ITO, WD-2(3), Durgapur, Durgapur V. M/s Kajora Pachai & C. S. Shop, Burdwan

ITA 502/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1289 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 28-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: K K KHEMKA
• Keywords: Income from undisclosed sources
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] I.T.A NO. 502/KOL/201 5 ASSESSMENT YEAR : 2010-1 1 ITO, WARD-2(3), DURGAPUR -VS- M/S K AJORA PACHAI & C.S. SHOP [PAN: AAGFK 2341 E] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SAURABH KUMAR , ADDL. CIT FOR THE RESPONDENT : SHRI K.K. KHEMKA, ADVOCA TE DATE OF HEARING : 20.09.2017 DATE OF PRONOUNCEMENT : 17.10.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE OR DER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -DURGAPUR [IN SHORT THE LD CIT A] IN APPEAL NO. 118/CIT(A)/DGP/2013-14 DATED 16.02.2015 AGAINST TH E ORDER PASSED BY THE ITO, WARD-2(3), DURGAPUR [ IN SHORT THE LD AO] UNDER SEC TION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 29.03.2013 FOR THE ASSESSMENT YEAR 2009-10. 2. THE ONLY ISSUE TO BE DECIDED IN ALL THE APPEALS IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 40A (3) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF RETAIL VENDING OF COUNTRY LIQUOR AND PA CHAI. THE COUNTRY LIQUOR IS AN EXCISABLE COMMODITY. ITS PURCHASE AND SALE ARE STR ICTLY CONTROLLED BY THE STATE 2 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 2 GOVERNMENT. PREVIOUSLY, THE RETAIL DEALERS LIKE TH E ASSESSEE USED TO DEPOSIT THE COST PRICE, EXCISE DUTY, BOTTLING CHARGES ETC IN THE TRE ASURY AGAINST FORM TR-7 IN CASH FOR GETTING SUPPLIES FROM THE WHOLESALE LICENSEE. SUBS EQUENTLY, THE EXCISE DEPARTMENT BY A NOTIFICATION DATED 29.8.2005 CHANGED THE PROCEDUR E. AS PER THE REVISED PROCEDURE PRESCRIBED BY THE EXCISE DEPARTMENT, FOR LIFTING CO UNTRY SPIRIT, THE ASSESSEE , WHO IS A RETAIL VENDOR, WAS REQUIRED TO MAKE THE ENTIRE PAYM ENT CONSISTING OF COST OF THE STOCK IN TRADE, EXCISE DUTY AND BOTTLING CHARGES ETC ONLY TO THE WHOLESALE LICENSEE APPOINTED BY THE STATE GOVERNMENT. FOLLOWING THE REVISED PROCED URE, THE ASSESSEE MADE PAYMENTS TO M/S IFB AGRO INDUSTRIES LTD TOWARDS PURCHASES OF CO UNTRY LIQUOR. AGAINST THE AFORESAID PURCHASES, THE ASSESSEE MADE PAYMENTS IN CASH BY DEPOSITING MONEY DIRECTLY TO THE BANK ACCOUNT OF THE AFORESAID COMPANY. THE LD AO OBSERVED THAT THE PAYMENT FOR PURCHASE WAS EXCEEDING RS 20,000/- RESULTING IN VIO LATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT AND ACCORDINGLY PROCEEDED TO DISA LLOW A SUM OF RS 67,12,562/- IN THE ASSESSMENT. THIS DISALLOWANCE WAS DELETED BY THE LD CITA IN FIRST APPEAL. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. WHETHER THE LD. COMMISSIONER OF INCOME TAX(APPEA LS), DURGAPUR HAS ERRED ON FACT AND LAW BY HOLDING THAT CASH PAYMENT TO M/S IFB AGRO INDUSTRIES LTD., PANAGARH IS NOT A VIOLATION OF SECTION 40A(3) OF TH E INCOME TAX ACT, 1961? 2. WHETHER THE LD. COMMISSIONER OF INCOME TAX (APPE ALS), DURGAPUR HAS ERRED BY HOLDING THAT THE CASH PAYMENT TO A BUSINESS ORGA NIZATION I.E. M/S IFB AGRO INDUSTRIES LTD. IS PAYMENT TO GOVERNMENT FOR THE PU RPOSE OF SECTION 40A(3)? 3. WHETHER THE LD. COMMISSIONER OF INCOME TAX(APPEA LS), DURGAPUR HAS ERRED BY HOLDING THAT CASH PAYMENT MADE TO M/S IFB AGRO I NDUSTRIES LTD., PANAGARH IS EXEMPTED AS PER RULE 6DD(B) READ WITH SECTION 40A(3 ) WHEN THERE ARE NO RULES TO SPECIFY THAT THIS PAYMENT WAS REQUIRED TO BE MAD E IN CASH ONLY? 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), DURGAPUR FAILED TO RECOGNIZE THAT THERE WAS ANY BINDING/OBLIGATION ON THE ASSESSEE TO MAKE CASH PUR CHASE ONLY. 3 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 3 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND, MODIFY, SUBSTITUTE, DELETE AND/OR RESCIND ALL OR ANY GROUNDS OF APPEAL ON OR B EFORE FINAL HEARING. