SMT. USHA MISHRA LEGAL HEIR OF LATEVIRENDRA KUMAR MISHRA,JAUNPUR V. INCOME TAX OFFICER - 02, JAUNPUR

ITA 20/VNS/2022

AI Insights

The case involves Smt. Usha Mishra, who appealed against the order of the CIT(A), which confirmed the additions made by the Assessing Officer (AO) under Section 40A(3) of the Income Tax Act, 1961, and the addition of demand drafts treated as unexplained investments. The AO had disallowed cash payments made for purchasing country liquor, citing violations of Section 40A(3), and added demand drafts as investments outside the books of accounts. The Tribunal, referencing decisions from other benches, found that the cash payments were made to an agent of the government and thus fell under exceptions provided in Rule 6DD(b). Regarding the demand drafts, the Tribunal noted that the funds used were from the assessee's bank account, which had been accepted as part of business receipts by the AO.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 26047 (ITAT-VARANASI)
• Duration Of Justice: 2 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-09-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 05-07-2022
• Other Referred Cases: M/S Savitri Devi, Rajesh Kumar & Ors vs The DCIT, Shakti Singh Gulia vs. ITO, CIT Central vs. Panduranga Enterprises, Ram Nivas & Others vs ITO, Gorakhpur, Amrai Pachwai & C.S.Shop vs DCIT
• Laws Referred To: Income Tax Act, Income Tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVITA MEENA
• Assessee Lawyers: SUBHAM SINGH
• Keywords: Set aside
• Section: 40A(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, CIRCUIT BENCH, VARANASI BEFORE: SHRI B.R. BASKARAN, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA No.20/VNS/2022 (Assessment Year :2017-18) Smt. Usha Mishra Legal Heir of Late. Virendra Kumar Mishra Kabiruddinpur Dhampur Sadar Jaunpur- 222 001 Vs. Income Tax Officer – Jaunpur PAN/GIR No.ACGPU1239I (Appellant) .. (Respondent) Assessee by Shri Subham Singh, CA Revenue by Smt. Kavita Meena, Sr. DR Date of Hearing 10/09/2024 Date of Pronouncement 15/10/2024 आदेश / O R D E R PER B.R. BASKARAN (A.M): The assessee has filed this appeal challenging the order dated 03/06/2022 passed by ld. CIT(A), NFAC, Delhi and it relates to the A.Y.2017-18. 2. The assessee has challenged the decision rendered by ld. CIT(A) on the following two issues:- (a) Addition made u/s.40A(3) of the Act and ITA No.20/VNS/2022 Smt. Usha Mishra Legal Heir of Late Virendra Kumar Mishra 2 (b) Addition of demand drafts aggregating to Rs.17.34 lakhs treating them as investment made outside the books of accounts. Though the assessee has raised a legal ground with regard to non-issue of notice u/s.143(2) of the Act, assessee did not argue the same at the time of hearing. 3. The facts relating to the case are that the assessee is a resident of village Kabiruddinur, District Jaunpur, Uttar Pradesh. He is carrying on retail business in the country liquor, which the assessee is required to purchase from Government authorised agency named M/s. Kiwi Wines & Beverages Pvt. Ltd. During the course of assessment proceedings, the AO noticed that the assessee has made payments in cash aggregating to Rs.70,09,559/- for purchasing country liquor from the above said company. The AO took the view that the above said payments have been made in violation of sec.40A(3) of the Act and accordingly disallowed the above said amount of Rs.70,09,559/-. The AO further noticed from the bank account statement of the assessee that the assessee has purchased demand drafts aggregating to Rs.17,34,936/- and given them to M/s Kiwi Wines & Beverages P Ltd. The AO had called for ledger account copy of the assessee from M/s Kiwi Wines & Beverages P Ltd. He noticed the above demand drafts were not found credited in the name of the assessee in the books of M/s. Kiwi Wines & Beverages Pvt. Ltd. Accordingly, the AO took the view that these demand drafts are investments made ITA No.20/VNS/2022 Smt. Usha Mishra Legal Heir of Late Virendra Kumar Mishra 3 by the assessee outside books of accounts and accordingly, added the same. The ld. CIT(A) confirmed both the additions. 