M/S BOLKUNDA PACHWAI & (S) C. S. SHOP,BURDWAN vs. ITO, WD.1(2), ASANSOL, ASANSOL

ORDER Per Shri M. Balaganesh, AM:

Both these appeals by assessee are arising out of separate orders of CIT(A), Asansol, vide appeal Nos. 201/CIT(A)/Asl/W-1(2)/Asl/10-11 and 181/CIT(A)/Asl/W-1(2)/Asl/11-12 both dated 25.11.2013. Assessments were framed by ITO-1(2), Asansol u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AYs 2008-09 and 2009-10 vide his separate orders dated 03.12.2010 and 30.11.2011. Since issues are identical and facts are common, we dispose of both these appeals by this common order for the sake of convenience.

2. The first issue to be decided in these appeals is as to whether the ld CITA is justified in upholding the disallowance made u/s 40A(3) of the Act in the facts and circumstances of the case.

2.1. The brief facts of this issue is that the assessee is a partnership firm engaged in the business of retail trading of liquor under the name and style of M/s Bolkunda Pachwai & (S) C.S.Shop. The ld AO during the course of assessment proceedings observed that the assessee had made cash payments in excess of Rs. 20,000/- to M/s Asansol Bottling & Packaging Co. Pvt Ltd (ABPL in short) for purchase of country spirit by way of cash deposits into the bank account of ABPL. The ld AO show caused the assessee as to why the provisions of section 40A(3) of the Act should not be invoked on the assessee. In response to the show cause notice, the assessee replied that the payment for purchase of country spirit

2 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 had to be made prior to delivery of the bottles of country spirit by M/s ABPL. The pay in slip of SBI , Asansol was filled by the assessee corresponding to the amount of country spirit purchased , the rate of which is fixed by the State Government and is known to both assessee and ABPL and the amount is deposited in the bank account of ABPL by the assessee. The signature in the pay in slip is that of partner of the assessee firm and deposit counterfoil is obtained. The deposit counterfoil is presented to ABPL prior to the delivery of country spirit at the Dhadka factory. Accordingly it was argued that the payment is made to the wholesale licensee who is an agent of the Government and hence the payment would fall under the exception provided in Rule 6DD(k) of the IT Rules. The ld AO not convinced with this reply proceeded to make disallowance u/s 40A(3) of the Act in respect of cash purchases made by the assessee which was confirmed by the ld CITA on first appeal. Aggrieved, the assessee is in appeal before us.

2.2. The ld AR took us to the relevant clauses of the Notification dated 29.08.2005 issued by the Excise Department, Government of West Bengal according to which, he argued that the wholesale licencee is an agent of the State Government and is a link between retail vendor (assessee herein) and the State Government. He argued that Rule 6(2) of the said notification mandates the retail vendor (i.e the assessee herein) to deposit the monies directly into the bank account of the wholesale licensee and not by any other mode. He argued that the wholesale licensee is an agent of the assessee as well as for the Government. The said notification stipulates the issuance of Transport Pass by the Excise Department in order to regulate and control the movement of country liquor by the Excise Department. Accordingly he argued that the payments made by the assessee falls under the exception provided in Rule 6DD(k) of the IT Rules. He argued that the payment is made to State Bank of India by the assessee at the instance of the Government and accordingly would fall under the exception provided in Rule 6DD(a)(ii) of the Rules. He placed reliance on the decision of Co-ordinate Bench of Bangalore Tribunal in the case of Sri Renukeswara Rice Mills vs ITO reported in 93 ITD 263 (Bang Trib.) wherein it was held that the cash payment in the accounts of the payee in a Bank is sufficient to get exemption in terms of Rule 6DD. It was submitted that the decision of Bangalore Tribunal is more reasonable and pragmatic and therefore the same is to be followed in preference to the Hon’ble Kerala High Court decision in the case of K Abdu & Co (170 Taxman 297). Accordingly it was submitted that all cash payments made to State Bank of India, even if the same were for crediting to the 3 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 accounts of its customers , should be held as eligible for exemption as provided in Rule 6DD(a)(ii) of the Rules. He further argued that ABPL (wholesale licensee) is the collecting agent of the Government and the payment made to them should be treated as payments made to Government and therefore covered by Rule 6DD(b) of the Rules. He argued that the genuineness of transactions was not disputed by the revenue. The payment is made to wholesale licensee and payment has gone into the coffers of the West Bengal Government. He further argued that if the entire purchases made in cash is disallowed, then effectively the ld AO would be taxing the entire sale proceeds as income of the assessee which would only result in an anomalous situation. He placed reliance on the decision of the Co-ordinate Bench of this tribunal in the case of Prabir Kumar Mullick vs ITO in ITA No. 1603/Kol/2011 dated 1.6.2016 and Ashok Mondal vs ITO in ITA No. 873/Kol/2012 dated 6.2.2014 in support of his contentions.