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE ISSUE UNDER DISPUTE IS COVERED BY THE ORDER OF THIS TRIBUNAL IN THE CASE OF RAMNAG AR PACHAI & C.S. SHOP VS ITO IN ITA NO. 148/KOL/2015 (AY 2007-08) , ITA NO. 185/KOL/201 4 (AY 2008-09) AND ITA NO. 186/KOL/2014 (AY 2010-11) DATED 5.8.2016 WHEREIN IT WAS HELD AS UNDER:- 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESS EE COMPRISING OF VARIOUS ORDERS OF LOWER AUTHORITIES VIDE PAGES 1 TO 42 OF THE PAPER B OOK, COPY OF NOTIFICATION NO. 1208- EX DATED 29.08.2005 ISSUED BY THE EXCISE DEPARTMENT , GOVERNMENT OF WEST BENGAL VIDE PAGES 43 TO 49 OF PB AND COPIES OF VARIOUS DECISION S OF HIGH COURTS AND TRIBUNALS VIDE PAGES 50 TO 102 OF PB. WE HAVE ALSO GONE THROUGH TH E PROVISIONS OF THE WEST BENGAL EXCISE RULES 2005 AND THE BENGAL EXCISE ACT, 1909. THE FACTS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITER ATED FOR THE SAKE OF BREVITY. AT THE OUTSET, WE DEEM IT NECESSARY TO INCORPORATE THE FOL LOWING CLAUSES FROM THE NOTIFICATION ISSUED BY THE EXCISE DEPARTMENT, GOVERNMENT OF WEST BENGAL , DATED 29.8.2005 FOR THE SAKE OF BETTER UNDERSTANDING OF THE FACTS :- 'IN EXERCISE OF THE POWER CONFERRED BY SECTION 85 A ND SECTION 86 OF THE BENGAL EXCISE ACT, 1909 (BEN. ACT V OF 1909) AND IN SUPERS ESSION OF THE RULES PUBLISHED WITH THIS DEPARTMENT NOTIFICATION NO. 122-EX/O/1R-1 /2000 DATED 23.2.2000, AS SUBSEQUENTLY AMENDED, THE GOVERNOR IS PLEASED HEREB Y TO MAKE THE FOLLOWING RULES REGULATING THE ISSUE AND REMOVAL OF COUNTRY S PIRIT ON PAYMENT OF DUTY IN LABELLED AND CAPSULED BOTTLES FROM COUNTRY SPIRIT B OTTLING PLANTS AND IN BULK FROM WAREHOUSES BY THE LICENSED WHOLESALE VENDORS O F THE SAME FOR THE PURPOSE OF SELLING COUNTRY SPIRIT BY WHOLESALE:-- RULES 1. SHORT TITLE AND COMMENCEMENT.--(1) THESE RULES M AY 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 E XCISE COMMISSIONER; (II) 'REQUISITION' MEANS THE RE QUISITION SUBMITTED BY THE AUTHORIZED REPRESENTATIVE OF LICENSED WHOLESALE VENDOR OF COUN TRY SPIRIT IN FORM II APPENDED TO THESE RULES; (III) 'RETAIL VENDOR' MEANS THE PERSON HOLDING LICE NSE IN THE PRESCRIBED FORM FOR RETAIL VENDING OF COUNTRY SPIRIT, GRANTED BY THE CO LLECTOR; 189; (IV) 'STATE GOVERNMENT' MEANS THE GOVERNMENT OF WES T BENGAL; 4 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 4 (V) 'THE ACT' MEANS THE BENGAL EXCISE ACT, 1909 (BE N. ACT V OF 1909); (VI) 'TRANSPORT PASS' MEANS THE TRANSPORT PASS ISSU ED IN FORM III APPENDED TO THESE RULES; (VII) 'WAREHOUSE' MEANS THE WAREHOUSE FOR SUPPLY OF COUNTRY SPIRIT TO RETAIL VENDORS, ESTABLISHED AT CONVENIENT PLACES BY THE CO MMISSIONER 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 ITA NO. 148/K/2015, ITA NOS. 185 & 186/KOL/ 2014 RAMNAGAR PACHWAI & (S) C.S. SHOP, AY 2007-08, 2008-09 & 2010-11 UNDE R SECTION 22 OF THE ACT, OR OF A LICENSED WHOLESALE VENDOR OF COUNTRY SPIRIT ; (VIII) 'WHOLESALE LICENSEE' MEANS THE WHOLESALE VEN DOR 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 N OT DEFINED, BUT DEFINED IN THE ACT, SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN THE ACT. 3. ISSUE ONLY ON PAYMENT OF DUTY.--NO COUNTRY SPIRI T IN LABELLED AND CAPSULED BOTTLES SHALL BE ISSUED WITHOUT PAYMENT OF DUTY FRO M A COUNTRY SPIRIT BOTTLING PLANT. NO COUNTRY SPIRIT IN BULK SHALL BE ISSUED WI THOUT PAYMENT OF DUTY FROM A COUNTRY SPIRIT WAREHOUSE. 4. PERSONAL LEDGER ACCOUNT TO BE MAINTAINED BY THE WHOLESALE LICENSEE.--THE WHOLESALE LICENSEE SHALL MAINTAIN A PERSONAL LEDGER ACCOUNT IN ACCORDANCE WITH THE DIRECTION ISSUED BY THE COMMISSIONER FROM TIME TO TIME FOR THE PURPOSE OF MAINTAINING AN ACCOUNT--CURRENT OF THE DUTIES PA YABLE BY THE WHOLESALE LICENSEE FOR THE ISSUES OF COUNTRY SPIRIT TO THE RE TAIL VENDORS OR TRANSPORT ON PAYMENT OF DUTY FROM THE CONCERNED COUNTRY SPIRIT B OTTLING PLANT OR WAREHOUSE. 5. MINIMUM BALANCE IN PERSONAL LEDGER ACCOUNT.--THE COLLECTOR SHALL ISSUE DIRECTIONS FOR MAINTAINING THE MINIMUM AMOUNT 'OF B ALANCE IN THE AFORESAID PERSONAL LEDGER ACCOUNTS IN ORDER TO ENSURE THAT DU TY FOR DAILY ISSUES OF COUNTRY SPIRIT FROM THE COUNTRY SPIRIT BOTTLING PLA NT OR WAREHOUSE MAY BE DEBITED FROM THE SAID ACCOUNT, LEAVING SUFFICIENT BALANCE A S MAY BE DETERMINED BY HIM. 6. PROCEDURE OF ISSUE OF COUNTRY SPIRIT.