IN INCOME TAX APPELLATE TRIBUNAL,B BENCH, KOLKATA Before Shri P.M. Jagtap, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member I.T.A. No. 199/KOL/2014 A.Y: 2010-11 Biswanath Mondal Vs. Income-tax Officer PAN:AMQPM0377G Ward 2(2), Asansol (Appellant) (Respondent) Appearances by: Shri U.Dasgupta, Advocate, Ld.AR for Assessee Shri Tanuj Kr. Neogi, JCIT, ld. Sr.DR for Revenue Date of hearing :19-07- 2016 Date of pronouncement :04-10-2016 ORDER Shri S.S. Viswanethra Ravi, JM :- This appeal by Assessee is directed against order dated 25-11-2013 of Commissioner of Income Tax(Appeals), Asansol for assessment year 2010-11. 2. In this appeal, Assessee has raised following effective ground:- 1)For that on facts of case Ld.CIT(A),Asansol, was not legally justified in sustaining addition of Rs. 76,01,538/-, made by A.O. u/s. 40A(3) of Act'61, when such payments made into bank account of seller, ( being Government warehouse under Rule-7 of West Bengal Excise ( SCS PD ) Rules'05 ) , are legally covered by exceptions to Rule - 6DD of Income Tax Rules '62 , and as such addition may please be deleted. 2) For that on facts of case identity of payee, genuineness of transaction and payments being fully accounted and disclosed, both, by purchaser and seller, scope and object of section 40A(3) of Act'61, is satisfied, and disallowance sustained by CIT(A) , on this count, may please be deleted. 3)For that on facts of case appellant craves leave to add, alter, amend any further grounds of appeal before or at time of hearing. 3. assessee is individual and dealing in business of country spirit and pachwai shop. Assessee filed his return of income declaring total income of Rs.3,97,690/- for A.Y:2010-11. Under scrutiny notice U/s. 143(2) and thereafter notice U/s. 142(1) were issued. 4.The AO found assessee purchased country spirit from Asansol Bottling Plant in cash to extent of Rs.76,01,538/- and not satisfied with explanation offered by Assessee, AO disallowed amount of Rs.76,01,538/- for violation of provisions of Section 4OA(3) Act and added same to returned income of assessee. 5.Before CIT-A, Assessee contended that Rule 6(2) of West Bengal Excise (Supply of Country Spirit on Payment of Duty) Rules, 2005 debars direct payment to local treasury for issue of country spirit and bottling company receiving payment on behalf of Government and money is deposited in bank account belonging to bottling company and provisions of section 40A(3) of Act is not applicable. Considering submissions, CIT-A confirmed disallowance and additions made thereon. relevant portion of which is reproduced herein below: 6.Rules 4 and 5 of West Bengal Excise (Supply of Country Spirit on payment of Duty) Rules, 2005 prescribe manner of payment to West Bengal Govt. It states that bottling plant has to make advance payment to Govt. and sums paid by individual dealers are debited to advance. There is no remittance of case by case remittance of sums paid by dealers to bottling plant for subsequent remittance by bottling plant to Govt. rules no where prescribe mandatory cash payment. 7.Ground 5 is by way of reliance to Circular 220 dated 31.5.1977 to state that section 40A(3) is not attracted. Since circular was issued, law has been amended so as to make it non-discretionary. power available to Assessing Officer is limited and is within confines of rule 6DD as prevailing in AY 2010-11. Hence circular mentioned in ground 5 has no relevance. After considering all aspects, since three questions raised by me with reasons are not negated in any manner, and further West Bengal Excise (Supply of Country Spirit on Payment of Duty) Rules, 2005 does not make cash payment compulsory and further since bottling plant is not Government, I hold that Assessing Officer has rightly applied disallowance under section 40A(3). Grounds 2 to 5 are disposed of directing Assessing Officer to verify whether any payment below Rs 20,000 was disallowed and if so eliminate same and recompute correct amount to be disallowed. Reasonable opportunity of being heard is to be granted to assessee before implementing this direction. grounds are treated as partly allowed. 6.Aggrieved by such order of CIT-A, now assessee is in appeal by raising above mentioned grounds. 7.Heard rival submissions and perused material available on record. It is observed that issue involved in this appeal of assessee relating to disallowance under section 40A(3) is squarely covered in favour of assessee by various decisions of this Tribunal. In one of such cases, namely M/s. Amrai Pachwai & C.S. Shop decided by Tribunal vide its order dated 15.01.2014 passed in ITA No. 1251/KOL/2011, payments were made by assessee against purchases made from same party, namely M/s. Asansol Bottling & Packing Co. Pvt. Limited by depositing cash directly in Bank account of said supplier in sums exceeding Rs.20,000/- and disallowance made for same under section 40A(3) was deleted by Tribunal for following reasons given in paragraphs no. 21 & 22 of its order:- 21. We find that M/s. Asansol Bottling & Packaging Co. Pvt. Ltd. is bottling plant cum warehouse under Rule 2(vii) of West Bengal Excise Rules, 2005 with privilege granted u/s 22 of Bengal Excise Act, 1909. At this juncture, it would be relevant to go into definition of warehouse as provided under State Excise Rules, 2005, as below:- Warehouse, under Rule 2(vii) of W.B. Excise Rules, 2005, means warehouse for supply of country spirit to retail vendors, established