2.3. In response to this, the ld DR argued that the payments made by the assessee does not fall under any of the exceptions provided in Rule 6DD of the Rules. Accordingly, he argued that no interference is called for in the order of the ld CITA.

3. Issue only on payment of duty.—No country spirit in labelled and capsuled bottles shall be issued without payment of duty from a country spirit bottling plant. No country spirit in bulk shall be issued without payment of duty from a country spirit warehouse.

5. Minimum balance in Personal Ledger Account.—The Collector shall issue directions for maintaining the minimum amount “of balance in the aforesaid Personal Ledger Accounts in order to ensure that duty for daily issues of country spirit from the country spirit bottling plant or warehouse may be debited from the said account, leaving sufficient balance as may be determined by him.

3.1. We find that the reliance placed on the decision of Co-ordinate Bench of Bangalore Tribunal in the case of Sri Renukeswara Rice Mills vs ITO reported in 93 ITD 263 (Bang Trib.) is well founded , wherein, it was held that the cash payment in the bank account of the payee is sufficient to get exemption in terms of Rule 6DD in as much it is ensured that the payee and payee alone receives the payment and the origin and conclusion of the transaction is traceable thereby fulfilling the criterion for ensuring the object of introduction of section 40A3) of the Act.

3.2. We find that the following facts are undisputed and indisputable:- (a) The transactions made by the assessee is genuine. (b) The identity of the receiver (wholesale licensee) is established beyond doubt. ( c) The payment is made in the bank account of the seller (wholesale licensee).

6 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 We hold that since the genuinity of the payments made to the M/s Asansol Bottling & Packaging Co. Pvt Ltd (wholesale licensee) is not doubted by the revenue, the provisions of section 40A(3) could not be made applicable to the facts of the instant case. It is observed that the assessee had taken enough precautions from its side to ensure that the payee also don’t escape from the ambit of taxation on these receipts by directly depositing the cash in the bank account of the payee. Moreover, the regulations of the West Bengal Government pursuant to notification from its Excise Department dated 29.8.2005 also mandates the payment to be made by way of direct deposit into the bank account of the wholesale licensee. This fact is also not disputed by the revenue.

3.3. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act 1968 with the object of curbing expenditure in cash and to counter tax evasion. The CBDT Circular No. 6P dated 6.7.1968 reiterates this view that “this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment.”

3.4. In this regard, it is pertinent to get into the following decisions on the impugned subject:- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC)

" 3.3.4. Section 40A(3) of the Income-tax Act, 1961, which provides that expenditure in excess of Rs. 2,500 (Rs. 10,000 after the 1987 amendment) would be allowed to be deducted only if made by a crossed cheque or crossed bank draft (except in specified cases) is not arbitrary and does not amount to a restriction on the fundamental right to carry on business. If read together with Rule 6DD of the Income-tax Rules, 1962, it will be clear that the provisions are not intended to restrict business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed-cheque or crossed-bank draft. The payment by crossed-cheque or crossed bank- draft is insisted upon to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed-cheque or crossed-bank draft in the circumstances specified under the rule. It will be clear from the 7 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions."

CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) The contention of the assessee that he purchased goods from suppliers who are producers of hides and skins, has not been refuted either by the AO or by the CITA. The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential for carrying on of his business, was also not disputed by the AO. The genuinity of transactions, rate of gross profit or the fact that the bonafide of the assessee that payments are made to M/s IFB Agro Industries Ltd for purchase of country spirit are also neither doubted nor disputed by the AO. On the basis of these facts it is not justified on the part of the AO to disallow 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of Rs. 17,90,571/- and ground no.1 is decided in favour of the assessee.

