0 0 0 /- (R s. Th ir ty S even La c Fi fty Th o u sa n d o n ly ) in ca sh o n a g r eed d a t e i.e. 2 8 .0 3 .2 0 1 0 a s p er a g ree men t d a ted 1 6 .1 2 .2 0 0 9 a n d Rs. 1 2 ,5 0 0 /- ( Rs . T wel ve Th o u sa n d F ive H u n d red On l y ) o n d a ted 2 9 .0 3 .2 0 1 0 .

As r eg a rd s d i sa l lo wa n c e o f a mo u n t u / s 4 0 A(3 ) o n a cco u n t o f ca sh p u rc h a se o f la n d i s n o t a p p l ied to o u r ca s e b e ca u s e a s p e r c l a u se n o .j a n d c la u se n o . k ru l e 6 DD c lea rl y sta t e th a t No d i sa llo wa n c e u n d e r su b sec tio n (3 A ) o f sec t io n 4 0 A sh a l l b e ma d e a n d n o p a ymen t sh a ll b e d ee med t o b e th e p ro f it a n d g a in s o f th e b u sin es s o r p ro fe s sio n s u / s su b ( 3 A ) o f se ct io n 4 0 A wh e r e th e p a ym en t o r a g g reg a te o f p a ymen t m a d e to a p e rso n in a d a y, o th e r wi se o n a cco u n t p a yee ch eq u e d ra wn o n a b a n k o r a cco u n t p a yee b a n k d ra f t, ex ceed R s. 2 0 ,0 0 0 /- in th e ca se s a n d ci rcu m sta n ces sp eci fi ed u n d e r n a mel y"

j ) Wh e re th e p a ymen t w a s req u i red to b e ma d e o n a d a y o n wh ich th e b a n ks we re clo sed ei th e r o n a c co u n t o f h o l id a y o r st r ik e.

k) Wh er e th e p a y men t i s ma d e b y a n y p e r so n t o h is a g en t wh o i s req u ir ed to ma ke p a ym en t in ca sh fo r g o o d s o r se rvi ce s o n b eh a lf o f su ch p e rso n . 3

My c li en t ma d e th e p a y men t to s el le r s a mo u n t i n g Rs. 2 0 ,0 0 ,0 0 0 /- (R s. T wo La c o n ly ) o n d a ted 1 6 .1 2 .2 0 0 9 . Th ro u g h h is a g en t a n d Rs. 3 7 ,5 0 ,0 0 0 / - ( Rs. Th i rty S even La c Fi ft y Th o u s a n d o n ly ) o n d a ted 2 8 .0 3 .2 0 1 0 . (S u n d a y ) wh i ch wa s a lr ea d y fix ed o n th e a g r eemen t w ri tt en o n d a t ed 1 6 .1 2 .2 0 0 9 . Be t ween m y cl ien t a n d Dilb a g S in g h S /o K eh a r S in g h re s id en t o f 6 5 , We ste rn Ne w O ff ic e Co lo n y, Pa tia la Teh s il & Di st t. Pa tia la (S e lf ) a n d S h . S u kh win d erp a l S in g h S /o S h . Ni r ma l S in g h re sid en t o f Vil l. Bi ja Teh si l Kh a n n a , Dis tt . Lu d h ia n a a t to rn ey o f S mt. Na ch h te r Ka u r w id o w o f S h . Ku wa n t S in g h , S h . S h in g a ra S in g h S /o Ku l wa n t S in g h a n d S h . Te j win d er S in g h S /o S h . Ku l wa n t S in g h re si d en t o f Vil la g e Bu l lep u r Teh si l Kh a n n a Di s tt. Lu d h ia n a . ( Co p y o f A/c o f S el le r s in th e b o o ks o f f i rm a re a t ta ch ed h e re wi th ).

My c li en t a p p ro a ch th e se lle r s to ext en d th e d a te reg i s tra tio n o f t it l e d eed b eca u s e o n d ete r min ed d a te th e re wa s a S u n d a y b u t b o th th e se ll er in si s t m y cli en t to ma ke th e b a l a n ce p a ym en t o n d et er min ed d a ted i. e. 2 8 .0 3 .2 0 1 0 . Oth e r- w is e th ey wi ll n o t reg is te red th e ti tle d e ed s in fa vo r s o f my c lie n t a n d fo r fe it th e ea rn es t m o n ey. Ke ep in g in v ie w th e b u sin es s exp e d ien cy , u n a vo id a b l e c ir cu m s ta n ces a n d p a y men t b y d ra f t we re n o t p ra c ti ca b le o n 2 8 .0 3 .2 0 1 0 my a ss es se e fo r ced to ma ke th e p a y men t in ca sh o n d e te rm en t d a te i.e. 2 8 .0 3 .2 0 1 0 , wh i ch wa s a S u n d a y (Ba n k h o lid a y ) . ( Af fid a v it s f ro m sel le r s a re a tta ch ed h e re w ith ) .

