2016 (11) TMI 525 - AT - Income Tax

Disallowance under section 40A(3) - Held that - The assessee has a commercial expediency under Rule 6(2) of the West Bengal Rules referred to above to make payments to the credit of M/s. Asansol Bottling and Packaging Pvt. Limited, Burdwan and M/s. Asansol Bottling and Packaging Pvt. Limited, Burdwan, who is deemed to be an agent of the State Government, as such in terms of Rule 6DD(b) and Rule 6DD(k) of the Income Tax Rules, they are exempted and the disallowance made under section 40A(3) of the Act cannot be sustained. We, therefore, answer this issue in favour of the assessee

Summary

Issues:
Challenge to the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11 regarding disallowance under section 40A(3) of the Income Tax Act.

Detailed Analysis:

1. Background and Facts:
The case involves an appeal by the Assessee against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The Assessee, a retail vendor of Country Spirit, faced disallowance by the Assessing Officer under section 40A(3) for cash deposits exceeding ?20,000 made into the bank account of a wholesale licensee appointed by the State Government.

2. Grounds of Appeal:
The Assessee raised multiple grounds challenging the order of the Commissioner of Income Tax (Appeals). These included contentions regarding the legality of the order, applicability of section 40A(3), nature of payments made directly to the bank account of the seller, availability of banking facilities in the village, reasonableness of business expenses disallowed, and overall relief sought by the Assessee.

3. Assessee's Argument:
The Assessee argued that the payments made to the wholesale licensee were in accordance with the Rules framed by the State Government, thus exempt from section 40A(3) under Rule 6DD(a)(ii) of the Income Tax Rules. The Assessee contended that the wholesale licensee acted as an agent of the State Government, making the payments fall under the exemption provided in Rule 6DD(b) of the Income Tax Rules.

4. Department's Argument:
The Department argued that Rule 6DD(b) requires payments to be made in legal tender as per Government regulations, highlighting that payments made into the customer account were not protected under the exemption.

5. Key Issue:
The central issue for consideration was whether the disallowance under section 40A(3) was justified in the circumstances of the case, given the nature of payments made by the Assessee to the wholesale licensee.

6. Judgment and Analysis:
The Tribunal analyzed the provisions of Rule 6(2) of the Income Tax Rules framed by the State Government, emphasizing the requirement for retail vendors to pay the wholesale licensee for country spirit purchases. The Tribunal found that the payments made to the wholesale licensee were in line with the Rules and exempt under Rule 6DD(b) and Rule 6DD(k) of the Income Tax Rules.

7. Legal Precedents and Commercial Expediency:
The Tribunal referenced various legal cases recognizing commercial expediency in similar contexts, supporting the Assessee's position. Citing a previous Tribunal order, the Tribunal concluded that the Assessee's payments for the purchase of country liquor were protected by the exemption in Rule 6DD(b) of the Income Tax Rules.

8. Conclusion:
In light of the above analysis and legal precedents, the Tribunal ruled in favor of the Assessee, allowing the appeal and holding that the disallowance under section 40A(3) could not be sustained. The order of the authorities below was set aside, and the appeal of the Assessee was allowed.

This detailed analysis provides a comprehensive overview of the judgment, covering the issues raised, arguments presented, legal provisions applied, and the final decision rendered by the Tribunal.