IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : SMC : NEW DELHI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
ITA No.508/Del/2014
Assessment Year : 2006-07
Madhusudan Buildcon Pvt. Ltd., Vs. ACIT,
F-6/5, Vasant Vihar, Central Circle-17,
New Delhi. Jhandewalan,
New Delhi.
PAN: AAECM1048H
(Appellant) (Respondent)
Assessee By : Shri B.K. Dhingra, Director
Department By : Shri Amrit Lal, JCIT
Date of Hearing : 15.06.2015
Date of Pronouncement : 15.06.2015
ORDER
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
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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:-
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"(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
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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'
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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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