S in ce th e p a y men t ma d e b y m y c lien t co me s u n d er th e e xcep tio n s g iven in cla u se j a n d k o f ru le 6 DD o f I n co me Ta x Act , 1 9 6 1 h en ce th e re i s n o v io la t io n o f s ec tio n 4 0 A ( 3 ). "

The Assessing Officer noted that rule 6DD(j) reads as under:-

"6 D D (j ) : Wh er e th e p a ymen t wa s req u i red to b e ma d e o n a d a y o n wh i ch th e b a n k w er e c lo sed ei th e r th e a cco u n t o f h o l id a y o r st r ike. "

4. According to him, this Rule provides for urgent circumstances for

payment on a day when bank is closed. He further observed that assessee has

not shown any exceptional circumstances why it was necessary to make payment

on Sunday. He also noted that as per Agreement to Sell the date of Registration

was fixed on 28.3.2010 and the assessee was required to make payment before

the Registry but assessee had time of three months 12 days and assessee could

have made payment during that period. In this background the Assessing

Officer disallowed the cash payment and made addition of Rs. 39,62,500/-. 4

5. On appeal, the submissions made before Assessing Officer were

reiterated. The Ld. CIT(A) discussed the submissions in detail and ultimatel y

confirmed the addition.

6. Before us Ld. Counsel for the assessee reiterated the submissions and

referred to the Agreement to Sell and pointed out that date of execution of the

Sale Deed was fixed on 28.3.2010 and assessee was required to make payment

before this date. Later on, it was realized that 28.2.2010 was Sunday and in

order to honour the Agreement so that assessee is able to execute the sale deed,

the payment was made on 28.3.2010 which was admittedl y Sunday. He further

submitted that same is covered by the exception in Rule 6DD(j). He also

referred to page 8 of the paper book which shows that cash was arranged

between 24.3.2010 to 28.3.2010 and payment has been made on 28.3.2010 and

therefore, the same is covered by the exception.

7. On the other hand Ld. DR strongl y supported the order of C IT(A) and

submitted that assessee had plent y of time before 28.3.2010 to make payment.

The exception provided under Rule 6DD(j) applied to the exceptional

circumstances and not in a case where assessee had waited till Sunday.

8. We have considered the rival submissions carefull y and find force in the

submissions of Ld. Counsel for the assessee. It is not doubted that in the

Agreement to Sell it was agreed that sale deed would be executed i.e. Registered

on or before 28.3.2010 and assessee was required to make full payment before

that date. Later on, it was found that 28.3.2010 tell on Sunday, naturall y nobody

would like to leave the land deal, therefore, assessee paid cash on that date. We

are not impressed by the contention that assessee should have made the payment

before that date. When a particular agreement provides for a payment on or

before a particular date, it is not necessary that just to meet the technical 5

requirement of Income-tax provisions, payment should be made earlier.

Payment has been made on 28.3.2010 which falls on Sunday and is squarel y

covered by the exception provided under Rule 6DD(j) which has been extracted

by the Assessing Officer above. Further, the sale deed was also executed on

30.3.2010. Therefore, in our opinion, the cash payment would covered by the

exception under Rule 6DD(j) and accordingl y we set aside the order of Ld.

CIT(A) and delete this addition.

9. Ground Nos. 3 & 4: During assessment proceedings it was noticed that

assessee has given certain advances out of which a sum of Rs. 88,50,000/- was

paid to M/s P.P. Constructions which was a sister concern. No interest was

charged on this loan. In response to the query why proportionate interest should

not be disallowed, it was submitted as under:-

" A s r eg a rd s n o in te re st ch a rg ed o n a d va n ce g iven to s is te r co n ce rn I /s . PPR Co n st ru c tio n s in th i s re sp ec t, I wa n t to s ta t e th a t a mo u n t a d va n ce to s i ste r co n c e rn o u t o f u n s ecu red lo a n s/ ma in ten a n c e d ep o s it a n d fro m p a r tn e r' s ca p ita l . No in te r es t p a i d o n u n secu red lo a n s. Du r in g th e F. Y. 2 0 0 9 - 1 0 my c li en t d eb it ed p ro fit & lo s s a cco u n t wi th Rs. 4 ,7 9 ,2 0 3 /- o n a cco u n t o f in t er es t p a id to p a rtn er s ca p i ta l a cco u n t ."

