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2015 (11) TMI 3 - ITAT KOLKATA

2015 (11) TMI 3 - ITAT KOLKATA - TMI - Disallowance u/s 40A(3) - cash payment in excess of limits prescribed - Held that:- The assessee has furnished the ledger copy, as maintained by the supplier, in their books of accounts. A perusal of the same demonstrates that supply of country liquor is made, only when the payment is made by the assessee to the supplier, who accounts for the same towards the cost of country liquor government dues, taxes, etc.

Thus the payments in question were m .....

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21.10.2014 for the assessment year 2007-08. 2. Facts relating to the case are that the assessee is a partnership firm and is engaged in the business of running a country liquor shop. It buys country spirit from one M/s. Sarojit Kumar Dey, C.S. B.P., who has its work and office at Ahmedpur, district-Birbhum, West Bengal. On verification, the AO found that the assessee had paid huge sums of money in cash to M/s. Sarojit Kumar Dey, the supplier on various dates. The AO also records that the bulk of .....

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, the ld. DR on behalf of the Revenue. The issue in question, is claimed as covered by the decision of Kolkata A bench of the Tribunal in the case of M/s. Amrai Pachwai & C.S. Shop -vs- DCIT in ITA No.1251/Kol/2011 for the assessment year 2008-09, wherein at para 6, the Tribunal 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 recognised the assessee s business in trading of country spirit and country .....

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entre, Durgapur. falls within the exemption provided under rule 6DD(b) of the I.T Rules 1962. Admittedly, the AO has recognised 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 dated 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 th .....

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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 .....

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nment. 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 assessee 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 .....

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e assessee submitted that, cash was directly paid into the bank account of the supplier and argued that there is no violation of section 40A(3). The ld. DR, on the other hand, relied on the judgment of the Hon ble Madras High Court in the case of CIT, Madurai -vs- Venkatadhri Constructions 213 Taxmann 180 (Mad) and the judgment of Hon ble Kerala High Court in the case of K. Abdu & Co. -vs- ITO 170 Taxmann 297 (Ker.) and submitted that payment of cash directly paid into the bank account of th .....

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siness 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 on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A( .....

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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 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. (See Mudiam Oil Co. v. ITO [1973] 92 ITR 519 (AP). If the payment is made .....

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trade or business." [Emphasis supplied] 3.3 Bangalore bench B of the Tribunal in the case of Sri Renukeswara Rice Mills -vs- ITO 93 ITD 263 (Bang.) held as follows: The Hon'ble Supreme Court noted that the intention to make payment by crossed cheque or crossed DD is to enable the assessing authority to ascertain that the payment is genuine and not out of the undisclosed source. It is also noted that section 40A(3) is intended to regulate business transactions and to prevent the use of u .....

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