ORDER
R.C. Sharma, Accountant Member
This is an appeal filed by the revenue against the order of Commissioner (Appeals) dated 22-3-2002 for the assessment year 199293 in the matter of order passed under section 143(3).
2. Following four effective grounds have been taken by the revenue :
“1. The Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 39,550 made as a short-term capital gain and failed to appreciate the evidence marshalled by assessing officer.
2. The Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 2,98,000 under section 69 of Income Tax Act, 1961.
3. The Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs.2,95,000made under section 40A(3) of Income Tax Act, 1961 and failed to examine properly the arguments of the assessing officer.
4. The Commissioner (Appeals) has erred in law and on facts in admitting the additional evidence of the agreement dated 20-5-1984 which was never produced before the assessing officer and has contravening the provisions of rule 46A of the Income Tax Rules, 1962.”
3. Rival contentions have been heard and records perused. First grievance of revenue relates to deletion of addition of Rs. 39,550 made on account of short-term capital gain. The facts in brief are that the assessee sold a plot of land during the year under consideration and received payment of Rs. 77,000 in cash. The assessing officer found that assessee has purchased the plot at Rs. 37,500 and which was held by him for less than 36 months. It was contended before the assessing officer that assessee was not the legal owner, but only power of attorney holder, therefore, capital gains should not be charged in his hands. It was also submitted that plot was sold at Rs. 150 per sq. yard and not at Rs. 310 per sq. yard as alleged by the assessing officer as per the statement of husband and brother of the buyer of the plot. However, on the basis of statement recorded by the DDI, the assessing officer concluded that assessee had sold plot at Rs. 310, he, therefore, computed capital gain at Rs. 39,550.
4. By the impugned order, the Commissioner (Appeals) deleted the addition made on account of capital gain by observing that there was no transfer of plot in the name of the assessee within the meaning of section 2(47), insofar as full consideration of Rs. 37,500 was not paid by the assessee. The Commissioner (Appeals) further observed that out of total purchase consideration of Rs. 37,500, the assessee had only paid Rs. 37,000 and till the balance amount is being paid, he could not become the legal owner of the plot. On the basis of power of attorney held by the assessee, the Commissioner (Appeals) concluded that even if any capital gain is taxable, it should be taxed in the hands of the legal owner and not in the hands of the assessee, who was merely having power of attorney.
5. We have considered the rival contentions and found from the record that assessee has purchased the plot and an agreement of sale and power of attorney was registered in his name. We also found that possession was also given to the assessee and he has sold the plot at Rs. 310 per sq. yard. The DDI has recorded statement of husband of the buyer of the plot as well as his brother, according to which capital gain works out to Rs. 39,550. Without controverting the finding and statement recorded by the assessing officer and DDI, the Commissioner (Appeals) deleted the addition by observing that while recording the statement of husband and his brother of the assessee, no opportunity to cross examine was given to the assessee. While reaching to the conclusion that there was no transfer of plot within the meaning of section 2(47), since part of the payment was withheld by the assessee, the Commissioner (Appeals) relied on the decision of Late Nawab Sir Mir Osman Ali Khan v. CWT (1986) 162 ITR 888 (SC). However, the case law relied by the Commissioner (Appeals) is related to computation of net wealth as per section 2(m) of the Wealth Tax Act, wherein it was held that properties in respect of which registered sale deeds had not been executed, but consideration had been received, belonged to the assessee for the purpose of inclusion in his net wealth within the meaning of section 2(m). However, here we are concerned with definition of ‘transfer’ within the meaning of section 2(47). Clause (v) has been inserted in section 2(47) by Finance Act, 1987 with effect from 1-4-1988, according to which, any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Properties Act, 1882, is considered to be ‘transfer’ in relation of capital assets. In the instant case, sale agreement was registered in the name of the assessee, according to which, possession was also handed over. Therefore, in view of clause (v) of section 2(47), transfer is complete for the purpose of computation of capital gain even though a sum of Rs. 500 was remained to be paid by the assessee. However, the assessee has also disputed the computation of capital gain, on the plea that sale consideration taken by the assessing officer was based on the statement recorded by DDI from buyer’s husband and his brother, without giving opportunity to cross-examine. We also found that the assessee has also furnished instances of sale, according to which, the price prevailing in the area was at par with the rates at which the assessee had sold the plot. In the interest of justice and fair play, we are restoring this ground to the file of assessing officer with a limited purpose of’ computing capital gain, after giving due opportunity to the assessee to cross examine all the persons, who have alleged sale of plot at Rs. 3 10 per sq. yard instead of Rs. 150 per sq. yard taken by the assessee. Assessing officer is also directed to verify the rate taken by registering authorities for the purpose of levy of stamp duty, while registering the sale deed so executed and to decide the amount of capital gains accordingly. We direct accordingly.
