ITO, WD-1(1), DURGAPUR, DURGAPUR vs. M/S AMRAI PACHWAI & C. S. SHOP, DURGAPUR

O R D E R

Per Dr. Arjun Lal Saini, AM:

“I have gone through the finding of the A.O. in the assessment order and the written submission of the appellant. The arguments canvassed on behalf of the appellant have been considered carefully in light of the issue in the assessment order framed by the AO along with materials adduced on record. It is observed that in pursuance of its activities as a retail trader of country spirit, the appellant had incurred expenses of an amount of Rs. 1,71,35,127/- on account of purchases thereof from the warehouse of the M/s. IFB-Agro Industries Ltd. and the payments thereof was made in to the collection account of such warehouse which was alleged to have fallen within the mischief of s. 40A(3) of the I.T. Act. The A/R appearing on behalf of the appellant had vehemently assailed the application of s. 40A(3) of the Act in respect of this transaction in view of the exclusion contained in Rule 6DD(b) of the Act. It is found that the entire business of dealing in country spirit is done within the periphery of the Department of Excise, Government of West Bengal. The Notification dated 29-08-2005 in respect of the West Bengal Excise (Supply of Country Spirit on Payment of Duty) Rules, 2005 lays down the procedure in respect of procurement of country spirit. It is also found that the warehouse acts under the authority of the Excise Commissioner, Government of West Bengal who is the supreme in respect of issuance of country spirit. Therefore the entire transaction takes place within the framework of the Notification issued by the Government of West Bengal. The facts and the points of law involved in this issue for this year are similar to A.Y. 2008-09. This issue which was alive in A.Y. 2008-09 has been decided in favour of the appellant by Hon'ble ITAT, Bench "A" Kolkata thereby holding that the payments were made to the Government and are exempted by Rule 6DD(b) of the Rules read with s. 40A(3) of the Act. In the appellant's own case for the assessment year 2008-2009, the Hon'ble ITAT in dated 15.01.2014 has observed as under: - "6. We have considered the rival submissions. At the outset a perusal of the assessment order clearly shows that the AO has recognized the assessee's business in trading of country spirit and country liquor.

3 M/s Amrai Pachwai & C.S.Shop Copy of Form of Licence issued by Durgapur Municipal Corporation and copy of Form III issued by Department of Excise/ Govt. of W.S. were also found at pages 177 and 179 of the assessee's paper book. In any case the validity of licence of the assessee to trade in country spirit and country liquor is not the issue before us. The issue is whether the payments made by the assessee for the purchase of country spirit from the territorial licensee bottling plant IFB Agro Industries Ltd., City Centre/ Durgapur falls within the exemption provided under rule 6DD(b) of the IT. Rules 1962. Admittedly, the AO has recognized that the provision of rule 6DD(b) of the I.T. Rules/ 1962 is applicable in case of payments made to government directly. This is found in page 2 of the assessment order. A perusal of the Kolkata Gazette Tuesday 20th Sept 2005 shows that the Government of West Bengal Department of Excise has issued a notification wherein the warehouse has been identified to mean the warehouse for supply of country spirit to the 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 u/s 22 of the Act of a licensed wholesale vendor of country spirit. Further, it has been specifically identified that the authorised 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 the country spirit is to be issued form the concerned warehouse. It is also specifically mentioned in section (2) of the said notification that 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 which clearly shows that the warehouse is for the supply of the country liquor, specifically, the warehouse is under the direct control and custody of the State Govt. The State Government has closed its doors in so far as the local treasury is concerned and the payment for the purchase of country spirit or country liquor has to be made to the warehouse, run by the government This shows that any payment made to the warehouse, which is under the direct control of the state government, is a payment made directly to the government. Once, this is accepted then the provisions of Rule 6DD(b) of the 1. T. Rules, 1962 which clearly spells out that the payment made to the government in legal tender under the rules framed by the Government, is exempted from the rigours of section 40A(3) of the Act. Here, it is noticed that the payments made by the assessee for purchase of country spirit and country liquor is to the government as per the notification issued by the government and is in legal tender specified by the notification. In the circumstances, we are of the view that the payment made by the assessee for the purchase of country liquor and country spirit from the territorial licensee bottling plant, IFB Agro Industries Ltd., City Centre, Durgapur is protected by the exemption in terms of Rule 6DD(b) of the I.T. Rules 1962. In the circumstances the addition as made by the AO and as confirmed by the Id CIT(A) by invoking the provisions of section 40A(3) of the L T. Act 1961 stands deleted.

4 M/s Amrai Pachwai & C.S.Shop following such precedent, as emanating from the above cited decision of the Hon'ble ITAT, I have no hesitation to hold that the addition in the sum of Rs. 1,71,35,127/- made by invoking of sec. 40A(3) of the Act is not justified in the facts and circumstances of the case and accordingly, the A.O. is directed to delete the disallowance of Rs. 1,71,35,127/- .Thus both the grounds of appeal are allowed.

