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TMI Blog2016 (9) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee’s case falls under the exceptions provided in Rule 6DD(b) and Rule 6DD(k) of the Rules. In view of the aforesaid facts and circumstances we have no hesitation in deleting the disallowance made u/s 40A(3) - Decided in favour of assessee. - I.T.A Nos. 165 & 166/Kol/2014 - - - Dated:- 10-8-2016 - Shri M. Balaganesh, AM Shri K. Narasimha Chary, JM For The Appellant: Shri U. Dasgupta, Advocate For The Respondent: Shri Sallong Yaden, Addl. CIT ORDER Per Shri M. Balaganesh, AM: Both these appeals by assessee are arising out of separate orders of CIT(A), Asansol, vide appeal Nos. 201/CIT(A)/Asl/W-1(2)/Asl/10-11 and 181/CIT(A)/Asl/W-1(2)/Asl/11-12 both dated 25.11.2013. Assessments were framed by ITO-1(2), Asansol u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AYs 2008-09 and 2009-10 vide his separate orders dated 03.12.2010 and 30.11.2011. Since issues are identical and facts are common, we dispose of both these appeals by this common order for the sake of convenience. 2. The first issue to be decided in these appeals is as to whether the ld CITA is justified in upholding the disallowance made u/s 40A(3) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government. The said notification stipulates the issuance of Transport Pass by the Excise Department in order to regulate and control the movement of country liquor by the Excise Department. Accordingly he argued that the payments made by the assessee falls under the exception provided in Rule 6DD(k) of the IT Rules. He argued that the payment is made to State Bank of India by the assessee at the instance of the Government and accordingly would fall under the exception provided in Rule 6DD(a)(ii) of the Rules. He placed reliance 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.) wherein it was held that the cash payment in the accounts of the payee in a Bank is sufficient to get exemption in terms of Rule 6DD. It was submitted that the decision of Bangalore Tribunal is more reasonable and pragmatic and therefore the same is to be followed in preference to the Hon ble Kerala High Court decision in the case of K Abdu Co (170 Taxman 297). Accordingly it was submitted that all cash payments made to State Bank of India, even if the same were for crediting to the accounts of its customers , sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rit bottling plants and in bulk from warehouses by the licensed wholesale vendors of the same for the purpose of selling country spirit by wholesale:- Rules 1. Short Title and commencement.-(1) These rules may be called the West Bengal Excise (Supply of Country Spirit on Payment of Duty) Rules, 2005. (2) These rules shall come into force from 19th October, 2005. 2. Definitions.-(1) In these rules, unless there is anything repugnant in the subject or context- (i) Commissioner means the Excise Commissioner; (ii) requisition means the requisition submitted by the authorized representative of licensed wholesale vendor of country spirit in Form II appended to these rules; (iii) retail vendor means the person holding license in the prescribed form for retail vending of country spirit, granted by the Collector; 189; (iv) State Government means the Government of West Bengal; (v) the Act means the Bengal Excise Act, 1909 (Ben. Act V of 1909); (vi) transport pass means the transport pass issued in Form III appended to these rules; (vii) warehouse means the warehouse for supply of country spirit to retail vendors, established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be prescribed by law, shall be paid by the retail vendor to the credit of the wholesale licensee concerned. (3) The authorized representative of the wholesale licensee shall realize the necessary amount of duty, cost price and bottling charge, if there be any, at the prescribed rate and such other imposition, as may be prescribed by law, from the retail vendor to whom country spirit is to be issued from the concerned warehouse. The authorized representative as above shall then submit requisition in duplicate in Form II appended to these rules to the Excise Officer-in-Charge of the warehouse separately for each of the retail vendors to whom country spirit is to be issued on the day. (4) On receipt of the requisition in Form II, the Excise Officer-in-Charge of the warehouse shall allow issue of country spirit from the warehouse. Duplicate copy of the requisition shall be returned to the authorized representative of the wholesale licensee after the issue has been made. (5) The Excise Officer-in-Charge of the warehouse shall issue transport pass to the retail vendor in Form III appended to these rules. (6) Notwithstanding anything contained in any provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from its side to ensure that the payee also don t escape from the ambit of taxation on these receipts by directly depositing the cash in the bank account of the payee. Moreover, the regulations of the West Bengal Government pursuant to notification from its Excise Department dated 29.8.2005 also mandates the payment to be made by way of direct deposit into the bank account of the wholesale licensee. This fact is also not disputed by the revenue. 3.3. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment . 