DIHIKA PACHWAI SHOP,BURDWAN vs. ITO, WD-2(4), ASANSOL, BURDWAN

The assessee in the present case is a partnership firm, which is engaged in the business of trading in Country Spirit and Pachwai. The ./2014 Assessment year: 2010-2011 Page 2 of 7 return of income for the year under consideration was filed by it on 27.09.2010 declaring total income of Rs.40,890/-. As noticed by the Assessing Officer during the course of assessment proceedings, the assessee-firm had made total purchases of Rs.82,65,484/- from M/s. Asansol Bottling & Packing Co. Pvt. Limited during the year under consideration and against the said purchases, payment to the extent of Rs.56,76,743/- was made by depositing cash directly in the Bank Account of M/s. Asansol Bottling & Packing Co. Pvt. Limited in the sums exceeding Rs.20,000/-. According to the Assessing Officer, the said payments were made by the assessee in contravention of section 40A(3) of the Income Tax Act, 1961 and since the assessee could not explain any exceptional circumstances as specified under Rule 6DD of Income Tax Rules, 1962 for making such payments, he made a disallowance of Rs.56,76,743/- under section 40A(3) of the Act.

The disallowance made by the Assessing Officer under section 40A(3) was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and since the submissions made by the assessee in his support on this issue was not found acceptable by him, the ld. CIT(Appeals) proceeded to confirm the disallowance made by the Assessing Officer under section 40A(3) for the following reasons given in paragraphs no. 6, 7 & 8 of his impugned order:- “6. In regard to reliance to paragraph 4 of the order of Hon. Income Tax Appellate Tribunal in M/s Arpita Traders vs ITO Ward-2 Cooch Behar in it can be seen that it is not a decision on law. It narrates a compulsive situation. A part of very same order is being relied upon by me. In paragraph 5 it is stated that "when the Government makes is compulsory to pay in cash". Whether a compulsion exists or not is matter of fact and compulsion is a pre-requisite to be proved. The appellant is duty bound to explain the compulsion. In other words on facts and circumstances of case M/s. Arpita Traders may have established compulsion, but what is needed is that compulsion is established by the a appellant on the facts and circumstances of the case of appellant. If so established then naturally benefits (subject to meeting any other specified conditions) of rule 600 will follow. Here the appellant has failed to prove that there is a rule by which he has to pay the bottling plant by cash. No rule exists (even West Bengal Excise ./2014 Assessment year: 2010-2011 Page 3 of 7 (Supply of Country Spirit on Payment of Duty) Rules, 2005 does not make compulsion to pay by cash to the company from where spirit is purchased) and here payment is made to a company having distinct identity and PAN and not Government.

The Authorized Representative also submitted that the decision of the Hon’ble ITAT, Special bench, Kolkata has in ITO, Ward-1, Murshidabad –vs.- M/s. Kenaram Saha and Subhash Saha in for AY 2004-05 was in favour of appellant. This is incorrect. The relevant paragraph reads "80. In view of the above, in our opinion, the assessee will get the exemption from the rigours of Section 40A(3) if he is able to establish that his case falls within any of the clauses of (a) to (m) of rule 6DD. The burden would be upon the assessee to establish under which particular clause his case falls". Therefore the decision needs no explanation. It makes it amply clear: that the onus is on assessee to establish the same sub clause under which his case falls. The inference that the intention of Hon. Income Tax Appellate Tribunal is to grant exemption under rule 6DD(b) is not correct. Hence the reliance of appellant on the decision of Hon’ble Income Tax Appellate Tribunal referred to here helps his cause in no manner.

Upon going through the submission, I find that no case is made out to prove that any of sub-rules of rule 6DD applies. For applying rule 6DD(b) mandate that cash payment is compulsory is to be proved. For applying rule 6DD(k), not only the mandate that cash payment is compulsory it to be proved but also that the bottling plant, which as I had already stated is a private company with distinct status and PAN, is agent of Government. Just because tax is collected and remitted to Government the Private Company does not become Government for any purpose”.

Aggrieved by the order of the ld. CIT(Appeals), the assessee has filed this appeal before the Tribunal.

We have heard the arguments of both the sides and also perused the relevant 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. ./2014 Assessment year: 2010-2011 Page 4 of 7 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.

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:-

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 ./2014 Assessment year: 2010-2011 Page 7 of 7 disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40A(3) of the Act.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on October 04, 2016.