Madhusudan Buildcon Pvt. Ltd., New ... vs Assessee

This appeal by the assessee arises out of the order passed by the

CIT (A) on 30.12.2013 in relation to the assessment year 2006-07. ITA No.508/Del/2014

2. The only issue argued by the ld. AR is against the sustenance of

addition of Rs.20,000/- made by the Assessing Officer u/s 40A(3) of the

Income-tax Act, 1961 (hereinafter also called `the Act').

3. Briefly stated, the facts of the case are that the assessee is engaged

in real estate business. During the course of the year in question, it

entered into a joint venture with M/s Newera Sanitarware Pvt. Ltd. and

M/s Yah Softech Pvt. Ltd., for purchasing a plot of land admeasuring

121 kanals and 10 marlas, situated at Dehri Salam, Vaka Siwana Mouja

Dhankot, Tehsil and District Gurgaon. The assessee's share in the plot

is 25%. While entering into the Agreement for the purchase of property,

the three companies made an initial advance of Rs.35 lac. While making

such initial advance payment, a total cash payment of Rs.4 lac was also

made. The assessee's 25% share in such cash payment was at Rs.1 lac.

Such cash payment of Rs.1 lac was recorded by the assessee in its books

of account on 29.12.2005. It is a matter of record that some dispute

arose between the parties and the deal could not be finalized and the

same is still undecided. The AO invoked the provisions of section

2 ITA No.508/Del/2014

40A(3) and made an addition of Rs.20,000/-, being 20% of Rs.1 lac

paid by the assessee in cash. The ld. CIT(A) upheld the addition.

4. I have heard the rival submissions and perused the relevant

material available on record. A copy of the assessee's Trading, Profit &

loss account for the year in question is available on page 12 of the paper

book, from which it can be seen that there is no income and the

expenses claimed as deduction are only to the tune of Rs.4,135/-. The

assessee paid a total sum of Rs.40 lac as advance of land at Dhankot

which was shown in the Balance sheet under the head `Loans &

Advances'. A copy of such Balance sheet is available at page 11 of the

paper book. It is from this total advance of Rs.40 lac paid by the

assessee that a sum of Rs.1 lac was paid in cash and the AO has invoked

the provisions of section 40A(3) for making disallowance @ 20% of

such cash payment.

5. In order to appreciate the rival contentions on the applicability of

section 40A(3), it would be apposite to extract the relevant part of this

provision at the material time, as under:-

3 ITA No.508/Del/2014

"(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than 31st day of March, 1969), as may be specified in this behalf by the Central Government by notification in the Official Gazette in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, twenty per cent of such expenditure shall not be allowed as a deduction ........"

6. A careful perusal of this provision transpires that where the

'assessee incurs any expenditure in respect of which payment is made'

in a sum exceeding Rs.20,000/- otherwise than by account payee cheque

etc., then, twenty percent of the amount paid in cash is disallowable.

Thus, it becomes apparent that in order to invoke the provisions of

section 40A(3), it is sine qua non that the assessee must have incurred

expenditure in respect of which such payment is made in cash. Section

40A has the marginal note: 'Expenses or payments not deductible in

certain circumstances'. This section has been placed under Chapter

IVD of the Act. Sub-section (1) of section 40A provides that : "The

provisions of this section shall have effect notwithstanding anything to

the contrary contained in any other provision of this Act relating to the

computation of income under the head "Profits and gains of business or

profession". A cursory look at the above provisions divulges that in 4 ITA No.508/Del/2014

order to make any disallowance under section 40A(3), it is a pre-

condition that the assessee must have claimed deduction, directly or

indirectly, for which payment is made in cash exceeding the specified

limit. Per contra, if the assessee has not claimed any deduction, directly

or indirectly, even if the payment is made in cash, the provisions of the

computation of income under the head 'Profits and gains of business or

profession' shall not apply to that extent and section 40A(3) will become

non-operative.

7. I am confronted with a situation in which albeit the assessee made

payment of Rs.1 lac in cash towards advance for purchase of a piece of

land, but, no deduction was claimed for this sum. This amount has been

directly taken to the balance sheet and has been shown as advance under

the head 'Loans and advances.' Under such circumstances, when there is

no claim for deduction of Rs.1lac, the provisions of section 40A(3)

cannot be attracted for making any disallowance for a sum of

Rs.20,000/- as this payment is not towards any 'expenditure incurred'

5 ITA No.508/Del/2014

during the year and has not been claimed as deduction by the assessee.

I, therefore, order for the deletion of this addition.

8. No other ground was argued by the ld. AR. Such grounds,

therefore, stand dismissed as not pressed.

9. In the result, the appeal is partly allowed.

The order pronounced in the open court on 15.06.2015.

Sd/-

[R.S. SYAL] ACCOUNTANT MEMBER Dated, 15th June, 2015.

dk Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT (A)

5. DR, ITAT

AR, ITAT, NEW DELHI.

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