TMI Blog2014 (11) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravention of Section 40A(3) of the Income Tax Act. His reply was that the cash payments were made only whenever the managing partner was not available in the station or when the assessee goes late in the evening to collect arrack, cash had to be sent along with permits for taking delivery. Some times the Government authorized bottling agents wanted only cash for supply of arrack and therefore the assessee had no choice as it had to buy arrack only from the bottling agent appointed by the Government. He also contended that the liquor cannot be sold except for cash in accordance with the Karnataka Excise (General Conditions) Rules, 1967. The Assessing Authority on consideration of the said explanation held that the assessee being a regular cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash transactions in regard to arrack trade between the government and persons like the assessee. When the supplier insisted on payment of cash in terms of the Rules for the business of arrack, the assessee had no say. Therefore, the case falls under the exceptions in rule 6DD(j) of the Income Tax Rules, 1962 and therefore the appeal came to be dismissed. Aggrieved by these orders, the revenue is in appeal. 3. The appeal was admitted to hear the following substantial questions of law as framed in the appeal memo:- (i) Whether the Appellate Authorities were correct in holding that a sum of ₹ 50,86,307/- cash payments made by the assessee on account of bottling charges being contrary to Section 40A(3) of the Act was held to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society as defined in clause (cii) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934), or any primary credit society as defined in clause (civ) of that section; (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (vi) the Industrial Finance Corporation of India established under section 3 of the Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not practicable, or would have caused genuine difficulty to the payee, having regard to nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the [Assessing Officer] as to the genuineness of the payment and the identity of the payee]. 6. From the aforesaid two provisions, it is clear 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the said 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. Therefore, the said orders are illegal, erroneous and requires to be set aside. Hence, we pass the following: ORDER The impugned orders are hereby set aside. The substantial questions of law are answered in favour of the revenue and against the assessee. The order passed by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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