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2014 (11) TMI 559 - HC - Income TaxApplicability of section 40A(3) – Payment made of bottling charges - Rule 14 of the Karnataka Licenses General Condition Rules, 1967 mandates cash payment or not - Held that:- Where the assessee incurs any expenditure in respect of which a payment is made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure - Rule 6DD of the Income Tax Rules, 1962 is in the nature of exception to the said section - to fall within that exception, the assessee relies on Rule 14 of the Karnataka Excise Licences (General Conditions) Rules, 1967 - Section 2 of the said rules explicitly makes it clear that the said rules applies to all the licences issued under the Karnataka Excise Act, 1965 for sale of liquors and every such licence shall be deemed to include the conditions prescribed by these rules as general conditions. The rules applies to the sale effected by assessee who has a licence to sell the arrack under the provisions of the Karnataka Excise Act, 1965 - It has no application to the purchase made by such licences, that is the assessee - the provision do not apply to the purchase of liquor but it applies only to sale of liquor by the assessee to its customers and therefore, the said rule do not fall within Section 6DD(j) of the Income Tax Rules so as to get exemption from application of Section 40A(3) - Both the appellate authorities have not properly looked into the said provisions and erred in applying the said provision and in holding that the exemption applies to the assessee – the order of the Tribunal is set aside – Decided in favour of revenue.
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