CIT vs Crescent Export Syndicate in of 2008 dated 30.7.2008 – Jurisdictional High Court decision

“It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding Rs.20,000/- since it is not made by crossed-cheque or bank draft but by bearer cheques and has computed the payments falling under provisions to Section 40A(3) for Rs.78,45,580/- and disallowed @ 20% thereon Rs.15,69,116/-. It is also made clear that without the payment being made by bearer cheque these goods could not have been procured and it would have hampered the supply of goods within the stipulated time. Therefore, the genuineness of the purchase has been accepted by the Id. CIT (Appeal) which has also not been disputed by the department as it appears from the order so passed by the learned Tribunal. It further appears from the assessment order that neither the Assessing Officer nor the CIT (Appeal) has disbelieved the genuineness of the transaction. There was no dispute that the purchases were genuine."

Anupam Tele Services vs ITO in (2014) 43 taxmann.com 199 (Guj) “Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limits Rule 6DD(j) Assessment year 2006-07 - Assessee was working as an agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account - If assessee would not make cash payment and make cheque payments alone, it would have received recharge vouchers delayed by 4/5 days which would severely affect its business operation - Assessee, therefore, made cash payment - Whether in view of above, no disallowance under section 40A (3) was to be made in respect of payment made to principal - Held, yes [Paras 21 to 23] [in favour of the assessee]"

Sri Laxmi Satyanarayana Oil Mill vs CIT reported in (2014) 49 taxmann.com 363 (Andhrapradesh High Court)

8 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 "Section 40A(3) of the Income-tax Act, 1961, read with Rule 6DD of the Income-tax Rules, 1962- Business disallowance - Cash payment exceeding prescribed limit (Rule 6DD) - Assessee made certain payment of purchase of groundnut in cash exceeding prescribed limit - Assessee submitted that he made payment in cash because seller insisted on that and also gave incentives and discounts - Further, seller also issued certificate in support of this - Whether since assessee had placed proof of payment of consideration for its transaction to seller, and later admitted payment and there was no doubt about genuineness of payment, no disallowance could be made under section 40A(3) - Held, yes [Para 23] [In favour of the assessee]"

CIT vs Smt. Shelly Passi reported in (2013) 350 ITR 227 (P&H)

In this case the court upheld the view of the tribunal in not applying section 40A(3) of the Act to the cash payments when ultimately, such amounts were deposited in the bank by the payee.

3.5. We find that the disallowance of the entire cash purchases results in abnormal trading profit for the assessee which it could never earn. We find a purposive construction should be resorted to while applying the provisions of the Act. Hence it would be more relevant to get into the intention of the legislature. In our opinion, the primary object of enacting section 40A(3) was two-fold, firstly, putting a check on trading transactions with a mind to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community. Apparently, this provision was directly related to curb the evasion of tax and inculcating the banking habits. Therefore, the consequence, which were to befall on account of non-observation of section 40A(3) must have nexus to the failure of such object. Therefore, the genuineness of the transactions it being free from vice of any device of evasion of tax is relevant consideration. In the instant case, the cash has been deposited directly in the bank account of the supplier i.e M/s Asansol Bottling & Packaging Co. Pvt Ltd by the assessee.

3.6. We find that the Hon’ble Apex Court in the case of CTO vs Swastik Roadways reported in (2004) 3 SCC 640 had held that the consequences of non-compliance of Madhyapradesh Sales Tax Act , which were intended to check the evasion and avoidance of sales tax were significantly harsh. The court while upholding the constitutional validity negated the existence of a mens rea as a condition necessary for levy of penalty for non- compliance with such technical provisions required held that “in the consequence to follow there must be nexus between the consequence that befall for non-compliance with such 9 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 provisions intended for preventing the tax evasion with the object of provision before the consequence can be inflicted upon the defaulter.” The Supreme Court has opined that the existence of nexus between the tax evasion by the owner of the goods and the failure of C & F agent to furnish information required by the Commissioner is implicit in section 57(2) and the assessing authority concerned has to necessarily record a finding to this effect before levying penalty u/s 57(2).

