2018 (3) TMI 1804 - AT - Income Tax

Addition made on account of cash payments in violation of section 40A(3) - Before the CIT(A) it was contended by the assessee that the cash payments were made to IFB Agro Industries Ltd, Panagarh Bazar, Budbud as per the compliances to be made with West Bengal Excise (supply of country spirit on payment of Duty) Rules, 2005 and it is a credit to the agent of the State Government and as such payments are covered by the exceptions contained in Rule 6DD (b) of Income Tax Rules, 1962 - HELD THAT - In the case of Amrai Pachwai C.S.Shop vs DCIT 2014 (2) TMI 979 - ITAT KOLKATA held that Rule 6DD(b) is applicable that if the payments made to the Government agent in legal tender under the rules framed by it and considering the same and taking into consideration the facts and circumstances of the case that the assessee purchased country liquor and country spirit from the territorial licensee bottling plant IFB Agro Industries Ltd and payments in cash made thereto is protected by the exemption in terms of Rule 6DD(b) of Income Tax Rules, 1962 as per the notification issued by the Government. In view of the same, we find no infirmity in the order of CIT(A) as the grounds 1 to 5 raised in the appeal by the revenue are dismissed.

Summary

Issues:
1. Justification of deleting addition made on account of cash payments in violation of section 40A(3) of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the Revenue against an order passed by C.I.T-(A)-Durgapur for A.Y. 2012-13. The main issue to be decided was whether the CIT(A) was justified in deleting the addition made on account of cash payments in violation of section 40A(3) of the Income Tax Act, 1961. The Tribunal rejected an adjournment application and proceeded to dispose of the appeal based on the material facts on record, including various orders of the Tribunal. The AO had found that the assessee paid a substantial amount in cash to a company and did not provide evidence of payment through account payee cheque or bank draft, resulting in the amount being brought to tax. However, the assessee argued that the cash payments were made in compliance with specific rules related to excise duties and were protected under Rule 6DD(b) of the Income Tax Rules, 1962.

The Tribunal considered the arguments presented and the specific circumstances of the case. It noted that previous judgments by the Kolkata benches of the ITAT had held that Rule 6DD(b) applied when payments were made to a government agent in legal tender under rules framed by the government. In this case, the assessee had purchased goods from a territorial licensee bottling plant and made cash payments, which were protected by the exemption under Rule 6DD(b) as per the notification issued by the government. Therefore, the Tribunal found no fault in the order of the CIT(A) and dismissed the grounds raised in the appeal by the Revenue. Consequently, the appeal by the Revenue was dismissed, and the order was pronounced in open court on 28.03.2018.