Shri Ganesh Builders Ltd. v. DCIT

Case snapshot

Sections / provisions: 40A(3); 50C

Questions before the Court / Tribunal

• Cash land purchase and section 50C tolerance: The reported judgment contains two issues: whether section 40A(3) can apply when land cost was not claimed as an expenditure, and application of the section 50C tolerance band. They belong to one canonical judgment page.

Material facts and background

matrix which is reproduced as below: “The assessee is Public Limited Company, having income from business. The assessee has filed its return of income on 27.11.2013

Subsequently the return of income of assessee was selected for scrutiny assessment and accordingly an order u/s 143(3) of the Income Tax Act, 1961 was passed in which in an amount of Rs. 21,55,000/- on account of cash payment above 20,000/- towards

disallowance shall be made in respect of payments made otherwise than by cash for purchase of land. However during the course of assessment proceeding the learned assessing officer has alleged that the assessee is a company and the sole business of the assessee is of a Builder, Developer Real Estate and Construction activities. It is seen from the accounts that in respect of the land purchased by the assessee, initially; the same is accounted for and reflected in the balance sheet as fixed asset/ advances for purchase of land. Whenever the construction activity is started on the land, the same is transferred from the fixed assets/advances and shown as purchase in the P&L account during the year of commencement of the project. It is to be worthwhile mentioned here your honour that the assessee company has purchase agriculture land from farmers who are mainly resident of village and at time they need some cash and looking to the business expediency and other relevant factors the assessee company has no option but to make the payment in cash as per their request, otherwise, there is all possibility the assesse company may lose the land transaction. The assessee company has tried to...

Appellant / assessee submissions

In the course of hearing before us, the ld. AR vehemently

Moreover, the ld. AR has also submitted that even though the

calculating the profit, hence that entire disallowance of `. 21,58,000/– is directed to be deleted. As regards Ground no. 4 in treating the income from agriculture under the head “Income from Other Sources”. The ld. AR in all fairness submitted that it is a revenue natural exercise for a company because both the income are taxable at the maximum marginal rate, hence, he pleaded that he is not very serious in pressing

has been made by not referring to the matter to the District Valuation Officer (DVO), the ld. AR in all fairness duly submitted that he has no objection if the matter is so now referred.

Revenue / respondent submissions

Per contra, the ld. Sr. DR relied upon the orders of lower

Per contra, the ld. Sr. DR duly submitted that he has no

Court / Tribunal analysis and reasoning

Particularly in last four judicial pronouncements cited above, Hon'ble High Courts have confirmed the disallowances where the payments were made in cash exceeding the threshold limit notwithstanding the genuineness of the transaction. i) The appellant has cited the decision of Hon'ble ITAT in Vikrant Happy Homes Pvt. Ltd. vs DCIT, ITA No. 2856/PUN/2016 in support of its appeal. I have carefully perused the decision and in my humble opinion, the Hon'ble ITAT was not pleaded to consider Hon'ble Supreme Court's judgment in the case of Attar Singh Gurmukh Singh vs. ITO (1991) 59 taxman 11 (SC), State of Tamil Nadu vs. Kandaswamy AIR 1975 SC 1871 (para 26) and in the case of Hotel Balaji vs. State of AP AIR 1993 SC 1048 where the Hon'ble Apex Court had visited the section in its entirety. Similarly, pronouncements of Hon'ble different High Courts mentioned from i) to v) above have also not been cited before the Hon'ble ITAT in the case of Vikrant Happy Homes. 5.4.4. Considering the above facts and circumstances of the case as well as following ratio of Hon'ble Supreme Court in the several decisions cited above, I am of the opinion that there is no infirmity in disallowance of...

agricultural activity and sale bills of agricultural income required during the assessment proceedings. 5.5.3. The facts and circumstances of the case suggest that the most of the crops purportedly grown and sold by the appellant are cash crops. The land is apparently located in vicinity of Nagpur city/district. The appellant also appears to be a corporate entity and not a wretched illiterate farmer. The AO was right in seeking verification of claim of agricultural income in scrutiny proceedings. Faced with admission inability on the part of the appellant to demonstrate any evidence to satisfy the AO about the genuineness of its claim of agricultural income, disallowance to the extent of 50% of agricultural income's claim seem to be justified. During the appellate proceedings also, besides the arguments cited in para 5.5.1, no material evidence has sought to be admitted. I therefore, dismissed the ground No. 3 of the appeal.”

genuineness of the payment and further the same has not been claimed as expenditure. We find that Nagpur Tribunal in the case of Raghav Agritech v/s Income–tax Officer [2025] 215 ITD 647/10 taxmann.com 93 (Nagpur–Trib.) has held as follows: “8. We have given a thoughtful consideration to the arguments made by the rival parties and perused the material available on record. It is important to extract below the provisions of section 40(a)(ia) of the Act. 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession"(a) in the case of any assessee-…… (ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139:' 9. It is a trite law that only expenditure which are otherwise allowable under sections 30 to 38 of the Act can be disallowed for non-deduction of tax at sources when it is undisputedly a capital expenditure and not claimed as a deduction...

Operative decision and relief

In the result, the appeal of assessee is partly allowed for

Authorities and precedents appearing in the judgment

• Madhav Govind Dulshete v. ITO
• Vaduganathan Talkies v. ITO
• Nam Estates (P.) Ltd. v. ITO
• Bagmari Tea Co. Ltd. v. CIT
• Happy Homes Pvt. Ltd. vs DCIT
• Gurmukh Singh vs. ITO (1991) 59 taxman 11 (SC)
• Tamil Nadu vs. Kandaswamy AIR 1975 SC 1871 (para 26) and in
• Hotel Balaji vs. State of AP AIR 1993 SC 1048 where
• Ltd. vs. Deputy Commissioner of Income-tax
• Mudaliar v. DCIT

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Cash land purchase and section 50C tolerance. The operative result is classified as Partly Allowed. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Cash land purchase and section 50C tolerance. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Maintain a date-and-payment matrix for transfer, agreement, possession, investment and construction; capital-gains exemptions commonly turn on this chronology.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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