Cash Payments made to Agents to procure lands from Land Owners will be Covered by Exclusion Provided under Rule 6DD(k) of IT Rules r.w.s 40A(3) of Act Income Tax Act: ITAT upholds Deletion of Disallowance

The Income Tax Appellate Tribunal (ITAT) Chennai bench held that the cash payments made to agents to procure land from the land owners would be covered by the exclusion provided under Rule 6DD(k) of the Income Tax Rules read with Section 40A(3) of the Income Tax Act, 1961.

Therefore, the bench upheld the deletion of disallowance made by the Commissioner of Income Tax (Appeals).

Assessee, Om Shakthy Agencies (Madras) Pvt.Ltd.is engaged in business of real estate  income arising therefrom constitutes business income for the assessee. During the assessment proceedings AO disallowance made u/s.40A(3) amounting to Rs.2,62,40,000/- in respect of cash payment made to land owners for purchase of lands. Then passed an assessment order. 

Aggrieved by the order, the assessee filed an objection   before the Commissioner of Income Tax (Appeals) (CIT(A)) who deleted the disallowance made under Section 40A(3) of the Income Tax Act and observed  that assessee has no direct dealings with the land owners. The payments were made to land owners through these agents and payments also received by the assessee as a principal. Therefore the CIT((A) deletes the disallowance made under Section 40A(3) of Income Tax Act.

Aggrieved by the order, revenue filed an appeal before the tribunal.

Before the bench, R. Clement Ramesh Kumar, counsel for the assessee submitted that the   assessee has no direct dealings with the land owners, The payments were made to land owners through these agents and payments also received by the assessee as a principal.

Further, transactions were done by the agents who were entrusted with the responsibility of closing such transactions.

Therefore cash payments made to agents to procure land from the land owners would be covered by the exclusion provided under Rule 6DD(k) of the Income Tax Rules read with section 40A(3) of the Income Tax Act.

K.R. Vasudevan, Counsel for the revenue,  supported the decision of the Assessing officer.

The tribunal observed that the assessee is engaged in procuring large parcels of land on behalf of corporate customers. The assessee is required to purchase the entire area of land as owned by many persons.

To facilitate the same, the assessee has appointed intermediaries / agents who negotiate and act on behalf of the assessee. Thus the agents act on behalf of the assessee to procure goods and services for the assessee and therefore, the transaction would be covered by Clause 6DD(K) of IT Rules.

After considering  the facts submitted by both parties, the two member bench of Manoj Kumar Aggarwal (Accountant Member) and V. Durga Rao, (Judicial Member) held that cash payments made to agents to procure land from the land owners would be covered by the exclusion provided under Rule 6DD(k) of the Income Tax Rules read with Section 40A(3) of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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