at convenient places by Commissioner at expense of State Government, or at expense of person to whom exclusive privilege of supplying or selling country spirit by wholesale has been granted under section 22 of Act, or of licensed wholesale vendor of country spirit. above definition makes it clear that 'warehouse' referred to under State Excise Rules is under direct control and authority of Commissioner of State Excise because it is established by Commissioner of State Excise and as such is State Government establishment. It is also pertinent to note that expenditure in relation to such warehouse is borne by State Government or by licensee to whom exclusive privilege is granted u/s 22 of Bengal Excise Act, 1909. Hence there could be no doubt that warehouse is established by State Excise Commissioner. Hence it could be safely concluded that warehouse so established by State Excise Commissioner is State Government establishment. It would also be pertinent to note that said warehouse has been specifically established for supply of country spirit to retail vendors (assessee herein) only and not to anybody else. It would be pertinent to look into definition of 'Wholesale licensee" as per Rule 2(viii) of Excise Rules 2005 as below.- Rule 2(viii) - "Wholesale licensee" means wholesale vendor of country spirit to whom licence has been granted in West Bengal Excise Form No. 26. It would be pertinent to look into Section 22 of 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) State Government may grant to any person, on such conditions and for such period as it may think fit, 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 or supplying by wholesale and selling retail, or (e)of manufacturing and supplying by wholesale and selling retail, any country liquor or intoxicating drug within any specified local area: Provided that public notice shall be given to intention to grant any such exclusive privilege. and that any objections made by any person residing within area affected shall be considered before exclusive privilege is granted. (2) No grantee of any privilege under sub-section (1) shall exercise same unless or until he has received license in that behalf from Collector or Excise Commissioner. Hence it could be safely concluded that M/s. Asansol Bottling & Packaging Co. Pvt Ltd (Bottling Plant) is warehouse within meaning of Rule 2(vii) of Excise Rules 2005 and said warehouse is State Government establishment, established and controlled by Excise Commissioner. It would be relevant to reproduce Rule 6DD(b) of IT Rules at this juncture;- (b) where payment is made to Government and, under rules framed by it, such payment is required to be made in legal tender. In instant case, assessee (retail vendor) had made cash payments for purchase of country spirit by depositing cash directly into bank account of M/s ABPL as per Rule 6(2) of Excise Rules 2005 , it has to be construed as payment made to State Government authority and accordingly falls under exception provided in Rule 6DD(b) of IT Rules. 22. It is not in dispute that M/s Asansol Bottling & Packaging Co. Pvt Ltd have been granted licence to act as wholesaler for supply of country liquor to retail vendor as per regulations of Excise Department, Government of West Bengal. At cost of repetition, we would like to state that said regulation mandated payments to be made directly into bank account of said wholesale licensee by retail vendor (i.e assessee herein) for strict and effective regulation of country liquor and for prevention of spurious stocks and black marketing transactions from same. Hence it could be safely concluded that said wholesale licensee had acted at instance of State Government. Once this is so, then said wholesale licensee could be construed as agent of State Government. For sake of convenience, relevant rule is reproduced hereunder:- Rule 6DD(k) - where payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person. payment made by assessee retail vendor to Principal, Government of West Bengal through its wholesale agent. relationship between assessee (authorized retailer) and Government of West Bengal (the supplier) acting under West Bengal Excise Rules through its Authorised Wholesaler Licensee (Agent), both defacto and dejure, is one of 'Principal' and 'Agent'. We hold that assessee retail vendor had made payment to said agent (wholesale licensee) would fall under exception provided in Rule 6DD(k) of Rules. 8.As issue involved in present appeal as well as all material facts relevant thereto are similar to case of M/s. Amrai Pachwai & C.S. Shop (supra), we respectfully follow decision rendered by Coordinate Bench of this Tribunal in said case and delete disallowance made by Assessing Officer and confirmed by CIT-A under section 40A(3) of Act. 9.In result, appeal of Assessee is allowed Order Pronounced in Open Court on 4th October,2016 Sd/- Sd/- P.M JAGTAP S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 04 /10/2016 Copy of order forwarded to:- 1. Appellant/Assessee: Shri Biswanath Mondal Prop: Chhatapathar C.S & Pachai Shop Chhatapatbar, P.O Kalibari, Asansol 71339(WB). 2.The Respondent/Revenue: Income Tax Officer, Parmar Building Apcar Garden G.T Road (W) Asansol 713304. 3. CIT 4. CIT(A) 5. Departmental Representative 6. Guard File True Copy By order Assistant Registrar PRADIP SPS Income Tax Appellate Tribunal Kolkata benches, Kolkata Biswanath Mondal v. Income-tax Officer, Ward 2(2). Asamsol