--(1) THE R ETAIL VENDOR OR HIS AUTHORIZED REPRESENTATIVE SHALL SUBMIT TO THE REPRESENTATIVE O F THE WHOLESALE LICENSEE, THROUGH EXCISE OFFICER-IN-CHARGE OF THE WAREHOUSE, A DEMAND FOR ISSUE OF COUNTRY SPIRIT IN FORM I APPENDED TO THESE RULES IN DUPLICATE. THE DUPLICATE COPY SHALL BE KEPT IN THE CUSTODY OF THE EXCISE OFFICER- IN-CHARGE FOR HIS OFFICIAL RECORD. (2) NO RETAIL VENDOR OF COUNTRY SPIRIT SHALL DEPOSI T 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 TH ERE BE ANY, AT THE PRESCRIBED 5 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 5 RATE AND OTHER IMPOSITION, AS MAY BE PRESCRIBED BY LAW, SHALL BE PAID BY THE RETAIL VENDOR TO THE CREDIT OF THE WHOLESALE LICENS EE CONCERNED. (3) THE AUTHORIZED REPRESENTATIVE OF THE WHOLESALE LICENSEE SHALL REALIZE THE NECESSARY AMOUNT OF DUTY, COST PRICE AND BOTTLING C HARGE, IF THERE BE ANY, AT THE PRESCRIBED RATE AND SUCH OTHER IMPOSITION, AS MAY B E PRESCRIBED BY LAW, FROM THE RETAIL VENDOR TO WHOM COUNTRY SPIRIT IS TO BE I SSUED FROM THE CONCERNED WAREHOUSE. THE AUTHORIZED REPRESENTATIVE AS ABOVE S HALL 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 E XCISE 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 AU THORIZED REPRESENTATIVE OF THE WHOLESALE LICENSEE AFTER THE ISSUE HAS BEEN MADE. (5) THE EXCISE OFFICER-IN-CHARGE OF THE WAREHOUSE S HALL ISSUE TRANSPORT PASS TO THE RETAIL VENDOR IN FORM III APPENDED TO THESE RUL ES. (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY PROVI SIONS OF THE RULES, ORDERS AND NOTIFICATIONS IN THIS CONTEXT, THE WHOLESALE SU PPLIERS OF COUNTRY SPIRIT IN LABELLED AND CAPSULED BOTTLES SHALL ALLOW A REBATE OF FIVE PAISE PER BOTTLE IRRESPECTIVE OF MEASURE ITA NO. 148/K/2015, ITA NOS . 185 & 186/KOL/2014 RAMNAGAR PACHWAI & (S) C.S. SHOP, AY 2007-08, 2008- 09 & 2010-11 FROM THE BOTTLING CHARGE TO THE RETAIL COUNTRY SPIRIT LICENS EES WHOSE LICENSED PREMISES ARE LOCATED AT A DISTANCE OF 50 KILOMETRES OR MORE BY T HE SHORTEST ROUTE FROM THE ISSUING WAREHOUSE ON THE BASIS OF A CERTIFICATE TO BE ISSUED BY THE COLLECTOR IN RESPECT OF DISTANCE. AT THE END OF THE MONTH, THE WHOLESALER SHALL SUBMI T A BILL IN DUPLICATE TO THE OFFICER- IN-CHARGE OF THE WAREHOUSE CLAIMING REFUND OF THE AMOUNT GRANTED AS REBATE. THE OFFICER-IN-CHARGE SHALL, ON RECEIPT OF THE BILL , REFUND THE AMOUNT CLAIMED AFTER VERIFYING HIS RECORDS THROUGH ADJUSTMENT IN T HE PERSONAL LEDGER ACCOUNT MAINTAINED FOR THE PURPOSE OF PRIVILEGE FEE. IN CAS E THERE IS NO PERSONAL LEDGER ACCOUNT FOR PRIVILEGE FEE AT THE WAREHOUSE, THE OFF ICER-IN-CHARGE SHALL SEND A COPY OF THE CLAIM WITH HIS COMMENTS TO THE OFFICER- IN-CHARGE OF THE SUPPLIER BOTTLING PLANT, WHO SHALL REFUND THE AMOUNT RECOMME NDED TO THE WHOLESALER THROUGH ADJUSTMENT IN THE PERSONAL LEDGER ACCOUNT M AINTAINED FOR PRIVILEGE FEE.' 14. WE FIND THAT THE RELIANCE PLACED ON THE DECISIO N OF CO-ORDINATE BENCH OF BANGALORE TRIBUNAL IN THE CASE OF SRI RENUKESWARA RICE MILLS VS ITO REPORTED IN 93 ITD 263 (BANG TRIB.) 6 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 6 IS WELL FOUNDED , WHEREIN, IT WAS HELD THAT THE CAS H PAYMENT IN THE BANK ACCOUNT OF THE PAYEE IS SUFFICIENT TO GET EXEMPTION IN TERMS OF RULE 6DD IN AS MUCH IT IS ENSURED THAT THE PAYEE AND PAYEE ALONE RECEIVES THE PAYMENT AND THE ORIGIN AND CONCLUSION OF THE TRANSACTION IS TRACEABLE THEREBY FULFILLING THE CRITERION FOR ENSURING THE O BJECT OF INTRODUCTION OF SECTION 40A(3) OF THE ACT. 15. WE FIND THAT THE FOLLOWING FACTS ARE UNDISPUTED AND INDISPUTABLE:- (A) THE TRANSACTIONS MADE BY THE ASSESSEE IS GENUIN E. (B) THE IDENTITY OF THE RECEIVER (WHOLESALE LICENSE E) IS ESTABLISHED BEYOND DOUBT. (C) THE PAYMENT IS MADE IN THE BANK ACCOUNT OF THE SELLER (WHOLESALE LICENSEE). WE HOLD THAT SINCE THE GENUINITY OF THE PAYMENTS MA DE TO THE M/S ASANSOL BOTTLING & 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 I NSTANT CASE. IT IS OBSERVED THAT THE ASSESSEE HAD TAKEN ENOUGH PRECAUTIONS FROM ITS SIDE TO ENSURE THAT THE PAYEE ALSO DON'T 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 29.8. 