Cash payment for purchase of land or property not violation of 269SS or 269T

Cash payment for purchase of land or property cannot be treated as violation of provisions of section 269SS or 269T of the Income Tax Act – ITAT

In a recent judgment, ITAT has held that cash is the legal tender for purchase of land or property when the same is recorded in the agreement as settlement by cash, then the same cannot be treated as violation of provisions of section 269SS or 269T of the Income Tax Act.

ABCAUS Case Law Citation:
5150 (2026) (05) abacus.in ITAT

In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting addition made by the Assessing Officer (AO) for violation of section 40A(3) towards cash payment made against purchase of land.

The Assessing Officer noted that the assessee company had purchased lands from different persons by making cash payments to various parties directly or through brokers. As per him, the expenditure made above Rs.20.000/- in respect of purchase of land from various persons in cash was not allowable deduction as per 40A(3) of the Act. Therefore, he treated payments made for purchasing of land in cash payment/ advances to various persons may as disallowable in accordance to section 40A(3) of the Act.

The CIT(A) sought remand report on whether any particular purchase of land has been materialized during the year under consideration for which advances were made in cash either during the year under consideration or in earlier years? However, no details were provided and such land purchased was shown by the assessee under the head “work in progress” in the Balance Sheet.

Therefore, the CIT(A) held that it cannot be said that on account of making of payment of advances for purchase of land, any expenditure had been incurred by the assessee during the year under consideration.

The CIT(A) further observed that as per section 40A(3), addition should be made under the provision of this section, only when the assessee incurs any expenditure during the year under consideration in cash in excess of Rs. 20,000/-. Just by paying the advance, expenditure cannot be said to have been incurred. The expenditure is incurred as per the principle of accounting only when the transaction for purchase is finalized and a bill is prepared in case of purchase of goods or sale deed is finalized in case of purchase of land.

The Tribunal observed that the AO brought on record the details of payment made by the assessee as advance for the purchase of land, however the assessee had not claimed the above-mentioned payment of advance as expenses but towards advance for purchase of land. The initial payments made are not final and the transaction of purchase completes only when the final deal of purchase or sale is complete by reaching agreement by both the parties, further all the terms and conditions are met.

The Tribunal opined that cash is the legal tender for purchase of land or property when the same is recorded in the agreement as settlement by cash, then the same cannot be treated as violation of provisions of section 269SS or 269T of the Act. The provisions of section 40A(3) applicable only to the transaction of making payments towards meeting expenses.

Accordingly, the Tribunal dismissed the ground raised by the revenue.

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