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TMI Blog2016 (9) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... cash payments in excess of Rs. 20,000/- to M/s. Asansol Bottling & Packaging Co. Pvt Ltd (ABPL in short) for purchase of country spirit by way of cash deposits into the bank account of ABPL. The ld AO show caused the assessee as to why the provisions of section 40A(3) of the Act should not be invoked on the assessee. In response to the show cause notice, the assessee replied that the payment for purchase of country spirit had to be made prior to delivery of the bottles of country spirit by M/s ABPL. The pay in slip of SBI , Asansol was filled by the assessee corresponding to the amount of country spirit purchased , the rate of which is fixed by the State Government and is known to both assessee and ABPL and the amount is deposited in the bank account of ABPL by the assessee. The signature in the pay in slip is that of representative of the assessee and deposit counterfoil is obtained. The deposit counterfoil is presented to ABPL prior to the delivery of country spirit. Accordingly it was argued that the payment is made to the wholesale licensee who is an agent of the Government and hence the payment would fall under the exception provided in Rule 6DD(k) of the IT Rules. The ld AO n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t disputed by the revenue. The payment is made to wholesale licensee and payment has gone into the coffers of the West Bengal Government. He further argued that if the entire purchases made in cash is disallowed, then effectively the ld AO would be taxing the entire sale proceeds as income of the assessee which would only result in an anomalous situation. He placed reliance on the decision of the Co-ordinate Bench of this tribunal in the case of Prabir Kumar Mullick vs ITO in ITA No. 1603/Kol/2011 dated 1.6.2016 and Ashok Mondal vs ITO in ITA No. 873/Kol/2012 dated 6.2.2014 in support of his contentions. 2.3. In response to this, the ld DR argued that the payments made by the assessee does not fall under any of the exceptions provided in Rule 6DD of the Rules. Accordingly, he argued that no interference is called for in the order of the ld CITA. 3. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of various orders of this tribunal and copy of Notification No. 1208-Ex dated 29.08.2005 issued by the Excise Department, Government of West Bengal. We have also gone through the provisions of The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een granted in West Bengal Excise Form No. 26. (2) Words and expressions used in these rules and not defined, but defined in the Act, shall have the meanings respectively assigned to them in the Act. 3. Issue only on payment of duty.-No country spirit in labelled and capsuled bottles shall be issued without payment of duty from a country spirit bottling plant. No country spirit in bulk shall be issued without payment of duty from a country spirit warehouse. 4. Personal Ledger Account to be maintained by the wholesale licensee.-The wholesale licensee shall maintain a Personal Ledger Account in accordance with the direction issued by the Commissioner from time to time for the purpose of maintaining an account-current of the duties payable by the wholesale licensee for the issues of country spirit to the retail vendors or transport on payment of duty from the concerned country spirit bottling plant or warehouse. 5. Minimum balance in Personal Ledger Account.-The Collector shall issue directions for maintaining the minimum amount "of balance in the aforesaid Personal Ledger Accounts in order to ensure that duty for daily issues of country spirit from the country spirit bott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be issued by the Collector in respect of distance. At the end of the month, the wholesaler shall submit a bill in duplicate to the Officerin- Charge of the warehouse claiming refund of the amount granted as rebate. The Officer-in-Charge shall, on receipt of the bill, refund the amount claimed after verifying his records through adjustment in the Personal Ledger Account maintained for the purpose of privilege fee. In case there is no Personal Ledger Account for privilege fee at the warehouse, the Officer-in-Charge shall send a copy of the claim with his comments to the Officer-in-Charge of the supplier bottling plant, who shall refund the amount recommended to the wholesaler through adjustment in the Personal Ledger Account maintained for privilege fee." 3.1. We find that the reliance placed on the decision of Co-ordinate Bench of Bangalore Tribunal in the case of Sri Renukeswara Rice Mills vs ITO reported in 93 ITD 263 (Bang Trib.) is well founded , wherein, it was held that the cash payment in the bank account of the payee is sufficient to get exemption in terms of Rule 6DD in as much it is ensured that the payee and payee alone receives the payment and the origin and conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be clear that the provisions are not intended to restrict business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed-cheque or crossed-bank draft. The payment by crossed-cheque or crossed bankdraft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed-cheque or crossed-bank d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com 199 (Guj) "Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits Rule 6DD(j) Assessment year 2006-07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account - If assessee would