2005 ALSO MANDATES THE PAYMENT TO BE MADE BY WAY OF DIRECT DEPOSIT INTO THE BANK ACCOUNT OF T HE WHOLESALE LICENSEE. THIS FACT IS ALSO NOT DISPUTED BY THE REVENUE. 16. IT WILL BE PERTINENT TO GO INTO THE INTENTION B EHIND 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 CBDT CIRCULAR NO. 6P DATED 6.7.1968 REITERATES THIS VIEW THAT 'THIS PROVISION IS DESIGNED TO COUNTER EVASION OF A TAX THROUGH CLAIMS FOR EXPENDITURE SHO WN TO HAVE BEEN INCURRED IN CASH WITH A VIEW TO FRUSTRATING PROPER INVESTIGATION BY THE DEP ARTMENT AS TO THE IDENTITY OF THE PAYEE AND REASONABLENESS OF THE PAYMENT.' 17. IN THIS REGARD, IT IS PERTINENT TO GET INTO THE FOLLOWING DECISIONS ON THE IMPUGNED SUBJECT:- ATTAR SINGH GURMUKH SINGH VS ITO REPORTED IN (1991) 191 ITR 667 (SC) ' 3.3.4. SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, WHICH PROVIDES THAT E XPENDITURE IN EXCESS OF RS. 2,500 (RS. 10,000 AFTER THE 1987 AMENDMENT) WOULD BE ALLOWED TO BE DEDUCTED ONLY IF MADE BY A CROSSED CHEQUE OR CROSSED BANK DRAFT (EXC EPT IN SPECIFIED CASES) IS NOT ARBITRARY AND DOES NOT AMOUNT TO A RESTRICTION ON THE FUNDAMENTAL RIGHT TO CARRY ON BUSINESS. IF READ TOGETHER WITH RULE 6DD OF THE INCOME-TAX RULES, 1962, IT WIL L BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALLOW TH E DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHICH PAYMENT IS NOT MADE BY CROSSED-CHEQUE OR CROSSED- BANK DRAFT. THE PAYMENT BY CROSSED-CHEQUE OR CROSSE D BANK- DRAFT IS INSISTED UPON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PA YMENT WAS GENUINE OR WHETHER IT WAS OUT OF INCOME FROM UNDISCLOSED SOURCES. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION 7 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 7 OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS A RE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCU MSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE ASS ESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CA N BE EXEMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED-CHEQUE OR CROSSED-BANK DRAFT I N THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO PREVENT TH E USE OF UNACCOUNTED MONEY OR REDUCE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTION S.' CIT VS CPL TANNERY REPORTED IN (2009) 318 ITR 179 (CAL) THE CONTENTION OF THE ASSESSEE THAT HE PURCHASED GO ODS FROM SUPPLIERS WHO ARE PRODUCERS OF HIDES AND SKINS, HAS NOT BEEN REFUTED EITHER BY THE AO OR BY THE CITA. THE SECOND CONTENTION OF THE ASSESSEE THAT OWING TO BUSINESS EXPEDIENCY, OBL IGATION AND EXIGENCY, THE ASSESSEE HAD TO MAKE CASH PAYMENT FOR PURCHASE OF GOODS SO ESSENTIA L FOR CARRYING ON OF HIS BUSINESS, WAS ALSO NOT DISPUTED BY THE AO. THE GENUINITY OF TRANSACTIO NS, RATE OF GROSS PROFIT OR THE FACT THAT THE BONAFIDE OF THE ASSESSEE THAT PAYMENTS ARE MADE TO M/S IFB AGRO INDUSTRIES LTD FOR PURCHASE OF COUNTRY SPIRIT ARE ALSO NEITHER DOUBTED NOR DISP UTED BY THE AO. ON THE BASIS OF THESE FACTS IT IS NOT JUSTIFIED ON THE PART OF THE AO TO DISALLOW 20% OF THE PAYMENTS MADE U/S 40A(3) IN THE PROCESS OF ASSESSMENT. WE, THEREFORE, DELETE THE AD DITION OF RS. 17,90,571/- AND GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. CIT VS CRESCENT EXPORT SYNDICATE IN ITA NO. 202 OF 2008 DATED 30.7.2008 - JURISDICT IONAL HIGH COURT DECISION 'IT ALSO APPEARS THAT THE PURCHASES HAVE BEEN HELD TO BE GENUINE BY THE LEARNED CIT(APPEAL) BUT THE LEARNED CIT(APPEAL) HAS INVOKED SECTION 40A(3) FOR PAYMENT EXCEEDING RS.20,000/- SINCE IT IS NOT MADE BY CROSSED-CHEQUE OR BANK DRAF T BUT BY BEARER CHEQUES AND HAS COMPUTED THE 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 T HAT WITHOUT THE PAYMENT BEING MADE BY BEARER CHEQUE THESE GOODS COULD NOT HAVE BEEN PROCU RED AND IT WOULD HAVE HAMPERED THE SUPPLY OF GOODS WITHIN THE STIPULATED TIME. THEREFO RE, THE GENUINENESS OF THE PURCHASE HAS BEEN ACCEPTED BY THE