4. With regard to addition made u/s.40A(3) of the Act, the ld. AR placed reliance on the decision rendered by Kolkata Bench of ITAT in the case of M/S Savitri Devi, Rajesh Kumar & Ors vs The DCIT in ITA No.2198-2199/KOL/2016 dated 04/07/2018 and also the decision rendered by the Delhi Bench of the Tribunal in the case of Shakti Singh Gulia vs. ITO ITA No.6115/DEL/2018 dated 15/06/2023. The ld. DR on the contrary supported the order passed by the ld. CIT(A). 5. We heard the parties on this issue and perused the record. We noticed that an identical issue has been examined by Kolkata Bench of the Tribunal in the case of M/S Savitri Devi, Rajesh Kumar & Ors (supra) and has taken the view that the cash payments made to the agent of the State Government would be covered by the exceptions provided in Rule 6DD(b) of Income Tax Rules, 1962 and hence no disallowance u/s 40A(3) of the Act is required. For the sake of convenience, we extract below the order passed by the Kolkata Bench of Tribunal in the above said case. “These two appeals by the assessee is directed against the common order passed by Commissioner of Income Tax (Appeals)-18, Kolkata dated 01.09.2016 for assessment year 2009-10. 2. Only issue is to be decided is as together the CIT(A) is justified in confirming the addition made by the Assessing Officer on account of cash purchase violating the section ITA No.20/VNS/2022 Smt. Usha Mishra Legal Heir of Late Virendra Kumar Mishra 4 40A(3) of the Income Tax Act, 1961, in short \"the Act\" in the facts and circumstances of the case. 3. The brief facts of the case are that assessee is an AOP and engaged in retail trading of country liquor. The assessee filed return of income showing total income of ₹47,67,010/- and assessment was completed u/s 143(3) of the Act accepting the return income. The said assessment was re-opened on an information that huge cash purchase of liquor in excess of ₹20,000/- on each occasion from M/s Saraya Distillery, Sadar Nagar, Gorakhpur, U.P. and the same were made for the country liquor shop M/s Savitri Devi, Amita Jaiswal & Others in of provision u/s 40A(3) of the Act. The Assessing Officer found the said cash purchases were not mentioned in the tax audit report the assessee filed written submissions and contended that the payments made in a single day and consolidated payment of several shops wherein the single payment bill or memo does not exceeds ₹20,000/-. The AO did not accept the said submissions made by the assessee and added an amount of ₹1,49,11,496/- to the total income of assessee on account of cash purchases for violation of provision of Section 40A(3) of the Act vide his order dated 17.10.2014 passed u/s 147/143(3) of the Act. 4. Before CIT(A) assessee reiterated the same submission that made before the AO. Further assessee contended that the purchases have been made from government authorized licencee and the payments are covered by exception under Rule 6DD(b) and Rule 6DD(k) of the Income Tax Rule, 1962 and placed reliance on the order of ITAT Allahabad Bench in the case of Ram Nivas & Others -vs ITO, Gorakhpur in 40A(3) as held by the Tribunal are not attracted in case of liquor purchases from government authorized distributors. The CIT(A) however not accepted the submission of assessee and by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of CIT Central vs. Panduranga Enterprises¸ (2015) 55 Taxmann.com 437 (Kar) upheld the view of AO. ITA No.20/VNS/2022 Smt. Usha Mishra Legal Heir of Late Virendra Kumar Mishra 5 5. Aggrieved, assessee before us contending that the cash purchase of alcohol liquor for human consumption from a authorized distributor of Government of Uttar Pradesh is covered by the Rule 6DD(b) of IT Rules, 1962 and such payments were made to an agent of Government of Uttar Pradesh. Learned DR relied on the order of Authorities Below. 