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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Shri S.S.Viswanethra Ravi, JM]
ORDER Per M.Balaganesh, AM
This appeal by the Revenue and Cross Objection by the assessee arise out of the order of the Learned Commissioner of Income Tax(Appeals)-Durgapur [in short the ld CIT(A)] in Appeal No.12/CIT(A)/DGP/2013-14 dated 17.02.2015
2 C.O. No. 24/Kol/2015 Sudhir Kumar Mondal A.Yr.2010-11 against the order passed by the ITO, Ward-1(4), Durgapur [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 05.03.2013 for the Assessment Year 2010-11.
2. The only issue to be decided in the appeal of the revenue 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.
The brief facts of this issue is that the assessee is an individual engaged in the business of retail vending of country liquor. 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 payments to M/s IFB Agro Industries Ltd towards purchases of country liquor. Against the aforesaid purchases, the assessee made payments in cash by depositing money directly to the bank account of the aforesaid company. The ld AO observed that the payment for purchase was exceeding Rs 20,000/- resulting in violation of provisions of section 40A(3) of the Act and accordingly proceeded to disallow a sum of Rs 38,69,634/- in the 3 C.O. No. 24/Kol/2015 Sudhir Kumar Mondal A.Yr.2010-11 assessment. This disallowance was deleted by the ld CITA in first appeal. Aggrieved, the revenue is in appeal before us on the following grounds:- 1. That on the facts and circumstances of the case Ld. CIT(A) was not right in allowing relief against addition made on account of violation of Section 40A(3) drawing reference of Rule 6DD(b) without considering the fact that cash payment made by assessee to IFB AGRO INDUSTRIES LIMITED, in any way cannot be treated as payment made to Government.
2. That on the facts and circumstances of the case Ld. CIT(A) failed to appreciate that neither the impugned cash payment was related to any legal tender nor any binding was ever framed by rules which compelled the assessee to make cash purchase only.
3. That the appellant craves leave to add, alter, amend, modify, substitute, delete and/or rescind all or any grounds of appeal on or before final hearing.
None appeared on behalf of the assessee. Since this is a covered issue, we proceed to dispose off this appeal on hearing the ld DR. The ld DR vehemently relied on the order of the ld AO. We have heard the ld DR. We find that the issue under dispute is covered by the order of this tribunal in the case of Ramnagar Pachai & C.S. Shop vs ITO in for Asst Year 2011-12 dated 18.11.2016 wherein it was held as under:-
We have heard the rival submissions and perused the materials available on record. 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 3
4 C.O. No. 24/Kol/2015 Sudhir Kumar Mondal A.Yr.2010-11 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 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.
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 at convenient places by the Commissioner at the expense of the State Government, or at the expense of a person to whom the exclusive privilege of supplying or selling country spirit by wholesale has been granted under section 22 of the Act, or of a licensed wholesale vendor of country spirit; (viii) “wholesale licensee” means the wholesale vendor of country spirit to whom license has been granted in West Bengal Excise Form No. 26.
2. Words and expressions used in these rules and not defined, but defined in the Act, shall have the meanings respectively assigned to them in the Act.
5 C.O. No. 24/Kol/2015 Sudhir Kumar Mondal A.Yr.2010-11 3. Issue only on payment of duty.—No country spirit in labelled and capsuled bottles shall be issued without payment of duty from a country spirit bottling plant. No country spirit in bulk shall be issued without payment of duty from a country spirit warehouse.
4. Personal Ledger Account to be maintained by the wholesale licensee.—The wholesale licensee shall maintain a Personal Ledger Account in accordance with the direction issued by the Commissioner from time to time for the purpose of maintaining an account—current of the duties payable by the wholesale licensee for the issues of country spirit to the retail vendors or transport on payment of duty from the concerned country spirit bottling plant or warehouse.
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 imposition, as 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 5 (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 provisions of the rules, orders and notifications in this context, the wholesale suppliers of country spirit in labelled and capsuled bottles shall allow a rebate of five paise per bottle irrespective of measure from the bottling charge to the retail country spirit licensees whose licensed premises are located at a distance of 50 kilometres or more by the shortest route from the issuing warehouse on the basis of a certificate to be issued by the Collector in respect of distance.
At the end of the month, the wholesaler shall submit a bill in duplicate to the Officer-in-Charge of the warehouse claiming refund of the amount granted as rebate.