10. The Assessing Officer referred to the provisions of section 36(i) (iii) and

calculated the proportionate disallowance at Rs. 9,58,256/-. However, he noted

that since claim for interest is onl y Rs. 4,79,230/-, the disallowance was

restricted to this amount.

11. On appeal, disallowance was confirmed by Ld. C IT(A) in view of the

decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs

Abhishek Industries 286 ITR 1

12. Both the parties were heard.

13. After considering the rival submissions we find that it is an admitted fact

that assessee has diverted interest bearing funds to the sister concern, therefore, 6

principles laid down by Hon'ble Punjab & Haryana High Court in the case of

CIT vs Abhishek Industries (supra) would get attracted and proportionate

interest had to be disallowed. The Assessing Officer had calculated the

disallowance @ 12% as under:-

C RE DI T DEB I T DR B ala nc e Da ys I n ter e s t or CR Dat e A mo u nt Dat e A mo u nt 0 1 .0 4 .2 0 0 9 Dr 2 0 0 0 0 0 0 .0 0 14 9 2 0 5 .0 0 1 5 .0 4 .2 0 0 9 5 0 0 0 0 0 .0 0 Dr 2 5 0 0 0 0 0 .0 0 9 7 3 9 7 .0 0 2 4 .0 4 .2 0 0 9 1 0 0 0 0 0 0 .0 0 Dr 3 5 0 0 0 0 0 .0 0 34 3 9 1 2 3 .0 0 2 8 .0 5 .2 0 0 9 1 5 0 0 0 0 0 .0 0 Dr 5 0 0 0 0 0 0 .0 0 22 3 6 1 6 4 .0 0 1 9 .0 6 .2 0 0 9 8 0 0 0 0 0 .0 0 Dr 5 8 0 0 0 0 0 .0 0 6 1 1 4 4 1 .0 0 2 5 .0 6 .2 0 0 9 2 0 0 0 0 0 .0 0 Dr 6 0 0 0 0 0 0 .0 0 18 3 5 5 0 7 .0 0 1 3 .0 7 .2 0 0 9 1 0 0 0 0 0 0 .0 0 Dr 7 0 0 0 0 0 0 .0 0 20 4 6 0 2 7 .0 0 0 2 .0 8 .2 0 0 9 1 0 0 0 0 0 0 .0 0 Dr 8 0 0 0 0 0 0 .0 0 33 8 6 7 9 5 .0 0 0 4 .0 9 .2 0 0 9 1 2 0 0 0 0 0 .0 0 Dr 9 2 0 0 0 0 0 .0 0 55 1 6 6 3 5 6 .0 0 2 9 .1 0 .2 0 0 9 6 0 0 0 0 0 .0 0 Dr 9 8 0 0 0 0 0 .0 0 5 1 6 1 1 0 .0 0 0 3 .1 1 .2 0 0 9 2 0 0 0 0 0 .0 0 Dr 1 0 0 0 0 0 0 0 .0 0 63 2 0 7 1 2 3 .0 0 0 5 .0 1 .2 0 1 0 1 0 0 0 0 0 0 .0 0 Dr 1 1 0 0 0 0 0 0 .0 0 2 7 2 3 3 .0 0 0 7 .0 1 .2 0 1 0 2 5 0 0 0 0 .0 0 Dr 1 1 2 5 0 0 0 0 .0 0 54 1 9 9 7 2 6 .0 0 0 2 .0 3 .2 0 1 0 1 0 0 0 0 0 0 .0 0 Dr 1 0 2 5 0 0 0 0 .0 0 2 6 7 4 0 .0 0 0 4 .0 3 .2 0 1 0 1 0 0 0 0 0 0 .0 0 Dr 9 2 5 0 0 0 0 .0 0 14 4 2 5 7 5 .0 0 1 8 .0 3 .2 0 1 0 4 0 0 0 0 0 .0 0 Dr 8 8 5 0 0 0 0 .0 0 14 4 0 7 3 4 .0 0 -2 4 0 0 0 0 0 .0 0 9 2 5 0 0 0 0 .0 0 9 5 8 2 5 6 .0 0

14. The Assessing Officer has fairl y restricted the disallowance at Rs.

4,79,230/- which was amount of interest claimed by the assessee. The

proportionate disallowance is totall y in consonance with the decision of Hon'ble

Punjab & Haryana High Court in the case of C IT vs Abhishek Industries (supra),

therefore, we find nothing wrong with the order of the Ld. CIT(A) and confirm

the same.

15. In the result, appeal is partl y allowed.

Order pronounced in the Open Court on 12.01.2015

Sd/- Sd/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 12 t h January, 2015 rkk

Copy to: The Appellant, The Respondent, The C IT, The CIT(A), The DR 7