6. Next grievance of revenue relate to deletion of addition of Rs. 2,98,000 made under section 69 of the Income Tax Act. Brief facts of the issue are that the assessee was a trader and dealing in cement sheet. The assessing officer found that assessee had made purchases from Om Traders to whom cash payments were made. The assessing officer found that as per statement, assessee’s purchase account reflected in the books of M/s. Om Traders, certain payments made by the assessee, did not find place in the assessee’s books of account. He, therefore, treated the same as unexplained payment, and added the same under section 69 of the Act.
7. By the impugned order, the Commissioner (Appeals) deleted the addition by observing that provisions of section 69 do not caste a burden upon the assessee, but on the assessing authority to establish that assessee had made investment in acquiring some assets which he failed to do. fie further observed that expression ‘investment’ as appears in the Income Tax Act, is used in the sense of an investment which is in the nature of capital investment and which is not an investment in securities or properties which is its stock-in-trade. He, therefore, held that assessment of Rs. 2,98,000 which was alleged to have been paid in discharge of liabilities towards price of stock purchases, cannot be assessed as unexplained investment under section 69 of the Income Tax Act.
8. We have considered the rival contentions and do not find any justification in Commissioner (Appeals)’s action for treating the unrecorded payment, as not falling under section 69. Whether any investment has been made in capital asset, or stock in trade, the assessee is required to record the investment in its books of account and explain the source of the same and if there is any failure on the part of the assessee to record such investment in the books of account maintained by him for any source of income, or the assessee offers no explanation about the nature and source of investment, the value of such investment may be deemed to be income of the assessee. However, in the instant case, the Commissioner (Appeals) has recorded a finding that the entire payment made to M/s. Om Traders were not unexplained, but the assessee has recorded some of the payments in his books of account on dates different from the dates on which payments was found recorded in the books of the Om Traders. He, therefore, observed that only the peak credit of Rs. 52,500 can be considered as unexplained. We also found that as per details of various payments made by the assessee as found recorded in the books of M/s. Om Traders vis-a-vis in assessee’s books of account, as reproduced by the Commissioner (Appeals) at page 9 of his appellate order, there was peak unexplained credit of Rs. 52,900 only. Nothing was brought on record by the department to controvert this finding of the Commissioner (Appeals). There is no dispute to the well-settled legal position that addition under deeming provisions of section 69 can be made only to the extent of amount of investment which could not be satisfactorily explained by the assessee. We, therefore, direct the assessing officer to restrict the addition under section 69 to the extent of Rs. 52,500, and not to Rs. 2,9S,000.
9. The last grievance of revenue relates to deletion of addition of Rs. 2,95,000 made under section 40A(3) of the Income Tax Act. The assessing officer has made addition of’ Rs. 2,95,000 on account of cash payment exceeding Rs. 10,000 made to M/s. Om Traders. It was explained by the assessee, that as per the terms of purchases entered into with M/s. Om Traders, the assessee was required to make payment in cash only and assessee was covered by the exception provided under rule 6DD(j). We also found that during the course of appellate proceedings before the Commissioner (Appeals), a copy of the agreement in the form of letter was forwarded by Commissioner (Appeals) to assessing officer for his comments. On the basis of the agreement, the Commissioner (Appeals) found that assessee’s case is covered by the exception provided under rule 6DD(j). The ground raised by the revenue with regard to the additional evidence under rule 46A, with respect to the acceptance of agreement dated 20-5-1984 is not sustainable insofar as before relying on the contents of the agreement, the Commissioner (Appeals) in exercise of its power under section 251, has sent the agreement for assessing officer’s comments. Thus, there is no violation of rule 46A, insofar as assessing officer was given opportunity to examine the evidence or to cross examine the witness produced by the assessee, under sub-rule (3) of rule 46A.
