Shri Kishore Somdatta Shukla , Akola V. Income Tax Officer Ward -3, Akola

ITA 117/NAG/2020

AI Insights

The case involves an appeal by Shri Kishore Somdatta Shukla against the order of the CIT(A)-1, Nagpur, which upheld a disallowance made under section 40A(3) of the Income Tax Act concerning a payment of Rs.19,43,850 to two country liquor retailers. The Tribunal examined whether these retailers could be considered state agencies, as per a precedent set in a similar case (ITO vs. M/s. Kendwa Pachai Shop). The Tribunal found that the retailers acted as agents of the state government for the distribution of country liquor, and thus, the payments made to them were exempt from disallowance under section 40A(3) as per the specific provisions of the IT Rules.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 136788 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 02-11-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 09-11-2020
• Other Referred Cases: ITO vs. M/s. Kendwa Pachai Shop ITA No.1274/Kol/2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 40A(3); 143(3); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR – VIRTUAL COURT BEFORE SHRI S. S. GODARA, JUDICIAL MEMBER आयकर अपील सं. / ITA No.117/NAG/2020 िनधाᭅरण वषᭅ / Assessment Year: 2009-10 Shri Kishore Somdatta Shukla, Near Nishu Nursery, Gorakshan Road, Akola- 444001. PAN : AWLPS8546C Vs. ITO, Ward- 3, Akola. Appellant Respondent आदेश / ORDER PER S. S. GODARA, JM: This assessee’s appeal for assessment year 2009-10 arises against the CIT(A)-1, Nagpur’s order dated 26.08.2020 passed in case no.CIT(A)-1/320/2014-15, involving proceedings u/s 143(3) r.w.s. 263 of the Income Tax Act, 1961; in short “the Act”. Case called twice. None appears at assessee’s behest. It is accordingly proceeded ex-parte. 2. I notice with the able assistance coming from the Revenue side that both the learned lower authorities have invoked section Assessee by : None Revenue by : Shri G. J. Ninawe Date of hearing : 03.11.2022 Date of pronouncement : 29.12.2022 ITA No.117/NAG/2020 2 40A(3) disallowance regarding the assessee’s payment of Rs.19,43,850/- made to two country liquor retailers M/s. Prashant Liquor Agency Akola and M/s. Bhatija Liquor Akola. That being the case, it is noticed that such liquor retailers/ warehouses’ owners have already been held to be state agencies in this tribunal’s coordinate bench’s order in ITO vs. M/s. Kendwa Pachai Shop ITA No.1274/Kol/2017 dated 08.06.2018 as follows :- “4. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the issue involved in this appeal of the revenue relating to disallowance under section 40A(3) is squarely covered in favour of the assessee by the various decisions of this Tribunal. In one of such cases, namely M/s. Amrai Pachwai & C.S. Shop decided by the Tribunal vide its order dated 15.01.2014 passed in ITA No. 1251/Kol/2011, payments were made by the assessee against purchases made from the same party, namely M/s. Asansol Bottling & Packing Co. Pvt. Limited by depositing the cash directly in the bank account of the said supplier in the sums exceeding Rs. 20,000/- and I.T.A. No. 1274/Kol/2017 Assessment Year: 2012-13 M/s. Kendwa Pachai Shop the disallowance made for the same under section 40A(3) was deleted by the Tribunal for the following reasons given in paragraphs no. 21 & 22 of its order: "21. 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 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 ITA No.117/NAG/2020 3 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 Government establishment. It would also be pertinent to note that the 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 the definition of 'Wholesale licensee" as per Rule 2(viii) of the Excise Rules 2005 as below.- Rule 2(viii) - "Wholesale licensee" means the 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 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 I.T.A. No. 1274/Kol/2017 Assessment Year: 2012-13 M/s. Kendwa Pachai Shop (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 the intention to grant any such exclusive privilege. and that any objections made by any person residing within the area affected shall be considered before an exclusive privilege is granted. (2) No grantee of any privilege under sub-section (1) shall exercise the 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;- ITA No.117/NAG/2020 4 (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 IT Rules. 22. It is not in 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 country liquor and for prevention of spurious stocks and black marketing transactions from the same. Hence it could be safely concluded that the said wholesale licensee had acted at the instance of the State Government. Once this is so, then the said wholesale licensee could be construed as an agent of the State Government. For the sake of convenience, the relevant rule is reproduced hereunder:- Rule 6DD(k) - where the 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. I.T.A. No. 1274/Kol/2017 Assessment Year: 2012-13 M/s. Kendwa Pachai Shop 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 defacto and dejure, is one of 'Principal' and 'Agent'. We hold that the assessee retail vendor had made payment to the said agent (wholesale licensee) would fall under the exception provided in Rule 6DD(k) of the Rules". 5. As the issue involved in the present case as well as the all material facts relevant thereto are similar to the case of M/s. Amrai Pachwai & C.S. Shop (supra), we respectfully follow the decision rendered by the Coordinate Bench of this Tribunal in the said case and delete the disallowance made by the Assessing Officer and confirmed by the Ld. CIT(A) under section 40A(3) of the Act.” ITA No.117/NAG/2020 5 3. I adopt the foregoing reasoning mutatis mutandis to delete the impugned section 40A(3) disallowance in very terms. The assessee succeeds in his instant sole substantive grievance. 4. This assessee’s appeal is allowed in above terms. Order pronounced on this 29 th day of December, 2022. Sd/- (S. S. GODARA) JUDICIAL MEMBER पुणे / Pune; ᳰदनांक / Dated : 29 th December, 2022. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-1, Nagpur. 4. The Pr. CIT-1/2/3, Nagpur. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, नागपुर / DR, ITAT, Nagpur. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.