IN INCOME TAX APPELLATE TRIBUNAL SMC BENCH : KOLKATA [Before Hon ble Sri N.V.Vasudevan, JM] I.T.A No. 340/Kol/2014 Assessment Year : 2008-09 M/s. Shibpur Pachai Shop -vs.- I.T.O., Ward-1(4) Burdwan. Asansol [PAN: AAMFS 4463 P] (Appellant) (Respondent) For Appellant Shri U.Dasgupta, Advocate For Respondent : Shri.Divakar Chakraborthy JCIT Date of Hearing : 1.9.2016 Date of Pronouncement : 19.10.2016. ORDER Per N.V.Vasudevan, JM This is appeal by Assessee against order dated 9.12.2013 of CIT(A)- Asansol, relating to AY 2008-09. 2. Assessee is individual. He is dealer in country spirits. Purchases are made from single party namely Asansol Bottling & Packing Co. Pvt.Ltd. assessee in respect of purchases from Asansol Bottling & Packing Co. Pvt.Ltd., made payment of Rs.36,64,440/- in cash. According to AO above payment made cannot be allowed as deduction in computing total income of assessee because of violation of provision of section 40A(3) of Income Tax Act, 1961 (Act). action of AO was confirmed by CIT(A). 3. Aggrieved by order of CIT(A) assessee has preferred appeal before this Tribunal. 2 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 4. I have heard submissions of ld. Counsel for assessee and ld. DR. Identical issue with regard to disallowance u/s 40A(3) of Act in case of assessee s case who are engaged in business of country spirits which had come up for consideration before this Bench in case of Ramnagar Pachwai and C.S. (Shop) vs ITO vide ITA No.148/Kol/2015 and 185&186/Kol/2014 for A.Y.2007-08 and 2008- 09 and 2010-11 respectively. This Tribunal vide its order dated on identical issue has held as follows :- 13. We have heard rival submissions and perused materials available on record including paper book filed by assessee comprising of various orders of lower authorities vide pages 1 to 42 of Paper Book, copy of Notification No. 1208-Ex dated 29.08.2005 issued by Excise Department, Government of West Bengal vide pages 43 to 49 of PB and copies of various decisions of High Courts and Tribunals vide pages 50 to 102 of PB. We have also gone through provisions of West Bengal Excise Rules 2005 and Bengal Excise Act, 1909. facts stated hereinabove remain undisputed and hence same are not reiterated for sake of brevity. At outset, we deem it necessary to incorporate following clauses from Notification issued by Excise Department, Government of West Bengal , dated 29.8.2005 for sake of better understanding of facts :- In exercise of power conferred by section 85 and section 86 of Bengal Excise Act, 1909 (Ben. Act V of 1909) and in supersession of rules published with this Department Notification No. 122-EX/O/1R-1/2000 dated 23.2.2000, as subsequently amended, Governor is pleased hereby to make following rules regulating 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 licensed wholesale vendors of same for purpose of selling country spirit by wholesale: Rules 1. Short Title and commencement. (1) These rules may be called 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 subject or context (i) Commissioner means Excise Commissioner; (ii) requisition means requisition submitted by authorized representative of licensed wholesale vendor of country spirit in Form II appended to these rules; (iii) retail vendor means person holding license in prescribed form for retail vending of country spirit, granted by Collector; 189; (iv) State Government means Government of West Bengal; (v) Act means Bengal Excise Act, 1909 (Ben. Act V of 1909); (vi) transport pass means transport pass issued in Form III appended to these rules; 2 3 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 (vii) warehouse 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; (viii) wholesale licensee means wholesale vendor of country spirit to whom license has been granted in West Bengal Excise Form No. 26. (2) Words and expressions used in these rules and not defined, but defined in Act, shall have meanings respectively assigned to them in Act. 3. Issue only on payment of duty. No country spirit in labelled and capsuled bottles shall be issued without payment of duty from country spirit bottling plant. No country spirit in bulk shall be issued without payment of duty from country spirit warehouse. 4. Personal Ledger Account to be maintained by wholesale licensee. wholesale licensee shall maintain Personal Ledger Account in accordance with direction issued by Commissioner from time to time for purpose of maintaining account current of duties payable by wholesale licensee for issues of country spirit to retail vendors or transport on payment of duty from concerned country spirit bottling plant or warehouse. 