3.4. In this regard, it is pertinent to get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs ITO reporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also not disputed by the AO. The genuinity of transactions, rate of gross profit or the fact that the bonafide of the assessee that payments are made to M/s IFB Agro Industries Ltd for purchase of country spirit are also neither doubted nor disputed by the AO. On the basis of these facts it is not justified on the part of the AO to disallow 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of ₹ 17,90,571/- and ground no.1 is decided in favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 Jurisdictional High Court decision It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding ₹ 20,000/- since it is not made by crossed-cheque or bank draft but by bearer cheques and has computed the payments falling under provisions to Section 40A(3) for ₹ 78,45,580/- and disallowed @ 20% thereon ₹ 15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court upheld the view of the tribunal in not applying section 40A(3) of the Act to the cash payments when ultimately, such amounts were deposited in the bank by the payee. 3.5. We find that the disallowance of the entire cash purchases results in abnormal trading profit for the assessee which it could never earn. We find a purposive construction should be resorted to while applying the provisions of the Act. Hence it would be more relevant to get into the intention of the legislature. In our opinion, the primary object of enacting section 40A(3) was two-fold, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to befall on account of non-observation of section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions it being free from vice of any device of evasion of tax is relevant consideration. In the instant case, the cash ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the bank account of the supplier M/s Asansol Bottling Packaging Co. Pvt Ltd which fact is also accepted by the ld AO and mandated by the Notification dated 29.8.2005 issued by the Excise Department , Government of West Bengal. It is also pertinent to note that the Hon ble Rajasthan High Court in the case of Smt.Harshila Chordia vs ITO reported in (2008) 298 ITR 349 (Raj) had held that the exceptions contained in Rule 6DD of Income Tax Rules are not exhaustive and that the said rule must be interpreted liberally. 3.7. We also find that the impugned issue is also covered by the decision of the coordinate bench of this tribunal in the case of Ashok Mondal vs ITO in ITA No. 873/Kol/2012 for Asst Year 2009-10 dated 6.2.2014 , wherein it was held that :- 7. We have considered the rival submissions. At the outset a perusal of the decision in the case of Smt.Pushpalata Mondal shows that the Tribunal had decided the case by following the decision of Hon'ble Kerala High Court in the case of K.Abdu Co. referred to supra wherein the issue was in relation to Rule 6DD(a) of IT Rules. The issue in the asessec's case is in respect of the payments made under the rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her imposition, as may be prescribed by law, from the retail vendor to whom the country spirit is to be issued from the concerned warehouse. It is also specifically mentioned in section (2) of the said notification that no retail vendor of country spirit shall deposit duty direct into the local treasury for issue of country spirit to be taken by him from the warehouse concerned which clearly shows that the warehouse is for the supply of the country liquor, specifically, the warehouse is under the direct control and custody of the State Govt. 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. Here, it is noticed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablishment. It is also pertinent to note that the expenditure in relation to such warehouse is borne by the State Government or by the licensee to whom the exclusive privilege is granted u/s 22 of the Bengal Excise Act, 1909. Hence there could be no doubt that the warehouse is established by the State Excise Commissioner. Hence it could be safely concluded that the warehouse so established by the State Excise Commissioner is a State Government establishment. It would also be pertinent to note that the said warehouse has been specifically established for supply of country spirit to retail vendors (assessee herein) only and not to anybody else. It would be pertinent to look into the definition of Wholesale licensee as per Rule 2(viii) of the Excise Rules 2005 as below:- Rule 2(viii) Wholesale licensee menas the wholesale vendor of country spirit to whom licence has been granted in West Bengal Excise Form No. 26. It would be pertinent to look into Section 22 of The Bengal Excise Act, 1909 at this juncture as below:- Section 22 Grant of exclusive privilege of manufacture and sale of country liquor or intoxicating drugs (1) The State Government may grant to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the same. Hence it could be safely concluded that the said wholesale licensee had acted at the instance of the State Government. Once this is so, then the said wholesale licensee could be construed as an agent of the State Government. For the sake of convenience, the relevant rule is reproduced hereunder:- Rule 6DD(k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person. 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. 3.9. The ld AR had advanced another argument that the payment is made by the assessee to State Bank of India and accordingly the same would fall under the exception provided in R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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