2015 (4) TMI 368 - AT - Income Tax

Disallowance u/s 40A(3) - as per assessee kerosene is bought for supply under PDS system to BPL families, and it is a no profit business to the society as well as to suppliers who insisted on cash payment The assessee is running rationing business under Central Govt. Scheme - Held that - The assessee has carrying on the activity of supply of food grains, sugar & kerosene under Public Distribution System. The public distribution system (PDS) is an Indian food security system. Establishment by the Government of India under Ministry of Consumer Affairs, Food, and public Distribution and managed jointly with state governments in India, it distributes subsidized food and non-food items to India s poor. The major commodities distributed include staple food grains, such as wheat, rice, sugar, and kerosene, through a network of public distribution shop established in several states across the country. The Central and State governments share the responsibility of regulating the PDS. This shop is used to distribution rations at a subsidized price to the poor. Hence, there is no element of profit. The assessee has distributed Kerosene to various fair price shops as per the orders of Chief Executive Officer of Taluka Panchayat and the assessee as per the order three distributors have distributed kerosene to the appellant society. We find that the assessee has made payment to three agencies but that agencies are nominated by Govt but it cannot be said that this payment is made to Government. Therefore, we are of the view that A.O and CIT(A) is justified in holding that payments has been made to dealer authorised by the Govt. and not to the Government itself. Therefore, AO and CIT(A) is justified in their action and our interference is not required. - Decided against assessee. Deduction u/s 80P(2)(a)(i) claimed - Held that - The assessee is a Primary Co-operative Agriculture and Rural Development Bank registered under the Karnataka Co-operative Society Act. Therefore, entire income should be deductible u/s 80P(2)(a)(i) of the Income Tax Act. We find that assessee has taken this ground for the first time before us and the CIT(A) has not executed this ground, therefore, in the interest of justice and fair play, we restore this issue to the file of CIT(A) to decide the issue as per law after giving due opportunity of hearing to the assessee. - Decided in favour of assessee by ay of remand.

Summary

Issues Involved:

1. Disallowance under Section 40A(3) of the Income Tax Act.
2. Deduction under Section 80P(2)(a)(i) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40A(3) of the Income Tax Act:

The assessee, a Primary Co-operative Agriculture and Rural Development Bank, filed an appeal against the disallowance of Rs. 5,13,176/- made under Section 40A(3) by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that the cash payments were made under unavoidable circumstances and were genuine. The payments were made to kerosene distributors under the Public Distribution System (PDS), a no-profit activity aimed at serving Below Poverty Line (BPL) families. The assessee contended that the payments were made in cash due to the distributors' insistence, as they operated in remote areas and outside banking hours.

The Tribunal noted that Section 40A(3) disallows deductions for cash payments exceeding Rs. 20,000/- unless covered by exceptions in Rule 6DD of the Income Tax Rules. The assessee failed to prove that its case fell under any exceptions in Rule 6DD. The Tribunal cited several case laws emphasizing that the burden of proof lies on the assessee to demonstrate exceptional and unavoidable circumstances for cash payments. The Tribunal concluded that the payments were made to government-authorized dealers, not the government itself, and upheld the disallowance under Section 40A(3).

2. Deduction under Section 80P(2)(a)(i) of the Income Tax Act:

The assessee claimed that its entire income should be deductible under Section 80P(2)(a)(i) as it is a Primary Co-operative Agriculture and Rural Development Bank. This issue was raised for the first time before the Tribunal. The Tribunal noted that the CIT(A) had not examined this ground. Therefore, in the interest of justice, the Tribunal restored this issue to the file of the CIT(A) for a fresh decision as per law, after providing a due opportunity of hearing to the assessee.

Conclusion:

The Tribunal dismissed the grounds related to the disallowance under Section 40A(3) but allowed the ground related to the deduction under Section 80P(2)(a)(i) for fresh consideration by the CIT(A). The appeal was partly allowed.