5. Minimum balance in Personal Ledger Account. Collector shall issue directions for maintaining minimum amount of balance in aforesaid Personal Ledger Accounts in order to ensure that duty for daily issues of country spirit from country spirit bottling plant or warehouse may be debited from said account, leaving sufficient balance as may be determined by him. 6. Procedure of issue of country spirit. (1) retail vendor or his authorized representative shall submit to representative of wholesale licensee, through Excise Officer-in-Charge of warehouse, demand for issue of country spirit in Form I appended to these rules in duplicate. duplicate copy shall be kept in custody of Excise Officer-in-Charge for his official record. (2) 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 charge, 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. (3) authorized representative of wholesale licensee shall realize necessary amount of duty, cost price and bottling charge, if there be any, at prescribed rate and such other imposition, as may be prescribed by law, from retail vendor to whom country spirit is to be issued from concerned warehouse. authorized representative as above shall then submit requisition in duplicate in Form II appended to these rules to Excise Officer-in-Charge 3 4 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 of warehouse separately for each of retail vendors to whom country spirit is to be issued on day. (4) On receipt of requisition in Form II, Excise Officer-in-Charge of warehouse shall allow issue of country spirit from warehouse. Duplicate copy of requisition shall be returned to authorized representative of wholesale licensee after issue has been made. (5) Excise Officer-in-Charge of warehouse shall issue transport pass to retail vendor in Form III appended to these rules. (6) Notwithstanding anything contained in any provisions of rules, orders and notifications in this context, wholesale suppliers of country spirit in labelled and capsuled bottles shall allow rebate of five paise per bottle irrespective of measure from bottling charge to retail country spirit licensees whose licensed premises are located at distance of 50 kilometres or more by shortest route from issuing warehouse on basis of certificate to be issued by Collector in respect of distance. At end of month, wholesaler shall submit bill in duplicate to Officer-in-Charge of warehouse claiming refund of amount granted as rebate. Officer-in-Charge shall, on receipt of bill, refund amount claimed after verifying his records through adjustment in Personal Ledger Account maintained for purpose of privilege fee. In case there is no Personal Ledger Account for privilege fee at warehouse, Officer-in-Charge shall send copy of claim with his comments to Officer-in-Charge of supplier bottling plant, who shall refund amount recommended to wholesaler through adjustment in Personal Ledger Account maintained for privilege fee. 14. We find that reliance placed on decision of Co-ordinate Bench of Bangalore Tribunal in case of Sri Renukeswara Rice Mills vs ITO reported in 93 ITD 263 (Bang Trib.) is well founded , wherein, it was held that cash payment in bank account of payee is sufficient to get exemption in terms of Rule 6DD in as much it is ensured that payee and payee alone receives payment and origin and conclusion of transaction is traceable thereby fulfilling criterion for ensuring object of introduction of section 40A(3) of Act. 15. We find that following facts are undisputed and indisputable:- (a) transactions made by assessee is genuine. (b) identity of receiver (wholesale licensee) is established beyond doubt. ( c) payment is made in bank account of seller (wholesale licensee). 4 5 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 We hold that since genuinity of payments made to M/s Asansol Bottling & Packaging Co. Pvt. Ltd (wholesale licensee) is not doubted by revenue, provisions of section 40A(3) could not be made applicable to facts of instant case. It is observed that assessee had taken enough precautions from its side to ensure that payee also don t escape from ambit of taxation on these receipts by directly depositing cash in bank account of payee. Moreover, regulations of West Bengal Government pursuant to notification from its Excise Department dated 29.8.2005 also mandates payment to be made by way of direct deposit into bank account of wholesale licensee. This fact is also not disputed by revenue. 16. It will be pertinent to go into intention behind introduction of provisions of section 40A(3) of Act at this juncture. We find that said provision was inserted by Finance Act 1968 with object of curbing expenditure in cash and to counter tax evasion. CBDT Circular No. 6P dated 6.7.1968 reiterates this view that this provision is 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. 