ID. CIT (APPEAL) WHICH HAS ALSO NOT BEEN DISPUTED BY THE DEPARTMENT AS IT APPEARS FROM THE ORDER SO PASSED BY THE LEARNED TRI BUNAL. IT FURTHER APPEARS FROM THE ASSESSMENT ORDER THAT NEITHER THE ASSESSING OFFICER NOR THE CIT (APPEAL) HAS DISBELIEVED THE GENUINENESS OF THE TRANSACTION. THERE WAS NO DISPUT E THAT THE PURCHASES WERE GENUINE.' ANUPAM TELE SERVICES VS ITO IN (2014) 43 TAXMANN.COM 199 (GUJ) ' SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ WITH RULE 6DD OF THE INCOME-TAX RULES, 1962 - BUSINESS DISALLOWANCE - CASH PAYMENT EXCEEDING PR ESCRIBED LIMITS RULE 6DD(J) ASSESSMENT YEAR 2006-07 - ASSESSEE WAS WORKING AS AN AGENT OF TATA TELE SERVICES LIMITED FOR DISTRIBUTING MOBILE CARDS AND RECHARGE VOUCHERS - PRINCIPAL COMP ANY TATA INSISTED THAT CHEQUE PAYMENT 8 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 8 FROM ASSESSEE'S CO-OPERATIVE BANK WOULD NOT DO, SIN CE 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 HA VE RECEIVED RECHARGE VOUCHERS DELAYED BY 4/5 DAYS WHICH WOULD SEVERELY AFFECT ITS BUSINES S 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 [P ARAS 21 TO 23] [IN FAVOUR OF THE ASSESSEE]' SRI LAXMI SATYANARAYANA OIL MILL VS CIT REPORTED IN (2014) 49 TAXMANN.COM 363 (ANDHRAPRADESH HIGH COURT) ' SECTION 40A(3) OF THE INCOME-TAX ACT, 1961, READ WITH RULE 6DD OF THE INCOME-TAX RULES, 1962- BUSINESS DISALLOWANCE - CASH PAYMENT EXCEEDIN G PRESCRIBED LIMIT (RULE 6DD) - ASSESSEE MADE CERTAIN PAYMENT OF PURCHASE OF GROUNDNUT IN CA SH EXCEEDING PRESCRIBED LIMIT - ASSESSEE SUBMITTED THAT HE MADE PAYMENT IN CASH BECAUSE SELL ER INSISTED ON THAT AND ALSO GAVE INCENTIVES AND DISCOUNTS - FURTHER, SELLER ALSO ISS UED CERTIFICATE IN SUPPORT OF THIS - WHETHER SINCE ASSESSEE HAD PLACED PROOF OF PAYMENT OF CONSI DERATION 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 THE ASSESSEE]' CIT VS SMT. SHELLY PASSI REPORTED IN (2013) 350 ITR 227 (P&H) IN THIS CASE THE COURT UPHELD THE VIEW OF THE TRIB UNAL IN NOT APPLYING 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 LD DR. WE FIND THAT THE DISALLOWANCE OF THE ENTIRE CASH PURCHASES RESULTS IN ABNORMAL TRADING P ROFIT FOR THE ASSESSEE WHICH IT COULD NEVER EARN. WE FIND A PURPOSIVE CONSTRUCTION SHOULD BE RE SORTED TO WHILE APPLYING THE PROVISIONS OF THE ACT. HENCE IT WOULD BE MORE RELEVANT TO GET INT O THE INTENTION OF THE LEGISLATURE. IN OUR OPINION, THE PRIMARY OBJECT OF ENACTING SECTION 40A(3) WAS TWO- FOLD, FIRSTLY, PUTTING A CHECK ON TRADING TRANSACTIONS WITH A MIND TO EVADE THE LIABI LITY TO TAX ON INCOME EARNED OUT OF SUCH TRANSACTION AND, SECONDLY, TO INCULCATE THE BANKING HABITS AMONGST THE BUSINESS COMMUNITY. APPARENTLY, THIS PROVISION WAS DIRECTLY RELATED TO CURB THE EVASION OF TAX AND INCULCATING THE BANKING HABITS. THEREFORE, THE CONSEQUENCE, WHICH W ERE TO BEFALL ON ACCOUNT OF NON- OBSERVATION OF SECTION 40A(3) MUST HAVE NEXUS TO THE FAILURE OF SUCH OBJECT. THE REFORE, THE GENUINENESS OF THE TRANSACTIONS IT BEING FREE FROM VICE OF ANY DEVICE OF EVASION OF TAX IS RELEVANT CONSIDERATION. IN THE INSTANT CASE, THE CA SH HAS BEEN DEPOSITED DIRECTLY IN THE BANK ACCOUNT OF THE SUPPLIER I.E M/S ASANSOL BOTTLING & PACKAGING CO. PVT LTD BY THE ASSESSEE. 19. WE FIND THAT THE HON'BLE APEX COURT IN THE CASE OF CTO VS SWASTIK ROADWAYS REPORTED IN (2004) 3 SCC 640 HAD HELD THAT THE CONSEQUENCES OF NON-COMPLIANCE OF MADHYAPRADESH SALES TAX ACT , WHICH WERE INTENDED TO CHECK THE EVASION AND AVOIDANCE OF SALES TAX WERE SIGNIFICANTLY HARSH. THE COURT WHILE UPHOLDING THE CONSTITUTIONAL VALIDITY NEGATED THE EXISTENCE OF A MENS REA AS A CONDITION NECESSARY FOR LEVY OF PENALTY FOR NON- COMPLIANCE WITH SUCH TECHNICAL PROVISIONS REQUIRED HELD THAT 'IN THE CON SEQUENCE TO FOLLOW THERE MUST BE NEXUS 9 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 9 BETWEEN THE CONSEQUENCE THAT BEFALL FOR NON-COMPLIA NCE WITH SUCH PROVISIONS INTENDED FOR PREVENTING THE TAX EVASION WITH THE OBJECT OF PROVI SION BEFORE THE CONSEQUENCE CAN BE INFLICTED UPON THE DEFAULTER.' THE