TMI Blog2016 (11) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... We have no hesitation in deleting the disallowance made under section 40A(3) of the Act in all the years under appeal. - Decided in favour of assessee. - I. T. A. Nos. 148/Kol/ 2015, 185 and 186/Kol/2014 - - - Dated:- 5-8-2016 - N. V. Vasudevan (Judicial Member) and M. Balaganesh (Accountant Member) For the Appellant : S. K. Tulsiyan and R. N. Ram, Authorised Representatives For the Respondent : Rajat Kumar Kureel, Joint Commissioner of Income-Tax ORDER M. Balaganesh (Accountant Member) 1. All these appeals by the assessee are arising out of separate orders of the Commissioner of Income- tax (Appeals), Asansol, vide appeal Nos. 76/CIT(A)/Asl/W-2(3)/Asl/09-10, dated December 3, 2014, 119/CIT(A)/Asl/W-2(3)/Asl/10-11, dated November 25, 2013 and 179/CIT(A)/Asl/W-2(3)/Asl/12-13, dated December 17, 2013. Assessments were framed by the Income-tax Officer-2(3), Asansol under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for the assessment years 2007-08, 2008-09 and 2010-11 vide his separate orders dated December 11, 2009, October 21, 2010 and December 14, 2012 respectively. Since issues are identical and facts are common, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intained in the State Bank of India 2007-08 ₹ 31,65,800 2008-09 ₹ 66,37,683 2010-11 ₹ 37,63,490 5. The assessee filed appeals against the aforesaid disallowances made in all the three assessment years. Several arguments were advanced by the authorised representative of the assessee before the learned Commissioner of Income-tax (Appeals). The two most important arguments were that since the assessee deposited cash in the State Bank of India, no disallowance under section 40A(3) of the Act is called for in view of the exemption allowed under rule 6DD(a)(ii) of the Income-tax Rules. The learned Commissioner of Income-tax (Appeals) has, however, rejected this submission relying on the hon'ble Kerala High Court decision in the case of K. Abdu and Co. v. ITO reported in [2008] 170 Taxman 297 (Ker) in which it has been held that the exemption is admissible only when the payment is made to the State Bank of India as an institution and not when the payment is made to the party's account maintained by the bank. The second importan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interpretation if the plain words of the Statute were to be construed in the light of an alleged intention gathered from outside source. In that case, according to a notification covering co-operative societies, the profits of any co-operative society were exempt from tax. However, a dispute was raised as to whether the profits referred to were profits derived by a co-operative society from dealings with its own members or whether the words also covered profits derived from its dealing with non-members. The hon'ble Supreme Court held that the word profits should be understood in its plain sense including all business profits and hence that profit derived from dealings with non-members were also exempt. It rejected the contention that having regard to the character of the institution, viz., a co-operative society, an intention should be presumed to limit the exemption to profits derived from business with members alone. Keeping in view the observations of the hon'ble Supreme Court referred to above it appears that the word State Bank of India mentioned in rule 6DD(a)(ii) meant only the State Bank of India and the concept of beneficiary as introduced by the hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Government and any payment to them should be treated as payments to the Government and therefore covered by rule 6DD(b) of the Income-tax Rules. He also relied on the Kolkata Bench decision in the case of Ashok Mondal (ITA No. 873/Kol/2012, dated February 6, 2014) relating to assessment year 2009-10 and the case of Amrai Pachwai and C. S. Shop, (ITA No. 1251/Kol/2011, dated January 15, 2014 relating to the assessment year 2008-09). In both these cases the hon'ble Tribunal Kolkata Bench held that the payments to the wholesale licensee in cash in excess of ₹ 20,000 should be treated as payments to the Government and are covered by rule 6DD(b) of the Income-tax Rules. The learned Commissioner of Income-tax (Appeals), however, rejected this contention of the authorised representative relying on the decision of the hon'ble Kolkata Bench in the case of Puspalata Mondal, (ITA No. 965/Kol/2010, dated July 28, 2011) relating to the assessment year 2007-08 in which, under similar circumstances, the decision was in favour of the Revenue. He also submitted that the decision in the case of Pushpalata Mondal was delivered on July 28, 2011 whereas the recent decisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al supra decision relied upon by the learned authorised representative, the payment was made in that case for purchase of agricultural produce and hence was automatically covered by the exception to rule 6DD. The assessee has made payments to the customer of State Bank of India and not to State Bank of India and hence the exception provided in rule 6DD(a) is not applicable. With regard to the reliance placed by the learned authorised representative on the decision of the hon'ble apex court in the case of Hoshiarpur Central Co-operative Bank Ltd. v. CIT reported in [1960] 40 ITR 421 (SC) is concerned, he stated that when the text of law is very clear, we need not interpret it further. With regard to payment made to State Bank of India, he argued that State Bank of India is only an agent of the customer and hence payment is made to wholesaler who has account with State Bank of India. With regard to the reliance placed on the decision of the hon'ble apex court in the case of Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 (SC), he stated that the question before the hon'ble apex court was with regard to the constitutional validity of the provisions of section 40A(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Governor is pleased hereby to make the following 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. Definitions. - (1) In these rules, unless there is anything repugnant in the subject or context - (i) 'Commissioner', means the Excise Commissioner ; (ii) 'requisition' means the requisition submitted by the authorised representative of licensed wholesale vendor of country spirit in Form II appended to these rules ; (iii) 'retail vendor' means the person holding license in the prescribed form for retail vending of country spirit, granted by the Collector ; (iv) 'State Government' means the Government of West Bengal ; (v) 'the