the assessee firm has purchased 26 pieces of plot of land in the month of April and May, 2012 from various persons for a total consideration of Rs. 2,46,28,425, out of which payment amounting to Rs. 1,71,67,000 were made in cash to various persons, payment amounting to Rs. 59,48,920 were made in cheque to various persons, and Rs. 8,15,700 and Rs. 6,84,296 were paid in cash towards stamp duty and Court fee respectively. the pieces of land were purchased as investment in the month of April, May, 2012 with an intention to hold these for longer period as investments. However, on the basis of the lucrative market and repetitive enquiries about the various plots of land in which it had invested, the assessee decided to convert the said plots of land into its stock-in-trade in the month of June, 2012. Payment for purchase of land has been made in cash because the sellers were new to the assessee and refused to accept the cash. It was submitted that the delay in making the cash payment, it could have lost the land deals. AO, on perusal of the details of the properties purchased, as per copies of the sale deed furnished during the course of assessment proceedings, noticed that the assessee had made cash payments regularly, no specific circumstances have been brought to his knowledge that the cash payments were made due to some unavoidable circumstances. AO accordingly made disallowance of Rs. 1,71,67,000 in respect of purchase of property in cash invoking the provisions of s. 40A(3) of the Act. The entirety of facts and circumstances of the case and respectfully following the legal proposition laid down by the various Courts and Co-ordinate Benches referred supra, we are of the view that the identity of the persons from whom the various plots of land have been purchased and source of cash payments as withdrawals from the assessee’s bank account has been established. 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. Further, as held by the Hon’ble Rajasthan High Court in case ofHarshila Chordia(supra), the consequences, which were to befall on account of non-observation of sub-s. (3) of s. 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration. The intent and the purpose for which s. 40A(3) has been brought on the statute books has been clearly satisfied in the instant case. Therefore, being a case of genuine business transaction, no disallowance is called for by invoking the provisions of s. 40A(3) of the Act.
In the result, the appeal of the assessee is allowed.