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2016 (12) TMI 549 - AT - Income TaxDisallowance made under section 40A(3) - cash payments (in excess of ₹ 20,000 on each occasion) - Held that - Identical issue with regard to the disallowance u/s 40A(3) of the Act in the case of assessee s case who are engaged in the business of country spirits which had come up for consideration before this Bench in the case of Ramnagar Pachwai and C.S. (Shop) vs ITO 2016 (11) TMI 1034 - ITAT KOLKATA wherein held The payment made by the assessee retail vendor to the Principal, Government of West Bengal through its wholesale agent. The relationship between the assessee (authorised retailer) and Government of West Bengal (the supplier) acting under West Bengal Excise Rules through its authorised wholesaler licensee (agent), both de facto and de jure, is one of principal and agent . We hold that the assessee retail vendor had made payment to the said agent (wholesale licensee) would fall under the exception provided in rule 6DD(k) of the Rules. The assessee had made payments only to the customer of State Bank of India and not to State Bank of India. Hence the assessee s case does not fall under the exception provided in rule 6DD(a) of the Rules. We hold from the aforesaid findings that the assessee s case falls under the exceptions provided in rule 6DD(b) and rule 6DD(k) of the Rules. We have no hesitation in deleting the disallowance made under section 40A(3) of the Act in all the years under appeal. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act, 1961. 2. Compliance with Rule 6DD of the Income Tax Rules, 1962. 3. Interpretation of the West Bengal Excise Rules, 2005 and the Bengal Excise Act, 1909. Detailed Analysis: 1. Disallowance under Section 40A(3) of the Income Tax Act, 1961: The primary issue revolves around the disallowance of ?36,64,440/- made in cash by the assessee for purchases from Asansol Bottling & Packing Co. Pvt. Ltd. The Assessing Officer (AO) disallowed this expenditure under Section 40A(3) of the Income Tax Act, 1961, which restricts cash payments exceeding ?20,000/- to curb tax evasion. The CIT(A) upheld this disallowance. 2. Compliance with Rule 6DD of the Income Tax Rules, 1962: The Tribunal examined whether the payments made by the assessee fall under the exceptions provided in Rule 6DD of the Income Tax Rules, 1962, which allows certain cash payments to be exempt from disallowance under Section 40A(3). The Tribunal referred to several precedents, including the case of Sri Renukeswara Rice Mills vs ITO, where it was held that cash payments into the bank account of the payee could be exempt under Rule 6DD if the transaction is genuine and traceable. 3. Interpretation of the West Bengal Excise Rules, 2005 and the Bengal Excise Act, 1909: The Tribunal analyzed the specific provisions of the West Bengal Excise Rules, 2005, and the Bengal Excise Act, 1909. The rules mandate that payments for country spirit must be made directly into the bank account of the wholesale licensee. This requirement is intended to ensure traceability and prevent tax evasion. The Tribunal found that the assessee complied with these rules by depositing cash directly into the bank account of Asansol Bottling & Packing Co. Pvt. Ltd., a wholesale licensee under the West Bengal Excise Rules. Tribunal's Findings: - The Tribunal noted that the transactions were genuine, the identity of the receiver was established, and the payments were made directly into the bank account of the seller. - The intention behind Section 40A(3) is to prevent tax evasion and ensure traceability of transactions. Since the payments were genuine and traceable, the provisions of Section 40A(3) should not be applied rigidly. - The Tribunal referred to various judicial precedents, including the Supreme Court's decision in Attar Singh Gurmukh Singh vs ITO, which emphasized that genuine and bona fide transactions should not be disallowed under Section 40A(3). - The Tribunal also considered the decision in CIT vs CPL Tannery, where it was held that cash payments made under business exigencies and genuine transactions should not be disallowed under Section 40A(3). Conclusion: The Tribunal concluded that the disallowance under Section 40A(3) was not justified as the payments were made in compliance with the West Bengal Excise Rules, 2005, and were genuine and traceable. The Tribunal directed the deletion of the disallowance made by the AO and upheld by the CIT(A). Final Judgment: The appeal by the assessee was allowed, and the disallowance under Section 40A(3) was directed to be deleted. The order was pronounced on 19.10.2016.
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