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Facts
The assessee, a partnership firm, filed a return declaring nil income after setting off brought forward losses. The AO disallowed electricity charges paid in cash to Kerala Electricity Board under Section 40A(3) of the Income Tax Act. The assessee contended that the payment was made to a government-funded entity and thus covered by Rule 6DD.
Held
The Tribunal held that while Kerala Electricity Board may not strictly be a 'State Government', it qualifies as a 'State' under Article 12 of the Constitution and for the purpose of Section 40A(3) of the Act, it can be treated as a government entity. Following precedents from the Delhi and Karnataka High Courts, the Tribunal found that payments to such entities are exempt from the disallowance provisions of Section 40A(3).
Key Issues
Whether cash payment of electricity charges to Kerala Electricity Board attracts disallowance under Section 40A(3) of the Income Tax Act, considering Rule 6DD exemptions.
Sections Cited
40A(3), Rule 6DD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM
This appeal filed by the assessee is directed against the order of the ADDL/JCIT(A)-10, Mumbai [CIT(A)] dated 24.03.2025 for Assessment Year (AY) 2015-16.
Brief facts of the case are that assessee is a partnership firm. The return of income for the AY 2015-16 was filed on 19/07/2016 declaring nil income after setting off the brought forward depreciation loss of Rs. 1,25,649/-. Against the said return of Victply Industries income, the assessment was completed by the ITO, Ward-4, Kannur (for short, 'AO') vide order dated 17/11/2017 passed u/s. 143(3) of the Income Tax Act, 1961 (for short, 'the Act') at a total income of Rs. 14,32,070/-. While doing so, the AO disallowed the electricity charges paid to Kerala Electricity Board in cash of Rs. 14,32,070/- u/s. 40A(3) of the Act.
Being aggrieved by the above addition, an appeal was filed before the CIT(A). It was contended before the Ld. CIT(A) that the electricity charges paid to Government organization and, therefore, is covered by the exception enumerated under Rule 6DD of the IT Rules, 1962 (for short, “the Rules”), however, Ld. CIT(A) confirmed the action of the AO placing reliance on certain judicial precedents.
Being aggrieved, the assessee is in appeal before the Tribunal in the present appeal.
It is contended that the payment was made to Kerala Electricity Board which is wholly funded by Government of Kerala and payment made to it, is covered by the exceptions enumerated under rule 6DD of the Rules.
On the other hand, ld. Sr. DR submitted that the orders of the lower authorities are speaking one and the payment made by the assessee does not cover by the exceptions enumerated under Rule 6DD of the Rules.
The issue that arises for my determination is whether the electricity charges paid to Kerala Electricity Board in cash attracts the provisions of section 40A(3) of the Act or not. The provisions of rule 6DD of the Rules enumerates that any payment made to the Government is exempt from the rigorous of the provisions of section 40A(3) of the Act. The Kerala Electricity Board is no doubt is a “State” within the meaning of Article 12 of the Constitution of India. Although, strictly speaking, it does not fall within the definition of ‘State Government’, however, for the purpose of section 40A(3) and it can be treated as a government and no disallowance attracted. Reliance in this regard can be placed on the decision of Hon’ble Delhi High Court in the case of CIT vs. SRC Aviations (P) Ltd. 280 taxman.com 62 (mag.) (Del.) and also the decision of Hon’ble Karnataka High Court in the case of CIT vs. Venkatesh V. Kabade (2014) 45 taxman.com 403 (Mag.) (Kar.).
Respectfully following the decisions of Hon’ble Delhi & Karnataka High Courts (supra), I am of the considered opinion that the payment made to Kerala Electricity Board in cash does not attract the provisions of section 40A(3). Accordingly, I direct the AO to delete the addition made u/s. 40A(3) of the Act. Thus, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 31st July, 2025.