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By Devendra Jain, Chartered Accountant

1. Sec. 40A(3): Cash Payment. No disallowance can be made for cash payments if the transaction is genuine and the identity of the payee is known

During the year under consideration, the assessee firm had purchased 26 pieces of plot of land from various persons for a total consideration of ₹ 2,46,28,425/-, out of which payment amounting to ₹ 1,71,67,000/- was made in cash to various persons, ₹ 8,15,700/- and ₹ 6,84,296/- was paid in cash towards stamp duty and court fee respectively. The identity of the sellers and genuineness of the transactions was fully established by the assessee in the instant case. The AO held that the assessee had made cash payments regularly and the cash payments were not made due to some unavoidable circumstances. The assessee contended that in order to secure the deal, assessee had no other option but to make the payment in cash from explained sources. The Tribunal held that the assessee has business expediency under which it had to make payment in cash and in absence of which, the transactions could not be completed. The Hon’ble ITAT relied on various decisions of the Hon’ble Supreme Court wherein it upheld the Constitutional validity of Section 40A(3) of the Act and has held that the provisions are not intended to restrict the business activities and restraint so provided are only intended to curb the chances and opportunities to use or create black money and the same should not be regarded as curtailing the freedom of trade or business. Further, the present case is not the case of unaccounted or undisclosed income of the assessee that has been utilised in making the cash payments. The genuineness of the transaction has been established as evidenced by the registered sale deeds and lastly, the test of business expediency has been met in the instant case. Thus, the intent and the purpose for which Section 40A(3) has been brought on the statute books has been clearly satisfied in the instant case. Allowing the appeal of the assessee the Tribunal held that, no disallowance can be made for cash payments if the transaction is genuine and the identity of the payee is known. Rule 6DD is not exhaustive. The fact that the transaction does not fall within Rule 6DD does not mean that a disallowance has to be made.

M/s. A. Daga Royal Arts vs. ITO [ITA No. 1065/JP/2016 (Jaipur Trib.)] dated 15-5-2018

M/s. A. Daga Royal Arts

2. Appeals – E-filing. Manual filing of appeal which was mandatorily required to be e-filed shall not call for dismissal of the appeal in limini

Aggrieved by a certain order of AO, the assessee preferred an appeal manually before the CIT(A). The CIT(A) noticed that rule 45 of I.T. Rules 1962 mandated compulsory e-filing of appeals before CIT(A) with effect from 1st March 2016, therefore CIT(A) dismissed the appeal in limini, holding that mandatory requirement of e-filing of appeal has not been fulfilled by the assessee. On further appeal, the Hon’ble ITAT relied on the case of ‘State of Punjab vs. Shyamalal Murari and others reported in AIR 1976 (SC) 1177’ where Hon’ble Supreme Court has categorically held that courts should not go strictly by the rulebook to deny justice to the deserving litigant as it would lead to miscarriage of justice and that that all the rules of procedure are handmaid of Justice. Further, Hon’ble Supreme Court in ‘Rani Kusum vs. Kanchan Devi AIR 2005 (SC) 3304’ reiterated that, a procedural law should not ordinarily be construed as mandatory, as it is always subservient to and is in aid of Justice. Any interpretation, which eludes or frustrates the recipient of Justice, is not to be followed. In conclusion, ITAT was of the considered view that for cause of justice, the orders of CIT(A) needed to be set aside & allowed the appeal. While seeking the compliance, Hon’ble ITAT directed the assessee to file the appeal electronically within 10 days from the date of receipt of this order and mandated that the delay in e-filing the appeal shall stand condoned.

All India Federation of Tax Practitioners vs. ITO [ITA No.: 7134/Mum/2017 (Mum.) (Trib.)] dated 4-5-2018

All India Federation of Tax Practitioners

3. Miscellaneous Application. Delay in pronouncement of orders is a valid ground to recall order u/s. 254(2) of Income-tax Act, 1961

In this case miscellaneous applications was filed by assessee, wherein the assessee has sought recalling of ITAT order, as it was passed beyond period of 90 days from the date of hearing. It was prayed that ITAT order needed to be recalled for conducting fresh hearings, in view of Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963 r.w.s 254(2) of the Income-tax Act, 1961.

The department objected to the recalling of the order and prayed for dismissal of miscellaneous application on the grounds that power of tribunal is very limited so far as Section 254(2) is concerned and there is no mistake apparent from record.

