2018 (7) TMI 2038 - AT - Income Tax

Cash purchase violating the section 40A(3) - Government of Uttar Pradesh appointed M/s Saraya Distillery Sadar Nagara Gorakhpur U.P. as its agent and the entire payments i.e. impugned amount paid to the said agent - HELD THAT - ITAT Kolkata benches in the case of Amrai Pachwai C.S.Shop vs DCIT 2014 (2) TMI 979 - ITAT KOLKATA held that Rule 6DD(b) is applicable that if the payments made to the Government agent in legal tender under the rules framed by it and considering the same and taking into consideration the facts and circumstances of the case that the assessee purchased country liquor and country spirit from the territorial licensee bottling plant IFB Agro Industries Ltd and payments in cash made thereto is protected by the exemption in terms of Rule 6DD(b) of Income Tax Rules 1962 as per the notification issued by the Government. Government of Uttar Pradesh appointed M/s Saraya Distillery Sadar Nagara Gorakhpur U.P. as its agent and the entire payments i.e. impugned amount paid to the said agent is to be treated as if paid to Government of U.P and as such said cash payment are covered by the Rule 6DD(b) of IT Rules 1962. Therefore we are not in agreement with the view taken by Authorities Below and addition confirmed by CIT(A) is deleted - Decided in favour of assessee.

Summary

Issues involved:
1. Confirmation of addition made by the Assessing Officer on account of cash purchase violating section 40A(3) of the Income Tax Act, 1961.

Detailed Analysis:
The primary issue in this case revolves around the confirmation of an addition made by the Assessing Officer concerning cash purchases that allegedly violated the provisions of section 40A(3) of the Income Tax Act, 1961. The assessee, engaged in retail trading of country liquor, filed a return of income which was initially accepted. However, the assessment was later re-opened due to substantial cash purchases of liquor exceeding a specified limit, which were not reported in the tax audit report. The Assessing Officer added a significant amount to the total income of the assessee, citing violation of section 40A(3). The Commissioner of Income Tax (Appeals) upheld this addition, rejecting the assessee's argument that the purchases were made from government-authorized licensees and therefore exempt under specific rules. The CIT(A) relied on a decision of the Hon'ble High Court of Karnataka to support the AO's view.

The assessee contended that the cash purchases from an authorized distributor of the Government of Uttar Pradesh were covered under Rule 6DD(b) of the Income Tax Rules, 1962. The issue was previously addressed by a co-ordinate bench of the Tribunal, which held that cash payments made to a government agent fell within the exception provided under Rule 6DD(b). Additionally, it was revealed that the cash payments made to IFB Agro Industries Ltd were in compliance with the West Bengal Excise Rules and were considered payments to the agent of the State Government, thus protected under Rule 6DD(b). Consequently, the Tribunal found no fault with the CIT(A)'s decision, dismissing the revenue's appeal. The Tribunal concluded that the payments made to the authorized distributor should be treated as payments to the Government of Uttar Pradesh, thus falling under the exemption provided by Rule 6DD(b). As a result, the addition confirmed by the CIT(A) was deleted, and the appeal was partly allowed.

Regarding the reopening of the assessment, no arguments were presented, leading to the dismissal of the relevant ground. The Tribunal allowed certain grounds raised by the assessee, leading to a partial allowance of the appeal. The Tribunal applied the same reasoning to a related appeal, ultimately allowing both appeals partially.