Act' means the Bengal Excise Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etail 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. Duty, cost price, bottling charge, if there be any, at the prescribed rate and other imposition, as may be prescribed by law, shall be paid by the retail vendor to the credit of the wholesale licensee concerned. (3) 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 prescribed by law, from the retail vendor to whom country spirit is to be issued from the concerned warehouse. The authorised 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 returned to the authorised representative of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsol Bottling and Packaging Co. Pvt. Ltd (wholesale licensee) is not doubted by the Revenue, the 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 do not 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 August 29, 2005 also mandates the payment to be made by way of direct deposit into the bank account of the wholesale licensee. This fact is also not disputed by the Revenue. 16. It will be pertinent to go into the intention behind introduction of provisions of section 40A(3) of the Act at this juncture. We find that the said provision was inserted by Finance Act, 1968 with the object of curbing expenditure in cash and to counter tax evasion. The Central Board of Direct Taxes Circular No. 6P dated July 6, 1968 reiterates this view that this provision is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of hides and skins, has not been refuted either by the Assessing Officer or by the Commissioner of Income-tax (Appeals). The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential for carrying on of his business, was also not disputed by the Assessing Officer. The genuinity of the transactions, rate of gross profit or the fact that the bona fides of the assessee that payments are made to producers of hides and skins are also neither doubted nor disputed by the Assessing Officer. On the basis of these facts it is not justified on the part of the Assessing Officer to disallow 20 per cent. of the payments made under section 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 v. Crescent Export Syndicate in ITA No. 202 of 2008, dated July 30, 2008 - Jurisdictional High Court decision : It also appears that the purchases have been held to be genuine by the learned Commissioner of Income-tax (Appeals) but the learned Commissioner of Income-tax (Appeals) has invoked se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash because seller insisted on that and also gave incentives and discounts - Further, seller also issued certificate in support of this - Whether since assessee had placed proof of payment of consideration for its trans action 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 assessee] CIT v. Smt. Shelly Passi reported in [2013] 350 ITR 227 (P H) In this case the court upheld the view of the Tribunal in not apply ing section 40A(3) of the Act to the cash payments when ultimately, such amounts were deposited in the bank by the payee. 18. We are not inclined to ignore the intention of the provisions of section 40A(3) of the Act by giving a plain reading of the same as argued by the learned Departmental representative. We find that the disallowance of the entire cash purchases results in abnormal trading profit for the assessee which it could never earn. We find a purposive construction should be resorted to while applying the provisions of the Act. Hence it would be more relevant to get into the intention of the Legislature. In our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, 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 Central Board of Direct Taxes 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 consequence. We hold that the purpose of section 40A(3) is only preventive and to check evasion of tax and flow of unaccounted money or to check transactions which are not genuine and may be put as camouflage to evade tax by showing fictitious or false transactions. Admittedly, this is not the case in the facts of the assessee herein. The assessee had directly deposited cash in the bank account of the supplier M/s. Asansol Bottling and Packaging Co. Pvt. Ltd. which fact is also accepted by the learned Assessing Officer and mandated by the notification dated August 29, 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 v. ITO reported in [2008] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of rule 6DD(b) of the Income-tax 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 September 20, 2005 shows that the Government of West Bengal, Department of Excise has issued a notification, wherein the warehouse has been identified to mean the warehouse for supply of country spirit to the 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 of a licensed wholesale vendor of country spirit. Further, it has been specifically identified that the authorised representative of the wholesale licensee shall realise 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the held portion is reproduced hereinabove. 21. We find that M/s. Asansol Bottling and Packaging Co. Pvt. Ltd. is a bottling plant cum warehouse under rule 2(vii) of the West Bengal Excise Rules, 2005 with privilege granted under section 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 West Bengal Excise Rules, 2005, 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, or of a licensed wholesale vendor of country spirit. The above definition makes it clear that the warehouse referred to under the State Excise Rules is under the direct control and authority of the Commissioner of State Excise because it is established by the Commissioner of State Excise and as such is a State Government establishment. It is also pertinent to note that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant to reproduce rule 6DD(b) of the Income-tax Rules at this juncture : (b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender. In the instant case, the assessee (retail vendor) had made cash payments for purchase of country spirit by depositing cash directly into the bank account of M/s. ABPL as per rule 6(2) of the Excise Rules, 2005, it has to be construed as payment made to the State Government authority and accordingly falls under the exception provided in rule 6DD(b) of the Income-tax Rules. 22. It is not in dispute that M/s. Asansol Bottling and 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 country liquor and for prevention of spurious stocks and black marketing transactions from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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