2018 (6) TMI 1463 - AT - Income Tax

Addition u/s 40A(3) - cash payments made to M/s Asansol Bottling and Packaging Co. Ltd - Held that -We find that the CIT(A) by placing reliance in assessee s own case for A.Y.2008-09 and 2009-10 2016 (9) TMI 813 - ITAT KOLKATA deleted the addition made by the AO u/s 40A(3) the payment made by the assessee retail vendor to the Principal Government of West Bengal through its wholesale agent. The relationship between the assessee (authorized retailer) and Government of West Bengal (the supplier) acting under West Bengal Excise Rules through its Authorised Wholesaler Licensee (Agent) both de facto and dejure 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. - Decided against revenue

Summary

Issues:
Whether the CIT(A) was justified in deleting the addition made by the AO regarding cash payments made to a specific company, which the AO considered a violation of section 40A(3) of the Income Tax Act, 1961.

Analysis:
The only issue in this case was whether the CIT(A) was correct in deleting the addition made by the AO concerning cash payments made to M/s Asansol Bottling and Packaging Co. Ltd, which the AO believed violated section 40A(3) of the Income Tax Act, 1961. The Revenue appealed against the order of the CIT(A) for the assessment year 2013-14. The ld. AR for the respondent argued that the issue was previously decided in the assessee's favor by the Tribunal for A.Y. 2008-09 and 2009-10. The Tribunal had held that the company in question was a warehouse under the West Bengal Excise Rules 2005 and, therefore, the addition made by the AO was not valid. The CIT(A) relied on this decision and deleted the addition.

Upon reviewing the material available on record, the ITAT found that the CIT(A) had correctly relied on the previous decision of the Tribunal in the assessee's own case for A.Y. 2008-09 and 2009-10. The Tribunal had discussed the nature of the company, M/s Asansol Bottling and Packaging Co. Pvt. Ltd., as a warehouse under the West Bengal Excise Rules 2005. The Tribunal concluded that the warehouse was established and controlled by the State Excise Commissioner, making it a State Government establishment. The Tribunal further analyzed relevant definitions and rules to support its decision that the cash payments made by the assessee to the company were in compliance with the law. The Tribunal also considered the relationship between the assessee, the company, and the State Government to determine that the payments fell under exceptions provided in the IT Rules.

The Tribunal emphasized that the assessee's case met the criteria outlined in Rule 6DD(b) and Rule 6DD(k) of the IT Rules, exempting the payments from disallowance under section 40A(3) of the Act. Additionally, the Tribunal rejected the argument that the payments were made to the State Bank of India, clarifying that they were made to the customer of the bank. Therefore, the Tribunal concluded that the CIT(A) had correctly deleted the disallowance made by the AO under section 40A(3) of the Act. Ultimately, the Tribunal found no fault in the order of the CIT(A) and dismissed the grounds raised by the Revenue, resulting in the appeal of the Revenue being dismissed.

In conclusion, the Tribunal upheld the decision of the CIT(A) to delete the addition made by the AO, as the payments made by the assessee to M/s Asansol Bottling and Packaging Co. Ltd were found to be in accordance with the law and fell under exceptions provided in the IT Rules, thus not violating section 40A(3) of the Income Tax Act, 1961.