I.T.A. No. 2858/KOL./2013 Assessment year: 2008-2009 Page 1 of 6 IN INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri K. Narasimha Chary, Judicial Member I.T.A. No. 2858 /KOL/ 2013 Assessment Year: 2008-2009 M/s. Sarbari Suplimentary C.S. Shop,...................................Appellant At Sarbari, P.O. Neturia, Dist. Purulia-723 121 [PAN: ABJFS 8433 M] -Vs.- Income Tax Officer,.................................................................Respondent Ward-3(4), Asansol, Sahana Apartment, Lower Chelidanga, Asansol-713 304 Appearances by: Shri Sunil Surana, FCA, for assessee Shri Aloke Nag, Additional CIT, D.R., for Department Date of concluding hearing : August 23, 2016 Date of pronouncing order : September 16, 2016 ORDER Per Shri K. Narasimha Chary, J.M.: This is appeal by Assessee challenging order dated 25.11.2013 passed by learned Commissioner of Income Tax (Appeals), Asansol (hereinafter referred to as learned CIT ) for assessment year 2008-09. 2. Brief facts of case are that Assessee is retail vendor of Country Spirit, which is excisable commodity. purchase and sale are strictly controlled by State I . T. . N o. 2 8 5 8 / KO L . / 2 0 1 3 Assessment year: 2008-2009 Page 2 of 6 Government. Earlier retail dealers like assessee were depositing cost price, excise duty, bottling charges, etc. in Treasury for getting supplies from wholesale licensee. However, Excise Department by Notification dated 29.08.2005 changed such procedure, whereby prescribing that for lifting Country Spirit, retail vendors have to make payment consisting of cost of stock-in-trade, excise duty and bottling charges, etc. only to wholesale licensee appointed by State Government. Pursuant to said procedure, assessee made payments in Bank account of M/s. IFB Agro Industries Limited, Durgapur, Burdwan, but during assessment year proceeding, Assessing Officer disallowed cash deposits which were in excess of Rs.20,000/- on each occasion, made into Bank account of M/s. IFB Agro Industries Limited maintained in State Bank of India under section 40A(3) of Income Tax Act. assessee carried matter in appeal before ld. CIT(Appeals), who by way of impugned order dated 25.11.2013 dismissed same and confirmed order of Assessing Officer. Challenging same, assessee carried matter in appeal before this Tribunal on following grounds:- (1) For that order of ld. CIT(A) is arbitrary, illegal and bad in law. (2) For that ld. CIT(A) erred in confirming addition of Rs.62,68,458/- being amount paid for purchase of country liquor under rules and directions framed by Government, paid as such, provisions of section 40A(3) were not applicable. (3) For that ld. CIT(A) erred in confirming addition of Rs.62,68,458/- when payment was directly made in bank account of seller and such provisions of sec. 40A(3) were not applicable. (4) For that ld. CIT(A) erred in confirming addition of Rs.62,68,458/- when village where assessee s shop was established had no banking facility and payment made directly to bank account of seller was not hit by provisions of sec. 40A(3). (5) For that even otherwise having regard to nature and extent of banking facilities available consideration of business expediency and other relevant factors ld. CIT(A) erred in confirming addition made by AO u/s 40A(3). (6) For that ld. CIT(A) erred in confirming addition of Rs.20,640/- from carriage inward Rs.2,57/-, from Tel. And Mobile expenses Rs.6,143/-, from shop expenses Rs.6,807/-, from electric expenses on adhoc basis when I . T. . N o. 2 8 5 8 / KO L . / 2 0 1 3 Assessment year: 2008-2009 Page 3 of 6 expenses were fully incurred for business expenses and considering turnover of business expenses incurred were quite fair and reasonable. (7) For that on facts and circumstances of case, order of CIT(A) be modified and assessee be given relief prayed for. 3. It is argument of ld. A.R. that pursuant to Rules framed by State Government, assessee deposited cash in State Bank of India, as such provisions under section 40A(3) are not attracted in view of exemption allowed under section 6DD(a)(ii) of Income Tax Rules. He further submitted that wholesale licensee, namely M/s. IFB Agro Industries Limited, Durgapur was appointed by State Government by way of Notification dated 04.09.2006 for collection of cost price, bottling charges, etc., as such payments made to bank account of such wholesale licensee shall be treated as payments made to Government and consequently disallowance is not sustainable in view of payments under Rule 6DD(b) of Income Tax Rules, which provided for exemption, where payment is made to Government. Further he contended that by virtue of Notification dated 04.09.2006, wholesale licensee shall be treated as agent of State Government because it is only through him, Government receives amount from retail vendors, as such payments made by assessee fall under exception provided in Rule 6DD(k) of Income Tax Rules. He, therefore, prayed to Tribunal to delete addition made on account of application of section 40A(3) of Act. 4. On other hand, ld. D.R. contended that Rule 6DD(b) also requires payments to be made in legal tender as framed by Government and Rules framed by State Government in this regard do not compel assessee to make cash payments only. He further argued that payments made in State Bank of India are saved, but not payments, which were made into customer account maintained by State Bank of India. 