· The assessee was engaged in the business of development of sites and flats. He claimed to have purchased land as an agriculturist for investment purpose. However, same was converted to stock-in-trade in his business during the year under consideration.
· The AO disallowed the cash payments made by the assessee invoking section 40A(3), on the ground that impugned land was not agricultural land and no agricultural operations were carried on, as the said land had been immediately converted into flats (as stock-in-trade) and sold to customers.
· The CIT(A) further upheld the disallowance made by the AO observing that the land was purchased for the purpose of business and not as investment.
· The Tribunal observed that the provisions of section 40A(3) are applicable where the assessee had made cash payments in excess of prescribed limits in the course of his business. The said provision does not apply when the payments are made for acquiring any capital asset or investment.
· The Tribunal took note of the fact that the AO as well as the CIT(A) never disputed the fact that the assessee had purchased the land as investment and subsequently got it converted into stock-in-trade.
· The Tribunal further observed that if there exists business expediency and the assessee proves that the payments are genuine, then the Act provides for immunity from the disallowance. Thus, the Tribunal concluded that the AO had erred in disallowing the cash payment by invoking the provisions of section 40A(3), and therefore, directed the AO to delete the addition made.
For further reading, refer the attachment.
Further Reading