17. In this regard, it is pertinent to get into following decisions on impugned subject:- Attar Singh Gurmukh Singh vs ITO reported in (1991) 191 ITR 667 (SC) " 3.3.4. Section 40A(3) of Income-tax Act, 1961, which provides that expenditure in excess of Rs. 2,500 (Rs. 10,000 after 1987 amendment) would be allowed to be deducted only if made by crossed cheque or crossed bank draft (except in specified cases) is not arbitrary and does not amount to restriction on fundamental right to carry on business. If read together with Rule 6DD of Income-tax Rules, 1962, it will be clear that provisions are not intended to restrict business activities. There is no restriction on assessee in his trading activities. Section 40A(3) only empowers Assessing Officer to disallow deduction claimed as expenditure in respect of which payment is not made by crossed-cheque or crossed-bank draft. payment by crossed- cheque or crossed bank-draft is insisted upon to enable assessing authority to ascertain whether payment was genuine or whether it was out of income from undisclosed sources. terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of sweep of section. It is open to assessee to furnish to satisfaction of Assessing officer circumstances under which payment in manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to payee. It is also open to assessee to identify person who has received cash payment. Rule 6DD provides that assessee can be exempted from requirement of payment by crossed-cheque or crossed-bank draft in circumstances specified under rule. It will be clear from provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent use of unaccounted money or reduce chances to use black money for business transactions." 5 6 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 CIT vs CPL Tannery reported in (2009) 318 ITR 179 (Cal) contention of assessee that he purchased goods from suppliers who are producers of hides and skins, has not been refuted either by AO or by CITA. second contention of assessee that owing to business expediency, obligation and exigency, assessee had to make cash payment for purchase of goods so essential for carrying on of his business, was also not disputed by AO. genuinity of transactions, rate of gross profit or fact that bonafide of assessee that payments are made to M/s IFB Agro Industries Ltd for purchase of country spirit are also neither doubted nor disputed by AO. On basis of these facts it is not justified on part of AO to disallow 20% of payments made u/s 40A(3) in process of assessment. We, therefore, delete addition of Rs. 17,90,571/- and ground no.1 is decided in favour of assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 Jurisdictional High Court decision It also appears that purchases have been held to be genuine by learned CIT(Appeal) but learned CIT(Appeal) has invoked Section 40A(3) for payment exceeding Rs.20,000/- since it is not made by crossed-cheque or bank draft but by bearer cheques and has computed payments falling under provisions to Section 40A(3) for Rs.78,45,580/- and disallowed @ 20% thereon Rs.15,69,116/-. It is also made clear that without payment being made by bearer cheque these goods could not have been procured and it would have hampered supply of goods within stipulated time. Therefore, genuineness of purchase has been accepted by Id. CIT (Appeal) which has also not been disputed by department as it appears from order so passed by learned Tribunal. It further appears from assessment order that neither Assessing Officer nor CIT (Appeal) has disbelieved genuineness of transaction. There was no dispute that purchases were genuine." Anupam Tele Services vs ITO in (2014) 43 taxmann.com 199 (Guj) Section 40A(3) of Income-tax Act, 1961, read with rule 6DD of Income- tax Rules, 1962 Business disallowance - Cash payment exceeding prescribed limits Rule 6DD(j) Assessment year 2006-07 - Assessee was working as agent of Tata Tele Services Limited for distributing mobile cards and recharge vouchers - Principal company Tata insisted that cheque payment from assessee's co-operative bank would not do, since realization took longer time and such payments should be made only in cash in their bank account - If assessee would not make cash payment and make cheque 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 assessee]" 6 7 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 Sri Laxmi Satyanarayana Oil Mill vs CIT reported in (2014) 49 taxmann.com 363 (Andhrapradesh High Court) "Section 40A(3) of Income-tax Act, 1961, read with Rule 6DD of Income- tax Rules, 1962- Business disallowance - Cash payment exceeding prescribed limit (Rule 6DD) - Assessee made certain payment of purchase of groundnut in cash exceeding prescribed limit - Assessee submitted that he made payment in 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 transaction 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 vs Smt. Shelly Passi reported in (2013) 350 ITR 227 (P&H) In this case court upheld view of tribunal in not applying section 40A(3) of Act to cash payments when ultimately, such amounts were deposited in bank by payee. 