5. Basing on above contention, issue that arises for our consideration is whether ld. CIT(Appeals) is justified in upholding disallowance under section 40A(3) of Act in facts and circumstances of case. I . T. . N o. 2 8 5 8 / KO L . / 2 0 1 3 Assessment year: 2008-2009 Page 4 of 6 6. At outset, we may state that there is no dispute in respect of genuineness of transactions made by assessee. So also identity of receiver of funds is not in dispute. Payments made into Bank account of wholesale licensee or appointment of M/s. IFB Agro Industries Limited, Durgapur, Burdwan by State Government by Notification dated 04.09.2006, stands admitted. Now whole issue revolves around point whether payments made into account of M/s. IFB Agro Industries Limited, Durgapur in State Bank of India are hit by provisions of section 40A(3) of Act. 7. In this context, it is useful to refer to Rule 6(2) of Income Tax Rules framed by State Government in exercise of power conferred by section 85 and section 86 of Bengal Excise Act, 1909 regulating issue and removal of country spirit on payment of duty in labelled and capsule bottles from country spirit bottling plants and in bulk from warehouses by licensed wholesale vendors of same for purpose of selling country spirit by wholesale. This Rule 6(2) stipulates that no retail vendor of country spirit shall deposit duty direct into local treasury for issue of country spirit to be taken by him from warehouse concerned, duty, cost price, bottling charges, if there be any, at prescribed rate and other imposition, as may be prescribed by law, shall be paid by retail vendor to credit of wholesale licensee concerned. 8. Now coming to application of section 40A(3) is concerned, we find from CBDT Circular No. 6P dated 06.07.1968 that this provision under section 40A(3) was designed to counter evasion of tax through claims for expenditure shown to have been incurred in cash with view to frustrating proper investigation by department as to identity of payee and reasonableness of payment. When this is primary object of enacting section 40A(3), we will have to see whether payments made by assessee into account of M/s. IFB Agro Industries Limited, Durgapur would frustrate purpose of enactment of section 40A(3). By virtue of payment through cash dated 04.09.2006, wholesale licensee with exclusive privilege for bottling and/or sale by wholesale country spirit in sealed or capsule bottles and for manufacture and wholesale supply of country spirit in bulk litter enjoyed now by holders of license in terms of section 22 of Bengal Excise Act, 1909 and IFB Agro Industries Limited, Durgapur has become arm of State Government. On this aspect, for all practical purposes, relationship between I . T. . N o. 2 8 5 8 / KO L . / 2 0 1 3 Assessment year: 2008-2009 Page 5 of 6 Government and wholesale licensee in so far as dealing with country made liquor is concerned, i.e. principal and agent, subject to territorial limitation prescribed in such Notification. We, therefore, can safely conclude that payments made to M/s. IFB Agro industries Limited, Durgapur for all practical purposes are payments to be reached to State Government and once this is so, said wholesale licensee shall be construed as agent of State Government. We, therefore, can safely conclude that once such payments are made to credit of IFB Agro Industries Limited, Durgapur, source and destination of such funds cannot be doubted. Therefore, provision of section 40A(3) is not frustrated by assessee making payments into account of M/s. IFB Agro Industries Limited, Durgapur maintained in State Bank. 9. Commercial expediency in relation to application of section 40A(3) is well recognized by various Courts vide in cases as under:- (i) Attar Singh Gurmukh Singh vs.- ITO reported in (1991) 191 ITR 667 (SC) (ii) CIT vs.- CPL Tannery reported in (2009) 318 ITR 179 (Cal.); (iii) CIT vs.- Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.07.2008 (Calcutta High Court); (iv) Anupam Tele Services vs.- ITO reported in (2014) 43 taxman.com 199 (Guj.); (v) Ashok Mondal vs.- ITO in ITA No. 873/KOL/2012 (Kolkata Tribunal s order dated 06.02.2014); 10. In case of Ashok Mondal (supra), Coordinate Bench of this Tribunal by way of order dated 06.02.2014 considered issue, which is identical to facts of this case and after elaborating discussion reached conclusion that payments made by assessee for purchase of country liquor and country spirit from territorial licensee bottling plant, IFB Agro Industries Limited, Durgapur is protected by exemption in terms of Rule 6DD(b) of Income Tax Rules, 1962. 11. In view of above, we find that assessee has commercial expediency under Rule 6(2) of West Bengal Rules referred to above to make payments to credit of M/s. IFB I . T. . N o. 2 8 5 8 / KO L . / 2 0 1 3 Assessment year: 2008-2009 Page 6 of 6 Agro Industries Limited and M/s. IFB Agro Industries Limited, Durgapur, who is deemed to be agent of State Government, as such in terms of Rule 6DD(b) and Rule 6DD(k) of Income Tax Rules, they are exempted and disallowance made under section 40A(3) of Act cannot be sustained. We, therefore, answer this issue in favour of assessee and that order of authorities below cannot be sustained. 12. In result, appeal of assessee is allowed. Order pronounced in open Court on September 16, 2016. Sd/- Sd/- (Waseem Ahmed) (K. Narasimha Chary) Accountant Member Judicial Member th Kolkata, 16 day of September, 2016 Copies to : (1) M/s. Sarbari Suplimentary C.S. Shop, At Sarbari, P.O. Neturia, Dist. Purulia-723 121 (2) Income Tax Officer, Ward-3(4), Asansol, Sahana Apartment, Lower Chelidanga, Asansol-713 304 (3) Commissioner of Income Tax(Appeals),Asansol (4) CIT- ,Kolkata; (5) Departmental Representative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. M/s. Sarbari Suplimentary C.S. Shop v. Income Tax Officer Ward-3(4), Asansol