not make cash payment and make cheque payments alone, it would have received recharge vouchers delayed by 4/5 days which would severely affect its business operation - Assessee, therefore, made cash payment - Whether in view of above, no disallowance under section 40A (3) was to be made in respect of payment made to principal - Held, yes [Paras 21 to 23] [in favour of the assessee]" Sri Laxmi Satyanarayana Oil Mill vs CIT reported in (2014) 49 taxmann.com 363 (Andhrapradesh High Court) "Section 40A(3) of the Income-tax Act, 1961, read with Rule 6DD of the Income-tax Rules, 1962- Business disallowance - Cash payment exceeding p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy of penalty for noncompliance with such technical provisions required held that "in the consequence to follow there must be nexus between the consequence that befall for non-compliance with such provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter." The Supreme Court has opined that the existence of nexus between the tax evasion by the owner of the goods and the failure of C & F agent to furnish information required by the Commissioner is implicit in section 57(2) and the assessing authority concerned has to necessarily record a finding to this effect before levying penalty u/s 57(2). Though in the instant case, the issue involved is not with regard to the levy of penalty, but the requirement of law to be followed by the assessee was of as technical nature as was in the case of Swastik Roadways (3 SCC 640) and the consequence to fall for failure to observe such norms in the present case are much higher than which were prescribed under the Madhya Pradesh Sales Tax Act. Apparently, it is a relevant consideration for the assessing authority under the Income Tax Act that before invoking the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra wherein it has been held as follows :- "6. We have considered the rival submissions. At the outset a perusal of the assessment order clearly shows that the AO has recognized the assessee's business in trading of country spirit and country liquor. Copy of Form of Licence issued by Durgapur Municipal Corporation and copy of Form III issued by Department of Excise, Govt. of W.B. were also found at pages 177 and 179 of the assessee's paper book. In any case the validity of licence of the assessee to trade in country spirit and country liquor is not the issue before us. The issue is whether the payments made by the assessee for the purchase of country spirit from the territorial licensee bottling plant, IFB Agro Industries Ltd., City Centre, Durgapur falls within the exemption provided under rule 6DD(b) of the I.T.Rules, 1962. Admittedly, the AO has recognized that the provision of Rule 6DD(b) of the I.T Rules, 1962 is applicable in case of payments made to government directly. This is found in page 2 of the assessment order. A perusal of the Kolkata Gazette Tuesday 20th Sept 2005 shows that the Government of West Bengal, Department of Excise has issued a notification, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO and as confirmed by the Id. CIT(A) by invoking the provisions of section 40A(3) of the I. T.Act 1961 stands deleted. 8. In the result the addition as confirmed by the Id. CIT(A) stands deleted We find that this decision was rendered by placing reliance on its earlier decision in the case of M/s Amrai Pachwai & C.S.Shop in ITA No. 1251/Kol/2011 dated 15.1.2014 and after considering the contrary decisions rendered in the case of Pushpalata Mondal in ITA No. 965/Kol/2010 dated 28.7.2011 and Hon'ble Kerala High Court in the case of CIT vs K Abdu & Co (170 Taxman 297). We find that the Co-ordinate Bench decision in the case of M/s Amrai Pachwai & C.S.Shop in ITA No. 1251/Kol/2011 dated 15.1.2014 and the held portion is reproduced hereinabove. 3.7.1. We find that M/s Asansol Bottling & Packaging Co. Pvt Ltd is a bottling plant cum warehouse under Rule 2(vii) of The West Bengal Excise Rules 2005 with privilege granted u/s 22 of The Bengal Excise Act, 1909. At this juncture, it would be relevant to go into the definition of warehouse as provided under the State Excise Rules 2005 as below:- "Warehouse" , under Rule 2(vii) of the W.B.Excise Rules 2005 , means the warehouse fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any objections made by any person residing within the area affected shall be considered before an exclusive privilege is granted. (2) No grantee of any privilege under sub-section (1) shall exercise the same unless or until he has received a license in that behalf from the Collector or the Excise Commissioner. Hence it could be safely concluded that M/s Asansol Bottling & Packaging Co. Pvt Ltd (Bottling Plant) is a warehouse within the meaning of Rule 2(vii) of the Excise Rules 2005 and said warehouse is a State Government establishment, established and controlled by the Excise Commissioner. It would be relevant to reproduce Rule 6DD(b) of the IT Rules at this juncture :- (b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender. In the instant case, the assessee (retail vendor) had made cash payments for purchase of country spirit by depositing cash directly into the bank account of M/s ABPL as per Rule 6(2) of the Excise Rules 2005, it has to be construed as payment made to the State Government authority and accordingly falls under the exception provided in Rule 6DD(b) of the IT Rules. 3.8. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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