The Officer-in-Charge shall, on receipt of the bill, refund the amount claimed after verifying his records through adjustment in the Personal Ledger Account maintained for the purpose of privilege fee. In case there is no Personal Ledger Account for privilege fee at the warehouse, the Officer-in-Charge shall send a copy of the claim with his comments to the Officer-in-Charge of the supplier bottling plant, who shall refund the amount recommended to the wholesaler through adjustment in the Personal Ledger Account maintained for privilege fee.”
7. 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 6
7 C.O. No. 24/Kol/2015 Sudhir Kumar Mondal A.Yr.2010-11 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.
We find that the payments were made to the M/s Asansol Bottling & Packaging Co. Pvt. Ltd (wholesale licensee) by directly depositing the cash in their bank account. 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.
We find that this tribunal had in the case relied upon by the ld AR supra had elaborately dealt with the impugned issue with specific reference to the West Bengal Excise Rules and Bengal Excise Act, case laws on the impugned issue and ultimately held as below:-
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, established at convenient places by the Commissioner at the expense of the State Government, or at the expense of a person to whom the exclusive privilege of supplying or selling country spirit by wholesale has been granted under section 22 of the Act, or of a licensed wholesale vendor of country spirit.
The above definition makes it clear that the ‘warehouse’ referred to under the State Excise Rules is under the direct control and authority of the Commissioner of State Excise because it is established by the Commissioner of State Excise and as such is a State Government establishment. 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. 7 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” means 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 any person, on such conditions and for such period as it may think fit, the exclusive privilege – (a) of manufacturing, or supplying by wholesale, or (b) of manufacturing, and supplying by wholesale, or (c) of selling, by wholesale or retail, or (d) of manufacturing or supplying by wholesale and selling retail, or (e) of manufacturing and supplying by wholesale and selling retail, any country liquor or intoxicating drug within any specified local area:
Provided that public notice shall be given to the intention to grant any such exclusive 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 :-
9 C.O. No. 24/Kol/2015 Sudhir Kumar Mondal A.Yr.2010-11 (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 provided in Rule 6DD(b) of the IT Rules.
It is not in dispute that M/s Asansol Bottling & Packaging Co. Pvt Ltd have been granted licence to act as a wholesaler for supply of country liquor to the retail vendor as per the regulations of the Excise Department , Government of West Bengal. At the cost of repetition, we would like to state that the said regulation mandated the payments to be made directly into the bank account of the said wholesale licensee by the retail vendor (i.e assessee herein) for strict and effective regulation of the country liquor and for prevention of spurious stocks and black marketing transactions 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 defacto and dejure , is one of ‘Principal’ and ‘Agent’. We hold that the assessee retail vendor had made payment to the said agent (wholsesale licensee) would fall under the exception provided in Rule 6DD(k) of the Rules.
We hold from the aforesaid findings that the assessee’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 and respectfully 9
10 C.O. No. 24/Kol/2015 Sudhir Kumar Mondal A.Yr.2010-11 following the judicial precedents relied upon hereinabove, we have no hesitation in deleting the disallowance made u/s 40A(3) of the Act in all the years under appeal. Accordingly, the grounds raised by the assessee for all the years under appeal are allowed.
Respectfully following the aforesaid decision, we hold that the assessee’s case falls under the exceptions provided in Rule 6DD(b) and (k) of the Rules and accordingly, no disallowance u/s 40A(3) of the Act could be made in the facts and circumstances of the case to the tune of Rs. 29,73,086/-. Accordingly, the ground raised in this regard is allowed. However, with regard to another cash payment to the tune of Rs. 3,48,392/- made to M/s United Spirits Ltd towards purchase of beer, as fairly conceded by the ld AR , the same is in violation of section 40A(3) of the Act and hence the ground raised in this regard is dismissed.
5. Respectfully following the aforesaid decision of this tribunal, we hold that there could be no disallowance u/s 40A(3) of the Act in the facts and circumstances of the case and accordingly we direct the ld AO to delete the same. Accordingly the grounds raised by the revenue are dismissed.
6. The Cross objection raised by the assessee are only supportive of the order of the ld CITA and does not require any specific adjudication.
In the result, the appeal of the revenue is dismissed and cross objection of the assessee is allowed.
Order pronounced in the Court on 22.11.2017