Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (9) TMI 810 - ITAT KOLKATA

2016 (9) TMI 810 - ITAT KOLKATA - TMI - Disallowance made u/s 40A(3) - nature of payment - Held that:- 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 ass .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

not fall under the exception provided in Rule 6DD(a) of the Rules. - 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 the Act. - Decided in favour of assessee. - I.T.A No. 307/Kol/2014 - Dated:- 10-8-2016 - S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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 are that during the year under consideration, the assessee was engaged in the business of trading of country spirit under the name and style of M/s. Rambandh C.S. Shop. The ld AO during the course of assessment proceedings observed that the assessee had made cash payments in e .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ay 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 representative of the assessee and deposit counterfoil is obtained. The deposit counterfoil is presented to ABPL prior to the delivery of country spirit. Accordingly it was argued .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

.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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eption 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 Ho .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re 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-ordi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d the materials available on record including the paper book filed by the assessee comprising of various orders of this tribunal and copy of Notification No. 1208-Ex dated 29.08.2005 issued by the Excise Department, Government of West Bengal. We have also gone through the provisions of The West Bengal Excise Rules 2005 and The Bengal Excise Act, 1909. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. At the outset, we deem it necessary .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rules regulating the issue and removal of country spirit on payment of duty in labelled and capsuled bottles from country spirit bottling plants and in bulk from warehouses by the licensed wholesale vendors of the same for the purpose of selling country spirit by wholesale:- Rules 1. Short Title and commencement.-(1) These rules may be called the West Bengal Excise (Supply of Country Spirit on Payment of Duty) Rules, 2005. (2) These rules shall come into force from 19th October, 2005. 2. Definit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gal; (v) the Act means the Bengal Excise Act, 1909 (Ben. Act V of 1909); (vi) transport pass means the transport pass issued in Form III appended to these rules; (vii) warehouse 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, o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

plant. No country spirit in bulk shall be issued without payment of duty from a country spirit warehouse. 4. Personal Ledger Account to be maintained by the wholesale licensee.-The wholesale licensee shall maintain a Personal Ledger Account in accordance with the direction issued by the Commissioner from time to time for the purpose of maintaining an account-current of the duties payable by the wholesale licensee for the issues of country spirit to the retail vendors or transport on payment of d .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tail vendor or his authorized representative shall submit to the representative of the wholesale licensee, through Excise Officer-in-Charge of the warehouse, a demand for issue of country spirit in Form I appended to these rules in duplicate. The duplicate copy shall be kept in the custody of the Excise Officer-in-Charge for his official record. (2) 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 warehou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rit is to be issued from the concerned warehouse. The authorized representative as above shall then submit requisition in duplicate in Form II appended to these rules to the Excise Officer-in-Charge of the warehouse separately for each of the retail vendors to whom country spirit is to be issued on the day. (4) On receipt of the requisition in Form II, the Excise Officer-in-Charge of the warehouse shall allow issue of country spirit from the warehouse. Duplicate copy of the requisition shall be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

bottling charge to the retail country spirit licensees whose licensed premises are located at a distance of 50 kilometres or more by the shortest route from the issuing warehouse on the basis of a certificate to be issued by the Collector in respect of distance. At the end of the month, the wholesaler shall submit a bill in duplicate to the Officerin- Charge of the warehouse claiming refund of the amount granted as rebate. The Officer-in-Charge shall, on receipt of the bill, refund the amount c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

liance 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ough 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 ₹ 2,500 (Rs. 10,000 after .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er 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 bankdraft 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

raft 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." 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ese 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 ₹ 17,90,571/- and ground no.1 is decided in favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 Incom .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eque 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) "Section 40A(3) of the Income-ta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n 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 ent .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nculcate 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 direct .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ecessary for levy of penalty for noncompliance 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 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 furn .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 cons .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 coordinate bench o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sec's case is in respect of the payments made under the rules framed by the Government 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 co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e, 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 r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 prescrib .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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 pay .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ry 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. 8. In the result the addition as confirmed by the Id. CIT(A) stands deleted We find that this decision was rendered by placing reliance on its earlie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 conveni .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ner 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 Govern .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nent 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 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 paym .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 countr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version