IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHANDIGARH HYBRID HEARING BEFORE HON’BLE SHRI RAJPAL YADAV, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No. 843/CHANDI/2019 (िनधा(cid:330)रण वष(cid:330) / Assessment Year: 2015-16 ITO Ward Rajpura M/s Rajpura Properties बनाम/

6-A, Guru Nanak Colony 1, Old Mirch Mandi Vs.

Rajpura 140401 Mohinder Ganj, Rajpura-140401 (cid:830)थायीलेखासं./जीआइआरसं./PAN/GIR No. AARFR-3900-K (अपीलाथ५/Appellant) : (ঋ(cid:529)थ५ / Respondent)

अपीलाथ५कीओरसे/ Appellant by : Smt. Kusum Bansal (CIT)(Virtual) – Ld. DR ঋ(cid:529)थ५कीओरसे/Respondent by : Shri Parikshit Aggarwal (CA) - Ld. AR सुनवाईकीतारीख/Date of Hearing : 08-09-2025 घोषणाकीतारीख /Date of Pronouncement : 17-09-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)

1. Aforesaid appeal by revenue for Assessment Year (AY) 2015-16 arises out of an order of learned Commissioner of Income Tax (Appeals), Patiala [CIT(A)] dated 12-03-2019 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 29-12-2017. The sole grievance of the revenue is deletion of addition of Rs.318.40 Lacs as made by Ld. AO invoking the provisions of Sec.40A(3) which denies deduction of expenditure to the assessee in case of cash payments exceeding the prescribed limits. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.

Assessment Proceedings

2.1 The assessee is stated to be engaged in sale and purchase of properties. During assessment proceedings, it transpired that the assessee purchased 6202 Sq. Yards of Land in Industrial Area, ITI, Rajpura on 22-07-2014. As per registered sale deed, the assessee made payment of Rs.50 Lacs through RTGS on 14-02-2011 whereas balance payment of Rs.318.40 Lacs was made in cash on the date of registration i.e., on 22-07-2014. The assessee was not holding any bank account during the year. Since the land was purchased as stock- in-trade, Ld. AO invoked the provisions of Sec.40A(3) for cash payment in the deal and show-caused the assessee.

2.2 The assessee explained the circumstances in which the said payment was made. It was stated that there was dispute between the parties. Initially, advance of Rs.50 Lacs was paid on 14-02-2011 through RTGS from account of one of the partners but due to dispute, the sale transaction was completed only on 22-07-2014 i.e., after a gap of more than 3 years. After a long peacemaking talks, the sellers agreed to execute the deed against cash payment. As neither party was ready to trust the other party, the payment was to be made in cash only at the time of registration of documents. As there was fear of losing Rs.50 Lacs paid as advance, there was no way for the assessee other than agreeing to the demand of the seller. Hence, the payment was made due to business expediency. The assessee also stated that originally the land was purchased for investment purposes, but later on, as the market went down drastically by the end of calendar year 2014, it was thought prudent to convert the said land into stock-in-trade, Therefore, the provisions of Sec.40A(3) were not attracted under these circumstances. Reliance was placed on second proviso to Sec. 40A(3), which, inter-alia, provided that no disallowance would made on account of consideration of business expediency and other relevant factors. Reference was also made to various judicial decisions to oppose the proposed disallowance. The assessee also stated that the payment was made after deduction of Tax at source, the transaction was genuine, the payment was confirmed by the seller and the identity of the receiver was also clear. Reference was further made to CBDT Circular No.6P dated 06-07-1968 which reiterated that these provisions were designed to counter evasion of tax through claims of expenditure shown to have been incurred in cash with a view to frustrate proper investigation by the department as to the identity of the payee and reasonableness