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TMI Blog2017 (10) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act ) dated 29.03.2013 for the Assessment Year 2009-10. 2. The only issue to be decided in all the appeals is as to whether the ld CITA was justified in deleting the disallowance made u/s 40A(3) of the Act in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee is a partnership firm engaged in the business of retail vending of country liquor and pachai. The country liquor is an excisable commodity. Its purchase and sale are strictly controlled by the State Government. Previously, the retail dealers like the assessee used to deposit the cost price, excise duty, bottling charges etc in the Treasury against Form TR-7 in cash for getting supplies from the wholesale Licensee. Subsequently, the Excise Department by a notification dated 29.8.2005 changed the procedure. As per the revised procedure prescribed by the Excise Department, for lifting country spirit, the assessee , who is a retail vendor, was required to make the entire payment consisting of cost of the stock in trade, Excise duty and bottling charges etc only to the wholesale licensee appointed by the State Government. Following the revised procedure, the assessee made paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide pages 43 to 49 of PB and copies of various decisions of High Courts and Tribunals vide pages 50 to 102 of PB. We have also gone through the provisions of The West Bengal Excise Rules 2005 and The Bengal Excise Act, 1909. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. At the outset, we deem it necessary to incorporate the following clauses from the Notification issued by the Excise Department, Government of West Bengal , dated 29.8.2005 for the sake of better understanding of the facts :- In exercise of the power conferred by section 85 and section 86 of the Bengal Excise Act, 1909 (Ben. Act V of 1909) and in supersession of the rules published with this Department Notification No. 122-EX/O/1R-1/2000 dated 23.2.2000, as subsequently amended, the Governor is pleased hereby to make the following rules regulating the issue and removal of country spirit on payment of duty in labelled and capsuled bottles from country spirit 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 commenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues 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 bottling plant or warehouse may be debited from the said account, leaving sufficient balance as may be determined by him. 6. Procedure of issue of country spirit.--(1) The retail vendor or his authorized representative shall submit to the representative of the wholesale licensee, through Excise Officer-in-Charge of the warehouse, a demand for issue of country spirit in Form I appended to these rules in duplicate. The duplicate copy shall be kept in the custody of the Excise Officer-in-Charge for his official record. ( 2) 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. Duty, cost price, bottling charge, if there be any, at the prescribed rate and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall refund the amount recommended to the wholesaler through adjustment in the Personal Ledger Account maintained for privilege fee. 14. 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 conclusion of the transaction is traceable thereby fulfilling the criterion for ensuring the object of introduction of section 40A(3) of the Act. 15. We find that the following facts are undisputed and indisputable:- ( a) The transactions made by the assessee is genuine. ( b) The identity of the receiver (wholesale licensee) is established beyond doubt. ( c) The payment is made in the bank account of the seller (wholesale licensee). We hold that since the genuinity of the payments made to the M/s Asansol Bottling Packaging Co. Pvt. Ltd (wholesale licensee) is not doubted by the revenue, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) The contention of the assessee that he purchased goods from suppliers who are producers of hides and skins, has not been refuted either by the AO or by the CITA. The second contention of the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash 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 prescribed limit (Rule 6DD) - Assessee made certain payment of purchase of groundnut in cash exceeding prescribed limit - Assessee submitted that he made payment in cash because seller insisted on that and also gave incentives and discounts - Further, seller also issued certificate in support of this - Whether since assessee had placed proof of payment of consideration for its transaction to seller, and later admitted payment and there was no doubt about genuineness of payment, no disallowance cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 provisions of section 40A(3) in the light of Rule 6DD as clarified by the Circular of the CBDT that whether the failure on the part of the assessee in adhering to requirement of provisions of section 40A(3) has any such nexus which defeats the object of provision so as to invite such a consequence. We hold that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Durgapur Municipal Corporation and copy of Form III issued by Department ofITA No. 148/K/2015, ITA Nos. 185 186/Kol/2014 Ramnagar Pachwai (S) C.S. Shop, AY 2007-08, 2008-09 2010-11 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, wherein the warehouse has been identified to mean the warehouse for supply of country spirit to the retail vendors, established at convenient places by the Commissioner at the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(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 ITA No. 148/K/2015, ITA Nos. 185 186/Kol/2014 Ramnagar Pachwai (S) C.S. Shop, AY 2007-08, 2008-09 2010-11 M/s Amrai Pachwai C.S.Shop in ITA No. 1251/Kol/2011 dated 15.1.2014 and the held portion is reproduced hereinabove. 21. 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 for supply of country spirit to retail vendors, esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve privilege, and that 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 provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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