10. According to the provisions of section 40A(3) of the Act (as they stood at the relevant time), where the assessee incurs expenditure in cash, in excess of Rs. 10,000, such expenditure cannot be allowed as a deduction. Relief from the rigour of this provision is however, provided by clause (j) of rule 6DD of the Rules which is reproduced hereunder :
“(j) in any other case, where the assessee satisfies the Income Tax Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft :
(1) due to exceptional or unavoidable circumstances, or
(2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof,
and also furnished evidence to the satisfaction of the Income Tax Officer as to the genuineness of the payment and the identity of the payee.”
11. In clarification of the provisions of section 40A(3) of the Act and clause (j) of rule 6DD of the Rules, the CBDT issued Circular No. 220 dated 31-5-1977, 108 ITR (St.) 8, where, in paragraph 4 thereof, it was stated that though all the circumstances in which the conditions laid down in rule 6DD(j) would be applicable cannot be spelt out, some of them which would seem to meet the requirements of the said rule are :
(i) The purchaser is new to the seller; or
(ii) The transactions are made at a place where either the purchaser or the seller does not have a bank account; or
(iii) The transactions and payments are made on a bank holiday; or
(iv) The seller is refusing to accept payment by way of a crossed cheque/draft and the purchaser’s business interest would suffer due to non-availability of goods otherwise than from this particular Seller; or
(v) The seller, acting as a commission agent, is required to pay cash in turn to person from whom he has purchased the goods; or
(vi) Specific discount is given by the seller for payment to be made by way of cash.
12. The said circular was noticed and considered in Navsari Waste Cotton Products v. CIT (1987) 163 ITR 378 (Guj.), where it was held that it would appear from clauses (i) to (v) of paragraph 4 of the said circular that if the identity of the seller is known, it would be possible for the department to cross-check if the payment in question was actually made in cash to the seller from whom goods were purchased and the requirement of rule 6DD(j) would stand satisfied if a letter is produced from the seller in respect of each transaction falling within the categories illustrated in paragraph 4 giving full particulars of his address, sales tax registration number, if any, for the purposes of proper identification to enable the Income Tax Officer to satisfy himself about the genuineness of the transaction. it was further added that the circumstances indicated in paragraph 4 of the circular were merely illustrative and not exhaustive, but the underlying idea was that if the seller’s identity can be established, it would be possible for the Income Tax Officer to cross-check whether the transaction had, in fact, taken place as stated and was of a genuine nature.
13. A similar view is expressed by the High Court of Calcutta in Girdhardal Goenka v. CIT (1989) 179 ITR 122, where it was observed that.
“The circular of the Board is not exhaustive, it is only illustrative and the assessing officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee”. (p. 128)
It was also held that the Income Tax Officer should take a practical approach to the problem and strike a balance between the direction of law and hardship to the assessee.
Next to be noted is the judgment of the High Court of Gujarat in Hasanand Pinjomal v. CIT (1978) 112 ITR 134, where, it was observed, that “practicability for the purposes of rule 6DD(j) must be judged from the point of view of the businessman and not of the revenue and further that business expediency was one of the relevant factors”. In the instant case, genuineness of cash payments by the assessee was not doubted by the assessing officer and he has accepted the books of account. Furthermore, both the sellers and purchasers were income-tax assessees, no disallowance can be made under section 40A(3) in view of the findings recorded by Commissioner (Appeals) and decisions discussed hereinabove. We, therefore, do not find any infirmity in the order of Commissioner (Appeals) for treating the assessee’s case being covered by the exception provided under rule 6DD(j) of the Income-tax Rules.
14. In the result, appeal of the revenue is allowed in part in terms indicated hereinabove.