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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri N.V. Vasudevan, JM & Shri M.Balaganesh, AM ]
This appeal by the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals), Kolkata [ in short the ld CITA] in Appeal No. 23/CIT(A)/Asl/W-1(4)/Asl/13-14 dated 03.12.2014 against the orders passed by the ITO, Ward-1(4), Asansol [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 11.01.2013 for the Assessment Year 2010-11.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in upholding 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 4. The Assessee is a retail vendor 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.
2 Smt. Urmi Shit A.Yr.2010-11 Subsequently, the Excise Department by a notification dated 29.08.2005 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 partly by demand drafts and partly by cash deposits in the Bank A/c of its Supplier i.e. M/s. Asansol Bottling and Packaging Co. Pvt. Ltd. maintained in the State Bank of India. While completing the assessments of the assessee, the Ld. A.O. allowed the payments made by demand drafts in the sum of Rs 6,90,298/- and disallowed the payments made by the cash deposits (in excess of Rs.20,000 on each occasion) made in the Bank A/c of the Supplier maintained in the State Bank of India in terms of Sec.40A(3) of the I. T. Act to the tune of Rs. 48,10,982/- and completed the assessment.
The assessee preferred an appeal before the ld CITA and claimed that its case is covered under the exceptions provided in Rule 6DD(b) and Rule 6DD(k) of the IT Rules. The ld CITA however ignored the same and confirmed the disallowance made by the ld AO. Aggrieved, the assessee is in appeal before us on the following grounds:-
1. That the Ld. CIT(A) erred in sustaining the order of the Ld. AO disallowing the entire purchase consideration (including Excise Duty, Sales Tax and other levies etc.) of Country Spirit for violation of provisions of Sec. 40A(3) of the I.T. Act, 1961 on the ground that such purchase consideration was allegedly paid in cash to the supplier. 1.(a) That since the entire amount of purchase consideration was admittedly paid to the Bank in the account of the supplier maintained in the said Bank, the payment was covered by Rule 6DD(a)(i)of the I.T. Rules and therefore the provisions of Sec. 40A(3) were not attracted. 1.(b) That since, on the facts and circumstances of the case, the Bank in which the cash payments were made by the assessee impliedly became his agent and as the Bank was required to make cash payments to the supplier who was its customer, all the conditions prescribed in Rule 6DD(k) of the I.T. Rules were 2 3 Smt. Urmi Shit A.Yr.2010-11 satisfied and therefore, such payments through Bank escaped the provisions of Section 40A(3) of the I.T. Act, 1961.
2. That on the facts and circumstances of the case the Ld. CIT(A) erred in confirming the entire addition made by the AO disregarding the fact that by virtue of notification of the State Government the procedure of depositing cash in the Govt. treasury was closed and payment for purchase in cl. Excise Duty and other impositions have to be made to the warehouse owned by Asansol Bottling & Packaging Co. Pvt. Ltd which is under direct control and supervision of the State Government and payment to the warehouse/or to the bank account of Asansol Bottling & Packaging Co. Pvt. Ltd was as good as payment to the Govt. and such payment is covered under exception provided under Rule 6DD(b) and provisions contained u/s 40(A)(3) is not applicable in case of such payments.
3. That the case is squarely covered by the decision of Hon’ble ITAT “C” Bench, Kolkata in the case of Ashok Mondal A.Y. 2009-10 I.T.A. No. 873/Kol/2012 wherein their lordship decided the case in the favour of Ashok Mondal relying on the view that cash payments to the warehouse is covered under Rule 6DD(b) and beyond the scope of any addition u/s 40A(3).
4. That, the appellant craves leave to alter, amend, rescind and substitute any of the above mentioned grounds and add any further grounds before or at the time of hearing of the appeal.
The ld AR stated that the issue under dispute is covered by the following orders of this tribunal in favour of the assessee :- a) Assessee’s own case for Asst Year 2008-09 in ITA No. 176/Kol/2014 dated 25.11.2016. b) Ramangar Pachwai & C.S.(S) Shop vs ITO in ITA No. 148/Kol/2015 (AY 2007-08) ; ITA No. 185/Kol/2014 (AY 2008-09) & ITA No. 186/Kol/2014 (AY 2010-11) dated 5.8.2016. c) Nuni Chinchuria Pachwai & C.S.Shop vs ITO in ITA Nos. 187 & 188/Kol/2014 for Asst Years 2008-09 & 2010-11 dated 4.10.2016. d) Ramnagar Pachwai & C.S.(S) Shop vs ITO in ITA No. 938/Kol/2016 for Asst Year 2011-12 dated 18.11.2016. e) Amrai Pachwai & C.S.Shop vs ITO in ITA No. 1251/Kol/2011 dated 15.1.2014.
In response to this, the ld DR fairly conceded that the issue is covered in favour of the assessee by the various orders of this tribunal.