SUPREME COURT HAS OPINED T HAT THE EXISTENCE OF NEXUS BETWEEN THE TAX EVASION BY THE OWNER OF THE GOODS AND THE FAILURE O F C & F AGENT TO FURNISH INFORMATION REQUIRED BY THE COMMISSIONER IS IMPLICIT IN SECTION 57(2) AND THE ASSESSING AUTHORITY CONCERNED HAS TO NECESSARILY RECORD A FINDING TO TH IS EFFECT BEFORE LEVYING PENALTY U/S 57(2). THOUGH IN THE INSTANT CASE, THE ISSUE INVOLVED IS N OT WITH REGARD TO THE LEVY OF PENALTY, BUT THE REQUIREMENT OF LAW TO BE FOLLOWED BY THE ASSESSEE W AS OF AS TECHNICAL NATURE AS WAS IN THE CASE OF SWASTIK ROADWAYS (3 SCC 640) AND THE CONSEQUENCE TO FALL FOR FAILURE TO OBSERVE SUCH NORMS IN THE PRESENT CASE ARE MUCH HIGHER THAN WHIC H WERE PRESCRIBED UNDER THE MADHYA PRADESH SALES TAX ACT. APPARENTLY, 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 CBDT T HAT WHETHER THE FAILURE ON THE PART OF THE ASSESSEE IN ADHERING TO REQUIREMENT OF PROVISIONS O F SECTION 40A(3) HAS ANY SUCH NEXUS WHICH DEFEATS THE OBJECT OF PROVISION SO AS TO INVITE SUC H 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. ADMITTEDL Y, THIS IS NOT THE CASE IN THE FACTS OF THE ASSESSEE HEREIN. THE ASSESSEE HAD DIRECTLY DEPOSITE D CASH IN THE BANK ACCOUNT OF THE SUPPLIER M/S ASANSOL BOTTLING & PACKAGING CO. PVT LTD WHICH FACT IS ALSO ACCEPTED BY THE LD AO AND MANDATED BY THE NOTIFICATION DATED 29.8.2005 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 VS ITO REPORTED IN (2008) 298 ITR 349 (RAJ) HAD HELD THAT THE EXCEPTIONS CONTAINED IN RULE 6DD OF INCOME TAX RULE S ARE NOT EXHAUSTIVE AND THAT THE SAID RULE MUST BE INTERPRETED LIBERALLY. 20. WE ALSO FIND THAT THE IMPUGNED ISSUE IS ALSO CO VERED BY THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE 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 TH AT :- '7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET A PERUSAL OF THE DECISION IN THE CASE OF SMT.PUSHPALATA MONDAL SHOWS THAT THE TR IBUNAL HAD DECIDED THE CASE BY FOLLOWING THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF K.ABDU & CO. REFERRED TO SUPRA WHEREIN THE ISSUE WAS IN RELATION TO RULE 6DD(A) OF IT RULES. THE ISSUE IN THE ASESSEC'S CASE IS IN RESPECT OF THE PA YMENTS MADE UNDER THE RULES FRAMED BY THE GOVERNMENT AND SUCH PAYMENT WAS REQUIRED TO BE MADE IN LEGAL TENDER. A PERUSAL OF THE GOVERNMENT NOTIFICATION ISSUED BY THE GOVT. OF WEST BENGAL CLEARLY SHOWS THAT THE DEALERS ARE AGENTS OF THE GOVERNMENT AND THE PA YMENTS MADE ARE TO THE GOVERNMENT. IT ALSO MAKES IT CATEGORICALLY REQUIRED THAT THE PAYMENT IS TO BE MADE BEFORE LIFTING OF THE COUNTRY SPIRIT. CONSEQUENTLY WE ARE OF THE VIEW THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S.AMRAI PACHWAI & C.S.SHOP REFERRED TO SUPRA WHER EIN IT HAS BEEN HELD AS FOLLOWS :- '6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET A PERUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE AO HAS RECO GNIZED THE ASSESSEE'S 10 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 10 BUSINESS IN TRADING OF COUNTRY SPIRIT AND COUNTRY L IQUOR. COPY OF FORM OF LICENCE ISSUED BY DURGAPUR MUNICIPAL CORPORATION AN D COPY OF FORM III ISSUED BY DEPARTMENT OFITA NO. 148/K/2015, ITA NOS. 185 & 186/KOL/2014 RAMNAGAR PACHWAI & (S) C.S. SHOP, AY 2007-08, 2008-09 & 2010 -11 EXCISE, GOVT. OF W.B. WERE ALSO FOUND AT PAGES 177 AND 179 OF THE AS SESSEE'S PAPER BOOK. IN ANY CASE THE VALIDITY OF LICENCE OF THE ASSESSEE TO TRA DE IN COUNTRY SPIRIT AND COUNTRY LIQUOR IS NOT THE ISSUE BEFORE US. THE ISSUE IS WHE THER THE PAYMENTS MADE BY THE ASSESSEE FOR THE PURCHASE OF COUNTRY SPIRIT FROM TH E TERRITORIAL LICENSEE BOTTLING PLANT, IFB AGRO INDUSTRIES LTD., CITY CENTRE, DURGA PUR FALLS WITHIN THE EXEMPTION PROVIDED UNDER RULE 6DD(B) OF THE I.T.RUL ES, 1962. ADMITTEDLY, THE AO HAS RECOGNIZED THAT THE PROVISION OF RULE 6DD(B) OF THE I.T RULES, 1962 IS APPLICABLE IN CASE OF PAYMENTS MADE TO GOVERNMENT D IRECTLY. THIS IS FOUND IN PAGE 2 OF THE ASSESSMENT ORDER. A PERUSAL OF THE KO LKATA GAZETTE TUESDAY 20TH SEPT 2005 SHOWS THAT THE GOVERNMENT OF WEST