The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that the assessee cannot claim a deduction for the cash purchase of land when the amount exceeds the permissible limit of Rs. 10000/- under Section 40A(3) of the Income Tax Act, 1961.
The assessee is an individual, who filed its original return of income declaring total income at Rs.64,060/- and also agricultural income of Rs.1,05,940/-. A search under Section 132 of the Income Tax Act was carried out in the premises of the assessee, during which, incriminating documents relating to land dealings and other issues were found and seized.
The contention made by the assessee is that the recording of reasons made by the Deputy Commissioner of Income Tax (DCIT), shows that he himself was not satisfied by conducting any enquiry as to whether what was stated by the search party was correct or not. Neither had any reason to believe that any income escaped assessment in order to reopen the assessment under Section 147 of the Income Tax Act nor issued any notice under Section 148 of the Income Tax Act.
The Departmental Representative submitted that transactions made in cash was not intended to be disclosed by the appellant as none of the cash purchases or sales was accounted for by the appellant in the books of accounts till the date of search.
The submission in regard to the receipt of the source of cash paid for the purchase of lands and other expenses was also made before the First Appellate Authority.
The Authorized Representative stated that the appellant received a cash amount from Urjanagar Society which was used by the appellant for the purchase of lands. The Authorized Representative submitted a cash book prepared by him after the date of the search.
The appellant showed cash purchases exceeding Rs.20,000/- for a total amount of Rs.8,61,96,310/-, the Commissioner of Income Tax (Appeal) CIT(A) found the applicability of Section 40A(3) of the Income Tax Act made by the Assessing Officer reasonable in respect of the purchase of land from the farmers and the appellant found to be not eligible for explanation under Rule 6DD of the Income Tax Rules, 1962, keeping in view that the property was registered in Gandhinagar where backing facility though available but not availed.
The Two-member bench comprising of Annapurna Gupta (Accountant member) and Madhumita Roy (Judicial member) held that considering the provisions of law particularly Section 40A(3) of the Income Tax Act and the explanation under Rule 6DD of the Income Tax Rules, 1962, 20% of the entire amount of Rs.8,61,96,310/- i.e. Rs.1,72,39,262/- was disallowed under Section 40A(3) of the Income Tax Act.
As a result, the appeal preferred by the assessee was dismissed.
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