Appellant’s counsel relied upon the decision of G. Shoe Exports vs. ACIT reported in [2018] 89 taxmann.com 308 (Mumbai Tribunal) wherein the ITAT followed the binding decision of Hon’ble Bombay High Court in case of Shivsagar Veg. Restaurant vs. Asstt. CIT [2009] 317 ITR 433. In the said decision it was held that orders pronounced beyond the limitation period specified in Rule 34(5) of ITAT Rules (i.e. 90 days) were bad in law and accordingly order was set aside. It relied upon the observation of Bombay High Court that ‘It has been held time and again that justice should not only be done but should appear to have been done and that justice delayed is justice denied. Justice withheld is even worse than that’.

Further in case of R. C. Sharma vs. Union of India [1976] 3 SCC 754, the Apex Court observed that, in case of excessive delay in pronouncement of order, it is quite possible that some points which the litigant considers important may have escaped notice. The confidence of the litigants tends to be shaken in case of excessive delays.

Therefore Hon’ble ITAT in this case, followed the decisions of Hon’ble Bombay High Court & the Supreme Court and recalled the order passed beyond the period of 90 days.

Crompton Greaves Limited vs. CIT-6 [MA No. 151/Mum/2016] dated 11-5-2018

Crompton Greaves Limited

4. Sec 2(47) - Capital Gains – Family Arrangement – No Capital Gains

The factual matrix of the case is that during the year under consideration the assessee had gifted her 50% right and interest in a family property in favour of her brother in-law by way of gift deed. During the same financial year the assessee also received a cash gift of ₹ 68,50,000/- from her brother-in-law (the person who received gift from the assessee).

Based on these facts, the Assessing Officer came to the conclusion that the said gifts between the assessee and her brother-in-law are not in nature of gifts between family members, but transfer within the meaning of Section 2(47) of the Income-tax Act, 1961 as the assessee has received a consideration of Rs.68,50,000/- for relinquishing her right in the property.

It was the contention of the assessee that she had gifted her share in the property for family settlement as per which the family had decided to buy a separate property for each member by internal arrangements, therefore, she had relinquished her 50% right in the family property in favour of her brother-in-law. Though she had received cash gift of ₹ 68,50,000/- in pursuance of relinquishing her right in property, the said transaction was purely a family arrangement between the family members for better peace and harmony. Therefore, the Assessing Officer was incorrect in treating the said transactions within the meaning of transfer as defined under Section 2(47) of the Income-tax Act, 1961.

Hon’ble ITAT held that, the said transactions cannot be considered as transfer within the definition of Section 2(47) of the Income-tax Act, 1961. Although the assessee had received cash gift of ₹ 68,50,000/- from the person who received gift from the assessee, such an arrangement is as per the family settlement between the members and hence outside the purview of ‘Capital Gains’.

Mrs. Jyoti Rakesh Kapoor vs. ITO 17(2)(1) [ITA No.583/M/2018] 16-5-2018

Mrs. Jyoti Rakesh Kapoor

5. Sec. 22– Calculation of Annual Letting Value where property is used by company substantially owned by assessee – Disallowance u/s. 14A r.w. Rule 8D(2)(iii)

In this case, appellant, an individual owned 9 house properties, out of these, 7 properties were used by a Private Limited Company for carrying on business. Appellant himself was majority shareholder as well as director of this company. No rental income was charged from company. Appellant contended that as business is carried on in these premises and no rent is charged, accordingly no income shall be deemed to be earned from these properties. Hon’ble ITAT affirmed the view of Assessing Officer and CIT(A) that, as appellant himself was not carrying any business and business was of a Private Limited company which itself is a separate legal entity, the same cannot be claimed by appellant as used for his own business. However, Assessing Officer had calculated Annual Letting Value (ALV) applying 8% of the value of these properties as per balance sheet. Hon’ble ITAT following the decision of Deepak Sanghvi vs. ITO in ITA No.6215/M/2013 held that ALV of the property should be determined as per municipal valuation where there is no rent receipt.

Appellant also had earned exempt income from long term capital gains on sale of shares, profit from partnership concern, interest on PPF and dividend aggregating to ₹ 72,72,849/-. Assessing Officer applied Section 14A read with Rule 8D(2)(iii) and disallowed a sum of ₹ 1,58,123/-. On perusal of total income and other relevant records, Hon’ble ITAT affirmed the contention of assessee that in absence of any actual expenditure on earning the exempt income, the provisions of rule 8D(2)(iii) are not applicable. In the case of Justice Sam P. Bharucha vs. ACIT (2012) 25 taxmann.com 381 (Mum.), it had been held that the apportionment of expenditure is only applicable where the assessee had incurred composite/indivisible expenses in respect of taxable and non taxable income and where it is not possible to determine the actual expenditure in relation to the exempt income or when no expenditure had been incurred in relation to exempt income, then principle of apportionment embedded in Section 14A had no application.

Mr. Mahendra Vichare vs. DCIT-13(3)(2) [ITA No.5419/M/2016] 17-5-2018

Mr. Mahendra Vichare

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

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