18. We are not inclined to ignore intention of provisions of section 40A(3) of Act by giving plain reading of same as argued by ld DR. We find that disallowance of entire cash purchases results in abnormal trading profit for assessee which it could never earn. We find purposive construction should be resorted to while applying provisions of Act. Hence it would be more relevant to get into intention of legislature. In our opinion, primary object of enacting section 40A(3) was two-fold, firstly, putting check on trading transactions with mind to evade liability to tax on income earned out of such transaction and, secondly, to inculcate banking habits amongst business community. Apparently, this provision was directly related to curb evasion of tax and inculcating banking habits. Therefore, consequence, which were to befall on account of non-observation of section 40A(3) must have nexus to failure of such object. Therefore, genuineness of transactions it being free from vice of any device of evasion of tax is relevant consideration. In instant case, cash has been deposited directly in bank account of supplier i.e M/s Asansol Bottling & Packaging Co. Pvt Ltd by assessee. 19. We find that Hon ble Apex Court in case of CTO vs Swastik Roadways reported in (2004) 3 SCC 640 had held that consequences of non-compliance of Madhyapradesh Sales Tax Act , which were intended to check evasion and avoidance of sales tax were significantly harsh. court while upholding constitutional validity negated existence of mens rea as condition necessary for levy of penalty for non- compliance with such technical provisions required held that in consequence to follow there must be nexus between consequence that befall for non-compliance with such provisions intended for preventing tax evasion with object of provision before 7 8 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 consequence can be inflicted upon defaulter. Supreme Court has opined that existence of nexus between tax evasion by owner of goods and failure of C & F agent to furnish information required by Commissioner is implicit in section 57(2) and assessing authority concerned has to necessarily record finding to this effect before levying penalty u/s 57(2). Though in instant case, issue involved is not with regard to levy of penalty, but requirement of law to be followed by assessee was of as technical nature as was in case of Swastik Roadways (3 SCC 640) and consequence to fall for failure to observe such norms in present case are much higher than which were prescribed under Madhya Pradesh Sales Tax Act. Apparently, it is relevant consideration for assessing authority under Income Tax Act that before invoking provisions of section 40A(3) in light of Rule 6DD as clarified by Circular of CBDT that whether failure on part of assessee in adhering to requirement of provisions of section 40A(3) has any such nexus which defeats object of provision so as to invite such consequence. We hold that 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 case in facts of assessee herein. assessee had directly deposited cash in bank account of supplier M/s Asansol Bottling & Packaging Co. Pvt Ltd which fact is also accepted by ld AO and mandated by Notification dated 29.8.2005 issued by Excise Department , Government of West Bengal. It is also pertinent to note that Hon ble Rajasthan High Court in case of Smt.Harshila Chordia vs ITO reported in (2008) 298 ITR 349 (Raj) had held that exceptions contained in Rule 6DD of Income Tax Rules are not exhaustive and that said rule must be interpreted liberally. 20. We also find that impugned issue is also covered by decision of co- ordinate bench of this tribunal in case of Ashok Mondal vs ITO in ITA No. 873/Kol/2012 for Asst Year 2009-10 dated 6.2.2014, wherein it was held that :- 7. We have considered rival submissions. At outset perusal of decision in case of Smt.Pushpalata Mondal shows that Tribunal had decided case by following decision of Hon'ble Kerala High Court in case of K.Abdu & Co. referred to supra wherein issue was in relation to Rule 6DD(a) of IT Rules. issue in asessec's case is in respect of payments made under rules framed by Government and such payment was required to be made in legal tender. perusal of Government Notification issued by Govt. of West Bengal clearly shows that dealers are agents of Government and payments made are to Government. It also makes it categorically required that payment is to be made before lifting of country spirit. Consequently we are of view that issue is squarely covered by decision of Coordinate Bench of this Tribunal in case of M/s.Amrai Pachwai & C.S.Shop referred to supra wherein it has been held as follows :- "6. We have considered rival submissions. At outset perusal of assessment order clearly shows that AO has recognized assessee's business in trading of country spirit and country liquor. Copy of Form of Licence issued by Durgapur Municipal Corporation and copy of Form III issued by 8 9 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 Department of Excise, Govt. of W.B. were also found at pages 177 and 179 of assessee's paper book. In any case validity of licence of assessee to trade in country spirit and country liquor is not issue before us. issue is whether payments made by assessee for purchase of country spirit from territorial licensee bottling plant, IFB Agro Industries Ltd., City Centre, Durgapur falls within exemption provided under rule 6DD(b) of