M/S. ASHIRBAD ENTERPRISE,KOLKATA vs. ITO, WARD - 49(4), KOLKATA, KOLKATA

This appeal by assessee is arising out of order of CIT(A)-XXXII, Kolkata vide Appeal No. 220/CIT(A)-XXXII/10-11/49(4)/Kol dated 22.09.2011. Assessment was framed by ITO, Ward-49(4), Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2008-09 vide his order dated 31.12.2010.

Brief facts of this case are that the assessee is a seller of country spirit. During the relevant year, assessee made purchases from one M/s. Bhattacharya Bottling Plant Pvt. Ltd. (in short BBPPL). Ld. AO made enquiries u/s. 133(6) of the Act from BBPPL and basing on the reply received from them found that payment for purchases worth Rs.40,95,282/- was made in cash in excess of Rs. 20,000/- each. The AO observed that the assessee had offered no explanation at all to the show cause notice issued to them disallowed such purchases u/s. 40A(3) of the Act and added back to the income of the assessee. So also basing the reply received u/s. 133(6) of the Act from M/s. BBPPL the AO further observed that in the Books of BBPPL the sales to the assessee were Rs.2,40,99,253/- whereas in the assessee’s books the purchase was entered only to the tune of Rs.2,30,40,228/-, leaving a difference of Rs.10,59,025/-. The AO further observed that the assessee had not shown the stock of any such goods in his Balance Sheet as such, the AO concluded that the assessee must have sold these goods out of books of account. On this transaction, the AO calculated the seed capital at Rs. one lac and the gross profit at Rs.6.91% and reached to the sum of Rs.73,178/- . He added these two amounts also to the income of the assessee.

Challenging the said findings of the Ld. CIT(A), the AO filed this appeal before the Tribunal on the following grounds: “

It is further contended by the Ld. AR of the assessee that the three cheques issued to M/s BBPPL were dishonoured and such dishonour was not reflected in the books of M/s. BBPPL and subsequently, there was reconciliation of the bank statement which is not taken into consideration by the authorities below. When this difference of Rs.10,59,025/- was reconciled the question of seed capital or G.P. calculation thereon does not arise at all. For these reasons, he prayed to delete the addition of Rs.1,73,178/- also.

On the other hand, the Ld. DR submitted that payment in cash is not a legal tender and the assessee is expected to make the payments as per law. Further, there was no proper explanation from the assessee to the notices issued to them as observed by the authorities below as such, the authorities are justified in making the additions.

Now, the point that arises for our consideration in this matter is whether the authorities below are justified in disallowing the purchase expenses u/s. 40A(3) of the Act and also adding back Rs.1,73,178/- to the income of the assessee on the ground of purchase out of books?

The assessee is a retail vendor of country liquor which is an excisable commodity. The sales and purchases are controlled by the State Government and earlier the retail sellers used to deposit the cost price, excise duty, bottling charges etc. in the treasury but subsequently the Excise Department by way of Notification dated 29.08.2005 changed the procedure. As per this procedure vide clause 6(2) no retail vendor of country spirit shall deposit duty directly into the local treasury for issue of country spirit to be taken by him from the warehouse concerned, but the 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. The assessee claims that the State Government by way of notification appointed M/s. BBPPL to be the wholesale

Ld. Counsel for the assessee drew our attention to Rule 2(vii) of the West Bengal Excise Rules, 2005 wherein the warehouse was defined and section 22 of the West Bengal Excise Act where exclusive privilege of manufacture and sale of country liquor was granted to such bottling plant. He also took us to Rule 6DD(b) of the Income Tax rules, wherein it was stated that 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 and also to Rule 6DD(k) of the Rules which states that 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 Ld. AR placed reliance on a decision reported in M/s. Amrai Pachai & C.S. Shop, dated 15.01.2014 wherein a coordinate bench of this Tribunal on a comprehensive consideration of Rule 6(2) of the Rules under notification issued in Calcutta Gazette, Tuesday 20th September, 2005 and 6DD(b) of the I. T. Rules held that the payments made by the assessee to the wholesale licensee for purchase of country spirit are protected by exemption in terms of rule 6DD(b) of the I. T. Rules. He further placed reliance on a decision of a Coordinate Bench of this Tribunal in Ramnagar Pachwai & C.S.(S) Shop, in ITA No. 148/Kol/2015 wherein this Tribunal considered similar set of facts with reference to Rule 2(vii) of the West Bengal Excise Rules section 22 of the West Bengal Excise Act, Rule 6DD(b) and Rule 6DD(k) of the I. T. Rules in the light of the observations of this Tribunal in Amrai Pachai & C.S. Shop, supra and came to the conclusion that the case of assessee in that case falls under the exception provided in Rule 6DD(b) and Rule 6DD(k) of I. T. Rules and the disallowance made u/s. 40A(3) of the Act was deleted. Ld. AR submits that the facts in the case on hand are identical to the facts of the above case.

We have carefully perused the record and find that no notification in respect of appointment of M/s. BBPPL as wholesale licencee is placed before us to consider the status of such an entity with reference to the different provisions and citations placed before us. It is not possible to reach any conclusion in the absence of such evidence. Further, none of the contentions raised before us were canvassed before the AO and the AO had no opportunity of considering them. We, therefore, in these circumstances, feel it just and proper to set

Now, coming to ground no. 1(b) and (c), the AO recorded in his order that there is no explanation offered by the assessee on the aspect of the purchase out of record in spite of opportunity provided to them as such, he had to proceed in the absence of any explanation of the assessee to make the additions on presumptive basis. So also the order of the Ld. CIT(A) reads that even before him, the assessee had not offered any explanation, details and evidence on this aspect. However, before us, the assessee produced by way of paper book vide page no. 87 the reconciliation statement of sales figures. Since it was not produced before the AO and it requires investigation by following the procedure under law, on this aspect, we feel it just and proper to set side the orders of the lower authorities and restore the matter to the file of the AO for fresh adjudication after giving reasonable opportunity of being heard to the assessee. We direct the assessee to produce all the material before the AO and cooperate with him to reach a proper and judicious conclusion and to adjudge proper tax liability. Therefore, this ground of appeal of assessee is also allowed for statistical purposes.

In the result, the appeal of assessee is allowed for statistical purposes.