BENGAL, DEPARTMENT OF EXCISE HAS ISSUED A NOTIFICATION, WHEREIN THE WAREHOUSE HAS BE EN IDENTIFIED TO MEAN THE WAREHOUSE FOR SUPPLY OF COUNTRY SPIRIT TO THE RETAI L VENDORS, ESTABLISHED AT CONVENIENT PLACES BY THE COMMISSIONER AT THE EXPENS E 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 GRANTE D U/S 22 OF THE ACT OF A LICENSED WHOLESALE VENDOR OF COUNTRY SPIRIT. FURTHE R, IT HAS BEEN SPECIFICALLY IDENTIFIED THAT THE AUTHORISED REPRESENTATIVE OF TH E WHOLESALE LICENSEE SHALL REALIZE THE NECESSARY AMOUNT OF DUTY, COST PRICE AN D BOTTLING CHARGE, IF THERE BE ANY, AT THE PRESCRIBED RATE AND SUCH OTHER IMPOSITI ON, AS MAY BE PRESCRIBED BY LAW, FROM THE RETAIL VENDOR TO WHOM THE COUNTRY SPI RIT IS TO BE ISSUED FROM THE CONCERNED WAREHOUSE. IT IS ALSO SPECIFICALLY MENTIO NED IN SECTION (2) OF THE SAID NOTIFICATION THAT NO RETAIL VENDOR OF COUNTRY SPIRI T SHALL DEPOSIT DUTY DIRECT INTO THE LOCAL TREASURY FOR ISSUE OF COUNTRY SPIRIT TO B E TAKEN BY HIM FROM THE WAREHOUSE CONCERNED WHICH CLEARLY SHOWS THAT THE WA REHOUSE IS FOR THE SUPPLY OF THE COUNTRY LIQUOR, SPECIFICALLY, THE WAREHOUSE IS UNDER THE DIRECT CONTROL AND CUSTODY OF THE STATE GOVT. THE STATE GOVERNMENT HAS CLOSED ITS DOORS IN SO FAR AS THE LOCAL TREASURY IS CONCERNED AND THE PAYMENT FOR THE PURCHASE OF COUNTRY SPIRIT OR COUNTRY LIQUOR HAS TO BE MADE TO THE WARE HOUSE, RUN BY THE GOVERNMENT. THIS SHOWS THAT ANY PAYMENT MADE TO THE WAREHOUSE, WHICH IS UNDER THE DIRECT CONTROL OF THE STATE GOVERNMENT, IS A PAYMENT MADE DIRECTLY TO THE GOVERNMENT. ONCE, THIS IS ACCEPTED THEN THE PROVISIONS OF RULE 6DD(B) OF THE I.T RULES, 1962 WHICH CLEARLY SPELLS OUT THAT THE PAYMENT MADE TO T HE GOVERNMENT IN LEGAL TENDER UNDER THE RULES FRAMED BY THE GOVERNMENT, IS EXEMPT ED FROM THE RIGOURS OF SECTION 40A(3) OF THE ACT. HERE, IT IS NOTICED THAT THE PAYMENTS MADE BY THE ASSESSEE FOR PURCHASE OF COUNTRY SPIRIT AND COUNTRY LIQUOR IS TO THE GOVERNMENT AS PER THE NOTIFICATION ISSUED BY THE GOVERNMENT AN D IS IN LEGAL TENDER SPECIFIED BY THE NOTIFICATION. IN THE CIRCUMSTANCES, WE ARE O F THE VIEW THAT THE PAYMENT MADE BY THE ASSESSEE FOR THE PURCHASE OF COUNTRY LI QUOR AND COUNTRY SPIRIT FROM THE TERRITORIAL LICENSEE BOTTLING PLANT, IFB AGRO I NDUSTRIES LTD., CITY CENTRE, DURGAPUR IS PROTECTED BY THE EXEMPTION IN TERMS OF RULE 6DD(B) OF THE 1.T.RULES 1962. IN THE CIRCUMSTANCES, THE ADDITION AS MADE BY THE AO AND AS 11 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 11 CONFIRMED BY THE ID. CIT(A) BY INVOKING THE PROVISI ONS OF SECTION 40A(3) OF THE I.T.ACT 1961 STANDS DELETED. 8. IN THE RESULT THE ADDITION AS CONFIRMED BY THE I D. CIT(A) STANDS DELETED. WE FIND THAT THIS DECISION WAS RENDERED BY PLACING RELIANCE ON ITS EARLIER DECISION IN THE CASE OF M/S AMRAI PACHWAI & C.S.SHOP IN ITA NO. 1251/KOL/20 11 DATED 15.1.2014 AND AFTER CONSIDERING THE CONTRARY DECISIONS RENDERED IN THE CASE OF PUSHPALATA MONDAL IN ITA NO. 965/KOL/2010 DATED 28.7.2011 AND HON'BLE KERALA HIG H COURT IN THE CASE OF CIT VS K ABDU & CO (170 TAXMAN 297). WE FIND THAT THE CO-ORDINATE BEN CH DECISION IN THE CASE OF ITA NO. 148/K/2015, ITA NOS. 185 & 186/KOL/2014 RAMNAGAR PA CHWAI & (S) C.S. SHOP, AY 2007-08, 2008-09 & 2010-11 M/S AMRAI PACHWAI & C.S.SHOP IN I TA NO. 1251/KOL/2011 DATED 15.1.2014 AND THE HELD PORTION IS REPRODUCED HEREIN ABOVE. 21. WE FIND THAT M/S ASANSOL BOTTLING & PACKAGING C O. PVT LTD IS A BOTTLING PLANT CUM WAREHOUSE UNDER RULE 2(VII) OF THE WEST BENGAL EXCI SE 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 R ULES 2005 , MEANS THE WAREHOUSE FOR SUPPLY OF COUNTRY SPIRIT TO RETAIL VENDORS, EST ABLISHED 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 SELLIN G COUNTRY SPIRIT BY WHOLESALE HAS BEEN GRANTED UNDER SECTION 22 OF THE ACT, OR OF A LICENSED WHOLESALE VENDOR OF C OUNTRY SPIRIT. THE ABOVE DEFINITION MAKES IT CLEAR THAT THE 'WAREH OUSE' 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 TH E 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 COUL D 