M/S SAVITRI DEVI, RAJESH KUMAR & ORS,KOLKATA vs. THE DCIT, CIRCLE-10, KOLKATA, KOLKATA

Only issue is to be decided is as together the CIT(A) is justified in confirming the addition made by the Assessing Officer on account of cash purchase violating the A.Y.2009-10 M/s Savitri Devi, Amita Jaiswal &, Rajesh Kumar & ors vs. DCIT, Cir-10, Kol. Page 2 section 40A(3) of the Income Tax Act, 1961, in short “the Act” in the facts and circumstances of the case.

The brief facts of the case are that assessee is an AOP and engaged in retail trading of country liquor. The assessee filed return of income showing total income of ₹47,67,010/- and assessment was completed u/s 143(3) of the Act accepting the return income. The said assessment was re-opened on an information that huge cash purchase of liquor in excess of ₹20,000/- on each occasion from M/s Saraya Distillery, Sadar Nagar, Gorakhpur, U.P. and the same were made for the country liquor shop M/s Savitri Devi, Amita Jaiswal & Others in of provision u/s 40A(3) of the Act. The Assessing Officer found the said cash purchases were not mentioned in the tax audit report the assessee filed written submissions and contended that the payments made in a single day and consolidated payment of several shops wherein the single payment bill or memo does not exceeds ₹20,000/-. The AO did not accept the said submissions made by the assessee and added an amount of ₹1,49,11,496/- to the total income of assessee on account of cash purchases for violation of provision of Section 40A(3) of the Act vide his order dated 17.10.2014 passed u/s 147/143(3) of the Act.

Before CIT(A) assessee reiterated the same submission that made before the AO. Further assessee contended that the purchases have been made from government authorized licencee and the payments are covered by exception under Rule 6DD(b) and Rule 6DD(k) of the Income Tax Rule, 1962 and placed reliance on the order of ITAT Allahabad Bench in the case of Ram Nivas & Others -vs ITO, Gorakhpur in dated 11.12.2015 and submitted that the provision of Section 40A(3) as held by the Tribunal are not attracted in case of liquor purchases from government authorized distributors. The CIT(A) however not accepted the submission of assessee and by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of CIT Central vs. Panduranga Enterprises¸ (2015) 55 Taxmann.com 437 (Kar) upheld the view of AO. -99/Kol/2016 A.Y.2009-10 M/s Savitri Devi, Amita Jaiswal &, Rajesh Kumar & ors vs. DCIT, Cir-10, Kol. Page 3 5. Aggrieved, assessee before us contending that the cash purchase of alcohol liquor for human consumption from a authorized distributor of Government of Uttar Pradesh is covered by the Rule 6DD(b) of IT Rules, 1962 and such payments were made to an agent of Government of Uttar Pradesh. Learned DR relied on the order of Authorities Below.

Heard rival submissions and perused material available on record. We find the issue on hand is covered by the order of co-ordinate bench of this Tribunal wherein it was held that cash payments made to an agent of government is covered by exception provided under Rule 6DD(b) of IT Rules, 1962 reproduced relevant portion in dated 28.3.2018 7.Heard rival submissions and perused material on record. It is noticed that the AO found from the statement received from United Bank of India, Mayabazar branch that the assessee paid an amount of Rs.2,33,23,967/- in cash to IFB Agro Industries Ltd and non production of any evidence showing that the said payments were made in account payee cheque or bank draft and for violation of the provisions of section 40A(3) of the Act, the aforesaid amount was brought to tax by the AO. Before the CIT(A) it was contended by the assessee that the cash payments were made to IFB Agro Industries Ltd, Panagarh Bazar, Budbud as per the compliances to be made with West Bengal Excise (supply of country spirit on payment of Duty) Rules, 2005 and it is a credit to the agent of the State Government and as such payments are covered by the exceptions contained in Rule 6DD (b) of Income Tax Rules, 1962. The ITAT, Kolkata benches in the case of Amrai Pachwai & C.S.Shop vs DCIT (supra) held that Rule 6DD(b) is applicable that if the payments made to the Government agent in legal tender under the rules framed by it and considering the same and taking into consideration the facts and circumstances of the case that the assessee purchased country liquor and country spirit from the territorial licensee bottling plant IFB Agro Industries Ltd and payments in cash made thereto is protected by the exemption in terms of Rule 6DD(b) of Income Tax Rules, 1962 as per the notification issued by the Government. In view of the same, we find no infirmity in the order of CIT(A) as the grounds 1 to 5 raised in the appeal by the revenue are dismissed.”

In view of above discussion and finding of co-ordinate bench of Kolkata Tribunal, we find the Government of Uttar Pradesh appointed M/s Saraya Distillery, Sadar Nagara, Gorakhpur, U.P. as its agent and the entire payments i.e. impugned amount paid to the said agent is to be treated as if paid to Government of U.P and as such said cash payment are covered by the Rule 6DD(b) of IT Rules, 1962. Therefore we are not in agreement with the view taken by Authorities Below and addition