8. The appeal of the appellant is allowed.”

4. Not being satisfied with the order of ld. CIT(A), the revenue is in appeal before us and has taken the following grounds of appeal :- i) That on the facts and circumstances LD CIT(A) failed to appreciate the fact that the payments were not made to Government but to a person to whom exclusive privilege of supplying and selling of country spirit by Wholesale has been granted u/s 22 of the Act ii) That on the facts and circumstances of the case LD CIT(A) erred in allowing relief without considering the fact that by virtue of the cited notification no rule was framed for the retailers directing them to purchase country spirit other than through account payee Cheques, in spite of having bank facility. iii) That on the facts and circumstances of the case the order passed by Ld CIT(A) should be rejected outright, as on the similar ground relevant to other assessment year Revenue has agitated the issue before Hon'ble High Court, Kolkata. iv) 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.

4.1. Ld. DR for the Revenue has primarily relied on the findings of the AO, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

4.2. We noticed from the order passed by the ld CIT(A), that in pursuance of assessee’s activities as a retail trader of country spirit, the assessee had incurred expenses by an amount of Rs.1,71,35,127/- on account of purchases thereof from the warehouse of M/s IFB Agro Industries Ltd and the payments there of was made in the collection account of such warehouse which was seemed to have valid within the provisions of Section 40A(3) of the Act. The issue under consideration is fully covered by the two judgments of the Kolkata Bench of the Tribunal. account of concerned Bottling Plant Co. by depositing cash, which is approved by West Bengal Govt. and it is covered by the exception prescribed under Rule 6DD(b) of the IT Rules 1962. In addition to this, the issue under consideration is fully covered by the following judgments:- i) M/s Topsi Kenda C.S.Shop, order dated 13.01.2017: 4. We have heard both the parties and perused the records. We take note that the assessee is a retail vendor of country spirit, other than that there is no mention about how the business activity is conducted or how the assessee makes the payment etc. is deciphered from the orders of the authorities below. The Ld. AR has submitted before us that the assessee is a retail vendor of country spirit and the assessee i.e. the retail vendor had made cash payments for purchase of country spirit by depositing cash directly in the bank account of M/s Asansol Bottling & Packaging Co. Pvt. Ltd. (M/s ABPL) which is the bottling firm and is the warehouse within the meaning of Rule 2(vii) of the West Bengal Excise (Supply of Country Spirit on Payment of Duty) Rules 2005 (hereinafter referred to as the "Rules"). It was explained before us by the Ld. AR that the payment of cash is made by the assessee (retail vendor) by depositing cash directly in the bank account of M/s ABPL as per Rule 6(2) of the Rules. In case if the assessee (retail vendor) is making cash payment for purchase of country spirit directly into ITA No.419/Kol/2014 M/s. Topsi Kenda C.S. Shop A.Yr.2008-09 the bank account of M/s ABPL as per Rule 6(2) of the Excise Rules, 2005 then the Tribunal order in ITA No. 148/Kol/2015 and 185 & 186/Kol/ A.Y. 2007-08 & 2010- 11 respectively will come in aid of the assessee because in these cases it has been held by the Tribunal that if such payment has been made as per Rule 6(2) to the bank account of M/s ABPL which is a warehouse within the meaning of Rule 2(vii) of the West Bengal Excise Rules 2005, and so is a State Government establishment which is controlled by the Excise Commissioner and resultantly the payment made in cash to it will attract the exemption provided in Rule 6DD(b) of the Income Tax Rules, 1962. ii) Bolkunda Pachwati & (S) C.S.Shop, order dated 10.08.2016: “3.9. The ld AR had advanced another argument that the payment is made by the assessee to State Bank of India and accordingly the same would fall under the exception provided in Rule 6DD(a) of the Rules. We find that the assessee had made payments only to the customer of State Bank of India and not to State Bank of India. Hence the assessee's case does not fall under the exception provided in Rule 6DD(a) of the Rules.

3.10. 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 following the judicial precedents relied upon hereinabove, we have no hesitation in deleting the disallowance made u/s 40A(3)” we are of the view that there is merit in the order passed by the ld CIT(A) which is supported by the facts narrated above and the case laws cited above. As Ld. CIT(A) has pointed out that the assessee’s case is covered under Rule 6DD (b) of the Rules, 1962. In view of the above facts and circumstances of the case and respectfully following the judicial precedents of the Kolkata Bench of the Tribunal, we do not see any reason to interfere in the findings given by the CIT(A) in deleting the disallowance so made u/s.40A(3) of the Act. Accordingly, we upheld the order of the CIT(A).

4.4. In the result, the appeal filed by the revenue is dismissed.

Order pronounced in the open court on this 22/03/2017.