2014 (2) TMI 1243 - AT - Income Tax

Addition u/s 40A(3) - whether payments are all covered by the exception to rule 6DD of the I.T.Rule 62 and as such the addition may please be deleted - cash payments made by the assessee for the purchase of country liquor from the Government authorised dealers - Held that - The issue in the assessee s case is in respect of the payments made under the rules framed by the Government and such payment was required to be made in legal tender. A perusal of the Government Notification issued by the Govt. of West Bengal clearly shows that the dealers are agents of the Government and the payments made are to the Government. It also makes it categorically required that the payment is to be made before lifting of the country spirit. Consequently we are of the view that the issue is squarely covered by the decision of the Coordinate Bench of this Tribunal in the case of M/s.Amrai Pachwai & C.S.Shop 2014 (2) TMI 979 - ITAT KOLKATA wherein held the provisions of Rule 6DD(b) of the I.T.Rules 1962 which clearly spells out that the payment made to the government in legal tender under the rules framed by the Government is exempted from the rigours of section 40A(3) of the Act. Here it is noticed that the payments made by the assesee for purchase of country spirit and country liquor is to the government as per the notification issued by the government and is in legal tender specified by the notification. In the circumstances we are of the view that the payment made by the assessee for the purchase of country liquor and country spirit from the territorial licensee bottling plant IFB Agro Industries Ltd. City Centre Durgapur is protected by the exemption in terms of Rule 6DD(b) of the I.T.Rules 1962. In the circumstances the addition as made by the AO and as confirmed by the ld. CIT(A) by invoking the provisions of section 40A(3) of the I.T.Act 1961 stands deleted. - Decided in favour of assessee

Summary

Issues involved:
Appeal against CIT(A) order for Assessment year 2009-10, invoking section 40A(3) for cash payments made by assessee for purchase of country liquor from Government authorized dealers.

Analysis:
The appeal raised concerns regarding the CIT(A)'s order, arguing it was arbitrary and excessive. The primary issue was the addition of a specific amount under section 40A(3) for cash payments made by the assessee for purchasing country liquor. The assessee contended that these payments were covered by exceptions to Rule 6DD of the Income Tax Rules '62 and should be deleted. The AR referenced a similar case decided by the Tribunal to support the appeal's merit, emphasizing that the payments were made to Government-authorized dealers for country liquor.

The Revenue, represented by the DR, countered the assessee's arguments by citing a previous case where a similar issue was decided against the assessee. The DR highlighted that cash purchases of country liquor from Government dealers were not covered by Rule 6DD(a) based on a decision of the Kerala High Court. In response, the AR distinguished the present case from the referenced decision, asserting that the assessee's situation fell under Rule 6DD(b) of the IT Rules, not Rule 6DD(a).

Upon considering the submissions, the Tribunal analyzed the issue in detail. They noted that the payments were made to Government agents for country liquor purchases, as mandated by the Government's notification. The Tribunal referenced a specific case to support their decision, emphasizing that payments made directly to the Government in legal tender, as per Government rules, were exempt from section 40A(3). They highlighted the control and custody of the warehouse by the State Government, indicating that payments to such entities constituted payments to the Government directly. Consequently, the Tribunal concluded that the addition made by the AO and upheld by the CIT(A) was unwarranted, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, deleting the addition confirmed by the CIT(A) under section 40A(3). The judgment was pronounced on 06.02.2014.