Though in the instant case, the issue involved is not with regard to the levy of penalty, but the requirement of law to be followed by the assessee was of as technical nature as was in the case of Swastik Roadways (3 SCC 640) and the consequence to fall for failure to observe such norms in the present case are much higher than which were prescribed under the Madhya Pradesh Sales Tax Act. Apparently, it is a relevant consideration for the assessing authority under the Income Tax Act that before invoking the provisions of section 40A(3) in the light of Rule 6DD as clarified by the Circular of the CBDT that whether the failure on the part of the assessee in adhering to requirement of provisions of section 40A(3) has any such nexus which defeats the object of provision so as to invite such a consequence. We hold that the purpose of section 40A(3) is only preventive and to check evasion of tax and flow of unaccounted money or to check transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transactions. Admittedly, this is not the case in the facts of the assessee herein. The assessee had directly deposited cash in the bank account of the supplier M/s Asansol Bottling & Packaging Co. Pvt Ltd which fact is also accepted by the ld AO and mandated by the Notification dated 29.8.2005 issued by the Excise Department , Government of West Bengal. It is also pertinent to note that the Hon’ble Rajasthan High Court in the case of Smt.Harshila Chordia vs ITO reported in (2008) 298 ITR 349 (Raj) had held that the exceptions contained in Rule 6DD of Income Tax Rules are not exhaustive and that the said rule must be interpreted liberally.

3.7. We also find that the impugned issue is also covered by the decision of the co- ordinate bench of this tribunal in the case of Ashok Mondal vs ITO in for Asst Year 2009-10 dated 6.2.2014, wherein it was held that :- “7. We have considered the rival submissions. At the outset a perusal of the decision in the case of Smt.Pushpalata Mondal shows that the Tribunal had decided the case by following the decision of Hon'ble Kerala High Court in the case of K.Abdu & Co. referred to supra wherein the issue was in relation to Rule 6DD(a) of IT Rules. The issue in the asessec's case is in respect of the payments made under the rules framed by the Government 10 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 and such payment was required to be made in legal tender. A perusal of the Government Notification issued by the Govt. of West Bengal clearly shows that the dealers are agents of the Government and the payments made are to the Government. It also makes it categorically required that the payment is to be made before lifting of the country spirit. Consequently we are of the view that the issue is squarely covered by the decision of the Coordinate Bench of this Tribunal in the case of M/s.Amrai Pachwai & C.S.Shop referred to supra wherein it has been held as follows :- "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. Copy of Form of Licence issued by Durgapur Municipal Corporation and copy of Form III issued by Department of Excise, Govt. of W.B. 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 I.T.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 from 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 I.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 assesee 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 1.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 I. T.Act 1961 stands deleted.

11 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 We find that this decision was rendered by placing reliance on its earlier decision in the case of M/s Amrai Pachwai & C.S.Shop in ITA No. 1251/Kol/2011 dated 15.1.2014 and after considering the contrary decisions rendered in the case of Pushpalata Mondal in ITA No. 965/Kol/2010 dated 28.7.2011 and Hon’ble Kerala High Court in the case of CIT vs K Abdu & Co (170 Taxman 297). We find that the Co-ordinate Bench decision in the case of M/s Amrai Pachwai & C.S.Shop in ITA No. 1251/Kol/2011 dated 15.1.2014 and the held portion is reproduced hereinabove.

3.7.1. 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 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:-

12 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 Rule 2(viii) – “Wholesale licensee” menas 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 :- (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.

13 Bolkunda Pachwai & (S) C.S. Shop, AY 2008-09 & 2009-10 3.8. 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 de facto 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.

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) of

4. The next issue to be decided in this appeal is as to whether the ld CITA is justified in upholding the addition made in the sum of Rs. 29,620/- on account of undisclosed bank balance in the facts and circumstances of the case.

4.1 The brief facts of this issue is that the ld AO observed that the assessee had maintained a Current Account with Corporation Bank, Asansol during the relevant year under appeal. The statement in respect of the said account was collected by the ld AO from bank authorities in terms of section 133(6) of the Act. The ld AO observed that the closing balance in the said bank account of Rs. 29,620/- was not reflected in the balance sheet of the assessee firm. Accordingly he brought the same to tax as unexplained cash credit in the hands of the assessee which was also upheld by the ld CITA on first appeal. Aggrieved, the assessee is in appeal before us.

4.2. We have heard the rival submissions. We find that the assessee had not provided any satisfactory explanation either before the lower authorities or before us with regard to the bank account maintained with Corporation Bank, Asansol. Hence, we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 3 raised by the assessee for the Asst Year 2008-09 is dismissed.

Order pronounced in the open court on 10.08.2016