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 COMMIS SIONER IS A STATE GOVERNMENT ESTABLISHMENT. IT WOULD ALSO BE PERTINENT TO NOTE T HAT 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 O F 'WHOLESALE LICENSEE' AS PER RULE 2(VIII) OF THE EXCISE RULES 2005 AS BELOW:- RULE 2(VIII) - 'WHOLESALE LICENSEE' MEANS THE WHOLE SALE 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 TH E BENGAL EXCISE ACT, 1909 AT THIS JUNCTURE AS BELOW:- 12 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 12 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, O N 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, O R (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 ARE A: PROVIDED THAT PUBLIC NOTICE SHALL BE GIVEN TO THE I NTENTION TO GRANT ANY SUCH EXCLUSIVE PRIVILEGE, AND THAT ANY OBJECTIONS MADE BY ANY PERS ON RESIDING WITHIN THE AREA AFFECTED SHALL BE CONSIDERED BEFORE AN EXCLUSIVE PRIVILEGE I S 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 RU LE 6DD(B) OF THE IT 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) H AD 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 A S 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 COUNTR Y LIQUOR TO THE RETAIL VENDOR AS PER THE REGULATIONS OF THE EXCISE DEPARTMENT , GOVERNMENT O F WEST BENGAL. AT THE COST OF REPETITION, WE WOULD LIKE TO STATE THAT THE SAID REGULATION MAN DATED 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 LIQU OR AND FOR PREVENTION OF SPURIOUS STOCKS AND BLACK MARKETING TRANSACTIONS FROM THE SAME. HENCE I T 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 AG ENT OF THE STATE GOVERNMENT. FOR THE SAKE OF CONVENIENCE, THE RELEVANT RULE IS REPRODUCED HER EUNDER:- 13 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 13 RULE 6DD(K) - WHERE THE PAYMENT IS MADE BY ANY PERS ON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHAL F OF SUCH PERSON. THE PAYMENT MADE BY THE ASSESSEE RETAIL VENDOR TO T HE PRINCIPAL, GOVERNMENT OF WEST BENGAL THROUGH ITS WHOLESALE AGENT. THE RELATIONSHIP BETWE EN THE ASSESSEE (AUTHORIZED RETAILER) AND GOVERNMENT OF WEST BENGAL (THE SUPPLIER) ACTING UND ER WEST BENGAL EXCISE RULES THROUGH ITS AUTHORISED WHOLESALER LICENSEE (AGENT), BOTH DE FAC TO AND DEJURE , IS ONE OF 'PRINCIPAL' AND 'AGENT'. WE HOLD THAT THE ASSESSEE RETAIL VENDOR HA D MADE PAYMENT TO THE SAID AGENT (WHOLESALE LICENSEE) WOULD FALL UNDER THE EXCEPTION PROVIDED I N RULE 6DD(K) OF THE RULES. 23. THE LD AR HAD ADVANCED ANOTHER ARGUMENT THAT TH E PAYMENT IS MADE BY THE ASSESSEE TO STATE BANK OF INDIA AND ACCORDINGLY THE SAME WOULD FALL UNDER THE EXCEPTION PROVIDED IN RULE 6DD(A) OF THE RULES. WE FIND THAT THE ASSESSEE HAD MADE PAYMENTS ONLY TO THE CUSTOMER OF STATE BANK OF INDIA AND NOT TO STATE BANK OF INDIA. HENCE THE ASSESSEE'S CASE DOES NOT FALL UNDER THE EXCEPTION PROVIDED IN RULE 6DD(A) OF THE RULES. 24. WE HOLD FROM THE AFORESAID FINDINGS THAT THE AS SESSEE'S CASE FALLS UNDER THE EXCEPTIONS PROVIDED IN RULE 6DD(B) AND RULE 6DD(K) OF THE RULE S. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE JUDICI AL PRECEDENTS RELIED UPON HEREINABOVE, WE HAVE NO HESITATION IN DELETING THE DISALLOWANCE MAD E U/S 40A(3) OF THE ACT IN ALL THE YEARS UNDER APPEAL. ACCORDINGLY, THE GROUNDS RAISED BY TH E ASSESSEE FOR ALL THE YEARS UNDER APPEAL ARE ALLOWED. 25. IN THE RESULT, ALL THE APPEALS OF ASSESSEE ARE ALLOWED. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE H OLD THAT THE LD CITA HAD RIGHTLY DELETED THE DISALLOWANCE U/S 40A(3) OF THE ACT. AC CORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 17.10.2017 SD/- SD/- [N.V. VASUDEVAN] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17.10.2017 SB, SR. PS 14 ITA NO.502/KOL/2015 KAJORA PACHAI & C.S. SHOP A.YR.2010-11 14 COPY OF THE ORDER FORWARDED TO: 1. ITO, WARD-2(3), DURGAPUR, AAYAKAR BHAWAN ANNEXE, CITY CENTRE, DURGAPUR-16 2. THE PARTNER, M/S KAJORA PACHAI & C.S. SHOP, KAJO RA GRAM, KAJORA, BURDWAN- 713338. 3..C.I.T.(A)-DURGAPUR 4. C.I.T.- 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S