I.T.Rules, 1962. Admittedly, AO has recognized that provision of Rule 6DD(b) of I.T Rules, 1962 is applicable in case of payments made to government directly. This is found in page 2 of assessment order. perusal of Kolkata Gazette Tuesday 20th Sept 2005 shows that Government of West Bengal, Department of Excise has issued notification, wherein warehouse has been identified to mean 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 u/s 22 of Act of licensed wholesale vendor of country spirit. Further, it has been specifically identified that authorised representative of wholesale licensee shall realize necessary amount of duty, cost price and bottling charge, if there be any, at prescribed rate and such other imposition, as may be prescribed by law, from retail vendor to whom country spirit is to be issued from concerned warehouse. It is also specifically mentioned in section (2) of said notification 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 which clearly shows that warehouse is for supply of country liquor, specifically, warehouse is under direct control and custody of State Govt. State Government has closed its doors in so far as local treasury is concerned and payment for purchase of country spirit or country liquor has to be made to warehouse, run by government. This shows that any payment made to warehouse, which is under direct control of state government, is payment made directly to government. Once, this is accepted then provisions of Rule 6DD(b) of I.T Rules, 1962 which clearly spells out that payment made to government in legal tender under rules framed by Government, is exempted from rigours of section 40A(3) of Act. Here, it is noticed that payments made by assesee for purchase of country spirit and country liquor is to government as per notification issued by government and is in legal tender specified by notification. In circumstances, we are of view that payment made by assessee for purchase of country liquor and country spirit from territorial licensee bottling plant, IFB Agro Industries Ltd., City Centre, Durgapur is protected by exemption in terms of Rule 6DD(b) of 1.T.Rules 1962. In circumstances, addition as made by AO and as confirmed by Id. CIT(A) by invoking provisions of section 40A(3) of I. T.Act 1961 stands deleted. 8. In result addition as confirmed by Id. CIT(A) stands deleted. 9 10 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 We find that this decision was rendered by placing reliance on its earlier decision in case of M/s Amrai Pachwai & C.S.Shop in ITA No. 1251/Kol/2011 dated 15.1.2014 and after considering contrary decisions rendered in case of Pushpalata Mondal in ITA No. 965/Kol/2010 dated 28.7.2011 and Hon ble Kerala High Court in case of CIT vs K Abdu & Co (170 Taxman 297). We find that Co-ordinate Bench decision in case of M/s Amrai Pachwai & C.S.Shop in ITA No. 1251/Kol/2011 dated 15.1.2014 and held portion is reproduced hereinabove. 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 menas 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 10 11 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 (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:- 11 12 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 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 (wholsesale licensee) would fall under exception provided in Rule 6DD(k) of Rules. 23. ld AR had advanced another argument that payment is made by assessee to State Bank of India and accordingly same would fall under exception provided in Rule 6DD(a) of Rules. We find that assessee had made payments only to customer of State Bank of India and not to State Bank of India. Hence assessee s case does not fall under exception provided in Rule 6DD(a) of Rules. 24. We hold from aforesaid findings that assessee s case falls under exceptions provided in Rule 6DD(b) and Rule 6DD(k) of Rules. In view of aforesaid facts and circumstances and respectfully following judicial precedents relied upon hereinabove, we have no hesitation in deleting disallowance made u/s 40A(3) of Act in all years under appeal. Accordingly, grounds raised by assessee for all years under appeal are allowed. 5. facts and circumstances and relevant provision of Act applicable in present case are identical to facts and provisions of law referred to in decision rendered in aforesaid case. Respectfully following decision referred to above, I hold that disallowance u/s 40A(3) of Act cannot be sustained and same is directed to be deleted. 6. In result appeal by assessee is allowed. Order pronounced in Court on 19.10.2016. Sd/- [ N.V.Vasudevan ] Judicial Member Dated : 19.10.2016. [RG PS] 12 13 ITA No.340/Kol/2014 M/s. Shibpur Pachai Shop. A.Yr.2008-09 Copy of order forwarded to: 1. M/s. Shibpur Pachai Sop, Village & P.O. Shibpur, Dist. Burdwan, Pin-713330. 2. I.T.O., Ward-1(4), Asansol. 3. CIT(A)-Asansol. 4. CIT- Asansol. 5. CIT(DR), Kolkata Benches, Kolkata. True copy By Order Asstt.Registrar, ITAT, Kolkata Benches 13 M/s. Shibpur Pachai Shop v. I.T.O., Ward-1(4), Asansol