6. Heard rival submissions and perused material available on record. We find the issue on hand is covered by the order of co-ordinate bench of this Tribunal wherein it was held that cash payments made to an agent of government is covered by exception provided under Rule 6DD(b) of IT Rules, 1962 reproduced relevant portion in ITA No.1913/Kol/2016 dated 28.3.2018. “7.Heard rival submissions and perused material on record. It is noticed that the AO found from the statement received from United Bank of India, Mayabazar branch that the assessee paid an amount of Rs.2,33,23,967/- in cash to IFB Agro Industries Ltd and non production of any evidence showing that the said payments were made in account payee cheque or bank draft and for violation of the provisions of section 40A(3) of the Act, the aforesaid amount was brought to tax by the AO. Before the CIT(A) it was contended by the assessee that the cash payments were made to IFB Agro Industries Ltd, Panagarh Bazar, Budbud as per the compliances to be made with West Bengal Excise (supply of country spirit on payment of Duty) Rules, 2005 and it is a credit to the agent of the State Government and as such payments are covered by the exceptions contained in Rule 6DD (b) of Income Tax Rules, 1962. The ITAT, Kolkata benches in the case of Amrai Pachwai & C.S.Shop vs DCIT (supra) held that Rule 6DD(b) is applicable that if the payments made to the Government agent in legal tender under the rules framed by it and considering the same and taking into consideration the facts and circumstances of the case that the assessee purchased country liquor and country ITA No.20/VNS/2022 Smt. Usha Mishra Legal Heir of Late Virendra Kumar Mishra 6 spirit from the territorial licensee bottling plant IFB Agro Industries Ltd and payments in cash made thereto is protected by the exemption in terms of Rule 6DD(b) of Income Tax Rules, 1962 as per the notification issued by the Government. In view of the same, we find no infirmity in the order of CIT(A) as the grounds 1 to 5 raised in the appeal by the revenue are dismissed.” 7. In view of above discussion and finding of co-ordinate bench of Kolkata Tribunal, we find the Government of Uttar Pradesh appointed M/s Saraya Distillery, Sadar Nagara, Gorakhpur, U.P. as its agent and the entire payments i.e. impugned amount paid to the said agent is to be treated as if paid to Government of U.P and as such said cash payment are covered by the Rule 6DD(b) of IT Rules, 1962. Therefore we are not in agreement with the view taken by Authorities Below and addition ITA No.2198-99/Kol/2016 A.Y.2009-10 M/s Savitri Devi, Amita Jaiswal &, Rajesh Kumar & ors vs. DCIT, Cir-10, Kol. Page 4 confirmed by CIT(A) is deleted. Ground No.1 is general in nature and does not survive for adjudication.” 6. Following the above said decision, we hold that the provisions of Section 40A(3) of the Act will not be applicable to the impugned cash payments made by the assessee for purchases made from Government authorised agency named M/s. Kiwi Wines & Beverages Pvt. Ltd., as the same would be covered by the exceptions provided in Rule 6DD(b) of I T Rules. 7. Next issue relates to the addition of demand drafts amount of Rs.17,34,936/-. We noticed from the assessment order that the AO himself has mentioned that the details about the above demand draft have been collated by him from the bank account of the assessee, meaning thereby, the ITA No.20/VNS/2022 Smt. Usha Mishra Legal Heir of Late Virendra Kumar Mishra 7 source of above said demand drafts stand explained by the funds available in the bank account of the assessee. The ld. AR submitted that the above said demand draft represents license fees required to be deposited with the Government of Uttar Pradesh. Hence these demand drafts will not be credited in the assessee’s ledger account by M/s. Kiwi Wines & Beverages Pvt. Ltd., as they have handed over the same to the Government. In any case since the demand drafts have been purchased by the assessee from the funds available in the bank account and the AO has not doubted the availability of funds in the bank and accepted them to be part of business receipts, we are of the view that same cannot be taken as unexplained money by the AO. Accordingly, we set aside the order passed by ld. CIT(A) on this issue and direct the AO to delete this addition. 8. In the result, appeal filed by the assessee is allowed. Order pronounced on 15/10/2024 by way of proper mentioning in the notice board. Sd/- (AMIT SHUKLA) Sd/- (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Varanasi; Dated 15/10/2024 KARUNA, sr.ps ITA No.20/VNS/2022 Smt. Usha Mishra Legal Heir of Late Virendra Kumar Mishra 8 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Varanasi 1. The Appellant 2. The Respondent. 3. The CIT(A), Varanasi. 4. CIT 5. DR, ITAT, Varanasi 6. Guard file. //True Copy// "