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Income Tax Appellate Tribunal, ‘B’ BENCH,
Before: Shri P.M.Jagtap & Shri S.S.Viswanethra Ravi
Shri S.S. Viswanethra Ravi, JM :-
This appeal by the Assessee is directed against the order dated 25-11-2013 of the Commissioner of Income Tax(Appeals), Asansol for the assessment year 2010-11.
In this appeal, the Assessee has raised the following effective ground:- 1)For that on the facts of the case the Ld.CIT(A),Asansol, was not legally justified in sustaining the addition of Rs. 76,01,538/-, made by the A.O. u/s. 40A(3) of the Act'61, when such payments made into the bank account of the seller, ( being Government warehouse under Rule-7 of West Bengal Excise ( SCS PD ) Rules'05 ) , are legally covered by
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exceptions to Rule - 6DD of the Income Tax Rules '62 , and as such the addition may please be deleted. 2) For that on the facts of the case the identity of the payee, the genuineness of the transaction and payments being fully accounted and disclosed, both, by the purchaser and the seller, the scope and object of section 40A(3) of the Act'61, is satisfied, and the disallowance sustained by the CIT(A) , on this count, may please be deleted. 3) For that on the facts of the case the appellant craves leave to add, alter, amend any further grounds of appeal before or at the time of hearing.
The assessee is an individual and dealing in the business of country spirit and pachwai shop. The Assessee filed his return of income declaring total income of Rs.3,97,690/- for the A.Y:2010-11. Under scrutiny notice U/s. 143(2) and thereafter notice U/s. 142(1) were issued.
The AO found the assessee purchased country spirit from Asansol Bottling Plant in cash to an extent of Rs.76,01,538/- and not satisfied with the explanation offered by the Assessee, the AO disallowed an amount of Rs.76,01,538/- for violation of provisions of Section 4OA(3) Act and added same to the returned income of the assessee.
Before the CIT-A, the Assessee contended that Rule 6(2) of West Bengal Excise (Supply of Country Spirit on Payment of Duty) Rules, 2005 debars direct payment to local treasury for issue of country spirit and the bottling company receiving the payment on behalf of Government and money is deposited in bank account belonging to
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bottling company and the provisions of section 40A(3) of the Act is not applicable. Considering the submissions, the CIT-A confirmed the disallowance and additions made thereon. The relevant portion of which is reproduced herein below:
Rules 4 and 5 of West Bengal Excise (Supply of Country Spirit on payment of Duty) Rules, 2005 prescribe the manner of payment to West Bengal Govt. It states that bottling plant has to make advance payment to Govt. and sums paid by individual dealers are debited to the advance. There is no remittance of case by case remittance of sums paid by dealers to bottling plant for subsequent remittance by bottling plant to Govt. The rules no where prescribe mandatory cash payment. 7. Ground 5 is by way of reliance to Circular 220 dated 31.5.1977 to state that section 40A(3) is not attracted. Since the circular was issued, law has been amended so as to make it non-discretionary. The power available to Assessing Officer is limited and is within confines of rule 6DD as prevailing in AY 2010-11. Hence the circular mentioned in ground 5 has no relevance. After considering all aspects, since the three questions raised by me with reasons are not negated in any manner, and further West Bengal Excise (Supply of Country Spirit on Payment of Duty) Rules, 2005 does not make cash payment compulsory and further since bottling plant is not Government, I hold that the Assessing Officer has rightly applied the disallowance under section 40A(3). Grounds 2 to 5 are disposed of directing Assessing Officer to verify whether any payment below Rs 20,000 was disallowed and if so eliminate the same and recompute correct amount to be disallowed. Reasonable opportunity of being heard is to be granted to assessee before implementing this direction. The grounds are treated as partly allowed.
Aggrieved by such order of the CIT-A, now the assessee is in appeal by raising the above mentioned grounds.
Heard rival submissions and perused the material available on record. It is observed that the issue involved in
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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 ITA No. 1251/KOL/2011, payments were made by the assessee against purchases made from the same party, namely M/s. Asansol Bottling & Packing Co. Pvt. Limited 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 under section 40A(3) was deleted by the Tribunal for the following reasons given in paragraphs no. 21 & 22 of its order:-
“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:- “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 ITA No. 199/Kol/14 Biswanath Mondal 4
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.
(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;-
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(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”.
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 ITA No. 199/Kol/14 Biswanath Mondal 6
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
Order Pronounced in the Open Court on 4th October,2016
Sd/- Sd/- P.M JAGTAP S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 04 /10/2016
Copy of the order forwarded to:- 1. The Appellant/Assessee: Shri Biswanath Mondal Prop: Chhatapathar C.S & Pachai Shop Chhatapatbar, P.O Kalibari, Asansol 71339(WB). 2. The Respondent/Revenue: Income Tax Officer, Parmar Building Apcar Garden G.T Road (W) Asansol 713304. 3. CIT 4. CIT(A) 5. The Departmental Representative 6. Guard File True Copy By order Assistant Registrar ** PRADIP SPS Income Tax Appellate Tribunal Kolkata benches, Kolkata
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