2014 (2) TMI 979 - AT - Income Tax

Deletion made u/s 40A(3) of the Act Cash payment - Whether the assessee s case falls under exception contained in Rule 6DD(b) of the I.T Rules Held that - CIT(A) held that the Rule 6DD(b), would not hold water in so far as exemption provided is in Rule 6DD - The various clauses of the said Rule would have to be considered - Even otherwise, the said Rule is not exhaustive - The State Government has closed its doors in so far as the local treasury is concerned and the payment for the purchase of country spirit or country liquor has to be made to the warehouse, run by the government - This shows that any payment made to the warehouse, which is under the direct control of the state government, is a payment made directly to the government. Once, this is accepted then 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 - the payments made by the assessee 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 - the payment made by the assessee for the purchase of country liquor and country spirit from the territorial licensee bottling plant is protected by the exemption in terms of Rule 6DD(b) of the I.T Rules 1962 - the addition as made by the AO and as confirmed by the 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 order of Commissioner of Income-tax (Appeals) regarding disallowance under section 40A(3) of the Income Tax Act, 1961 for the assessment year 2008-09.

Detailed Analysis:

Issue 1: Jurisdiction under Section 40A(3)
The appellant contended that the conditions for invoking jurisdiction under Section 40A(3) were not met by the Deputy Commissioner of Income Tax, and the disallowance made was void in law. The appellant argued that the exception under Rule 6DD(b) and Rule 6DD(k) of the Income Tax Rules, 1962 should have been considered. The Commissioner of Income Tax (Appeals) was criticized for upholding the disallowance without proper consideration.

Issue 2: Disallowance on Purchase of Country Spirit
The main contention was the disallowance made under Section 40A(3) for purchasing country spirit in cash. The appellant argued that payments were made to a government authorized licensee agent, falling under the exemption of Rule 6DD(b) of the IT Rules 1962. The appellant highlighted the necessity of cash payments in the liquor trade and the specific rules governing such transactions.

Issue 3: Interpretation of Rules and Legal Tender
The Tribunal analyzed the provisions of Rule 6DD(b) and the notification issued by the Government of West Bengal regarding payments for country spirit. It was established that payments made to the government-controlled warehouse, as per legal tender specified by the notification, were exempted from Section 40A(3). The Tribunal concluded that the appellant's payments for country liquor were protected under Rule 6DD(b) and deleted the addition made by the assessing officer.

Conclusion:
The Tribunal allowed the appeal, ruling in favor of the appellant for the assessment year 2008-09. The judgment emphasized the importance of adhering to specific rules and exemptions under the Income Tax Act, 1961 when dealing with cash transactions in certain industries like the liquor trade.