We have heard the rival submissions. We find that the issue under dispute is squarely covered in favour of the assessee by the aforesaid orders relied upon by the ld AR and also by the order of this tribunal in assessee’s own case supra, wherein it was held that:- “8. Heard rival submissions and perused the material available on record. It is observed that the issue involved in this appeal of the assessee relating to the disallowance under Section 40A(3) is squarely covered in favour of the assessee by the various decisions of this Tribunal. In one of such cases, namely M/s Amrai Pachwai & C.S. Shop decided by the Tribunal vide its order dated 15.01.2014 passed in payments were made by the assessee against purchases made from the same party, namely M/s Asansol Bottling & Packaging Co. Pvt. Ltd. by depositing the cash directly in the Bank account of the said supplier in the sums exceeding Rs. 20,000/- and the disallowance made for the same u/s 40A(3) was deleted by the Tribunal. 9. But, with regard to the submissions of the Ld. DR in respect of decision in the case of ITO vs. Kenaram Saha & Subhash Saha reported 116 ITD 0001(Kol) as considered by the CIT-A in the impugned order and the operative portion of the decision supra is reproduced herein below for ready reference: 18.1 We have considered the rival submissions and perused the material placed before us. After hearing both the parties and perusing the order of the CIT(A), we find that the CIT(A) deleted the disallowance without giving any finding with regard to any specific clause of r. 600 in which the assessee's case falls. As we have already discussed that once there is payment of any expenditure in violation of s. 40A(3), the assessee can escape the disallowance under the said section only if assessee's case falls within the ambit of any of the clauses of r. 6DD. The matter was required to be examined whether assessee's case falls under any specific clause. In this case we find that neither the assessee properly claimed nor the AO examined the case with reference to the relevant rule. Even before the CIT(A) the position did not change. But the arguments of the assessee's counsel were having regard to business expediency, smallness of assessee's capital, assessee being new to the business, etc. payment in cash was made. At the time of hearing before us, the assessee made a specific claim that the cash payment was made to the agent who in turn was required to make the payment in cash to the sellers of such goods. Therefore, assessee's case falls within the ambit of cl. (I) of r. 6DD and this was the claim before the Revenue authorities. However, this claim has to be examined in accordance with law. In 4
5 Smt. Urmi Shit A.Yr.2010-11 the above circumstances, in our opinion, it would meet the ends of justice if the orders of the authorities below on this point are set aside and the matter is restored back to the file of the AO with the direction that he will allow adequate opportunity to the assessee to produce the necessary evidence in support of his claim. Thereafter the AO will readjudicate the matter in accordance with law and in the light of our observations/findings in this order.
The facts of the aforementioned case are that the assessee is an AOP and is a big dealer in the chain of agents involved in the public distribution system for supply of kerosene oil within the State of West Bengal. During the year under consideration the assessee therein made the payment of Rs. 1,34,58,430 for purchase of kerosene oil in cash exceeding Rs. 20,000. According to AO, the payment was in violation of the provisions of s. 40A(3) and disallowed 20% of the payment made by the assessee to an extent of Rs. 26,91,680/-. In first appeal, the CIT-A deleted the disallowance holding that the assessee's case is covered' under Rule 6DD(k) as well as Rule. 6DD(I) of Income Tax Rules. The Special Bench found that the assessee claimed that the agent is the representative of Government of West Bengal and, therefore, payment made to the .agent being representative of Government of West Bengal is a payment to the Government of West Bengal. But, However, the Special Bench found no claim, as such, was made by the assessee before the AO and the Bench opined the claim of the assessee would require examination, accordingly, restored the matter back to the file of the AO with the direction that he shall examine the assessee's contention whether its case falls under cls, (b), (k) and (I) of Rule 600. Therefore, we find no observation as made by the Special Bench in favour of the Revenue as observed by the CIT-A in his order and as relied by the Ld.DR before us. Thus, we are of the opinion as there was no categorical finding of the Special Bench relating to the issue on hand and reject the contentions of the Respondent Revenue in this regard.
Now, let us examine the decision of the Tribunal vide its order dated 15.01.2014 passed in in the case of M/s. Amrai Pachwai & C.S. Shop, wherein it held 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 and is a licensed wholesale vendor of country spirit granted power under section 22 of the Bengal Excise Act and further held that the cash payments made by depositing into the bank account of M/s Asansol Bottling & Packaging Co Pvt Limited by the retail vendor for purchase of country spirit as per Rule 6(2) of the Excise Rules 2005 has to be construed as payment made to the State Government authority in terms of the exception as provided in Rule 6DD(b) and for better understanding, the following reasons given in paragraphs no. 21 & 22 of its order is reproduced as under:-
"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:-
6 Smt. Urmi Shit A.Yr.2010-11 "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.
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.
7 Smt. Urmi Shit A.Yr.2010-11 (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 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 (wholesale licensee) would fall under the exception provided in Rule 6DD(k) of the Rules".
We also find on record a copy of license for the bottling of country spirit under form no-1 as placed by the Ld.AR and on perusal of the same the said license was issued by the Collector Burdwan West Area, West Bengal authorising the said bottling company to sell by wholesale of country spirit and Rule 2(viii) of Excise Rules 2005 defines the 7 8 Smt. Urmi Shit A.Yr.2010-11 "Wholesale licensee" means the wholesale vendor of country spirit to whom licence has been granted in West Bengal Excise Form No. 26.
As the issue involved in the present appeal as well as all the material facts relevant thereto are similar to the case of M/s. Amrai Pachwai & C.S. Shop supra, we respectfully follow the decision rendered by the Coordinate Bench of this Tribunal in the said case and delete the disallowance made by the Assessing Officer and confirmed by the CIT-A under section 40A(3) of the Act.
In the result, the appeal of the Assessee is 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 48,10,982/-. Accordingly, the grounds raised by the assessee in this regard are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 04.08.2017