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TMI Blog2018 (1) TMI 1527X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) under section 40A(3) of the Act on account of cash payments made against purchases from M/s. IFB Agro Industrial Ltd. 4. The assessee in the present case is a partnership firm which is engaged in the business of trading in country spirit. The return of income for the year under consideration i.e. 2010-11 was filed by it on 30.09.2010 declaring a total income of Rs. 13,684/-. As noticed by the Assessing Officer during the course of assessment proceedings, the assessee firm had made purchases of Rs. 76,02,027/- from M/s. IFB Agro Industries Ltd. and payments against the same were made by depositing cash directly in the account of M/s. IFB Agro Industrial Ltd. in the sums exceeding Rs. 20,000/-. According to the Assessing Officer, the said payments were made by the assessee in contravention of section 40(a)(iii) of the Act and since the assessee could not explain satisfactory any exceptional circumstances as specified under Rule 6DD of Income Tax Rules 1962 for making such payments, he made a disallowance of Rs. 76,02,027/- under section 40(a)(3) of the Act. On appeal, the Ld. CIT(A) confirmed the said disallowance made by the A.O. 5. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the identity of the payee and reasonableness of the payment. When this is the primary object of enacting section 40A(3), we will have to see whether the payments made by the assessee into the account of M/s. IFB Agro Industries Limited, Durgapur would frustrate the purpose of enactment of section 40A(3). By virtue of payment through cash dated 04.09.2006, the wholesale licensee with exclusive privilege for bottling and/or sale by wholesale country spirit in sealed or capsule bottles and for manufacture and wholesale supply of country spirit in bulk litter enjoyed now by the holders of license in terms of section 22 of the Bengal Excise Act, 1909 and IFB Agro Industries Limited, Durgapur has become an arm of State Government. On this aspect, for all practical purposes, the relationship between the Government and wholesale licensee in so far as dealing with the country made liquor is concerned, i.e. the principal and agent, subject to the territorial limitation prescribed to such notification. We, therefore, can safely conclude that the payments made to M/s. IFB Agro Industries Ltd., Durgapur for all practical purposes are the payments to be reached to the State Government and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above, we find that the assessee has commercial expediency under Rule 6(2) of the West Bengal Rules referred to above to make payments to the credit of M/s. IFB Agro Industries Ltd., Durgapur who is deemed to be an agent of the State Government as such in terms of Rule 6DD(b) and Rule 6DD(k) of the Income Tax Rules, they are exempted and the disallowance made under section 40A(3) of the Act cannot be sustained. We, therefore, answer this issue in favour of the assessee and that the order of the authorities below cannot be sustained." 6. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2008-09, we respectfully follow the decision of the Coordinate Bench of this Tribunal for A.Y. 2008-09 and delete the disallowance made by the A.O. under section 40A(3) and confirmed by the Ld. CIT(A). Ground no 2 to 5 of the assessee's appeal for A.Y. 2010-11 are accordingly allowed. 7. The issues involved in ground no 6 and 7 of the assessee's appeal for 2010-11 relate to the additions of Rs. 1,55,742/- and Rs. 82,804/- made by the A.O. and confirmed by the Ld. CIT(A) on account of difference clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r verification. Since the learned DR has not raised any objection in this regard, we set aside the impugned order of the Ld. CIT(A) on this issue and restore the matters to the file of the A.O. for deciding the same afresh after giving the assessee an opportunity to produce the relevant stock record maintained for excise purpose. The A.O. shall verify the said record and recompute the additions, if any, on the basis of discrepancies found on such verification. Ground no 6 and 7 of the assessee's appeal for A.Y. 2010-11 are accordingly treated as allowed for statistical purpose. 10. Now, we take up the appeal of the assessee for A.Y. 2011-12 being ITA No. 860/Kol/2016. Ground no 1 raised in this appeal is general in nature which does not call for any specific adjudication. 11. As regards ground no 2 to 5, it is observed that the common issue raised therein relating to the addition of Rs. 47,57,240/- made by the A.O. and confirmed by the Ld. CIT(A) under section 40A(3) on account of cash payments made against purchases from IFB Agro Industries Ltd. exceeding Rs. 20,000/- is similar to the one involved in ground no 2 to 5 assessee's appeal for A.Y. 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as lying in the closing stock. As rightly contended by him, for making any addition on account of unexplained investment under section 69B of the Act, the onus is on the department to establish that such investment was actually made by the assessee. Although the assessee in the present case had made purchases outside the books of accounts, there was nothing brought on record to show that the quantity so purchases outside in the books of accounts was lying in the closing stock of the assessee as on 31.03.2011. In our opinion, the addition on account of unexplained investment in stock as made by the A.O. under section 69B thus is based on presumption and the same cannot be sustained. In our opinion, the only presumption that can be reasonably drawn in the absence of anything brought on record to show that the quantity purchased by the assessee outside the books of accounts was lying in the closing stock is that the said quantity was sold by the assessee outside the books of accounts and the addition that can justifiably made on this issue is only to the extent of gross profit on such unaccounted sales. We, therefore, modify the impugned order of the Ld. CIT(A) on this issue and direc ..... 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