Tribunal grants appeal, exempts payments under Rule 6DD(h)

The Tribunal allowed the appeal of the assessee concerning the disallowance under Section 40A(3) of the Income Tax Act, holding that the payments were exempt under Rule 6DD(h) due to the absence of banking facilities in the village where the payments were made. The other grounds raised were either dismissed or not pursued by the assessee. As a result, the disallowance of Rs. 18,88,560/- was ordered to be removed, and the appeal was granted in favor of the assessee.

---

---

Issues Involved:
1. Arbitrary and excessive order by CIT(A).
2. Disallowance of Rs. 18,88,560/- under Section 40A(3) of the Income Tax Act.
3. Disallowance of Rs. 13,050/- on account of tanker rent.

Issue-Wise Detailed Analysis:

1. Arbitrary and Excessive Order by CIT(A):
The first ground raised by the assessee was that the order passed by the CIT(A), Asansol was arbitrary and excessive. However, this ground was deemed to be general in nature and required no adjudication. Therefore, it was dismissed without further analysis.

2. Disallowance of Rs. 18,88,560/- under Section 40A(3):
The primary issue in this appeal was the disallowance of Rs. 18,88,560/- under Section 40A(3) of the Income Tax Act. The assessee, a firm engaged in the business of dealing in kerosene oil, made cash payments exceeding Rs. 20,000/- to its distributors. The Assessing Officer (AO) found that these payments violated Section 40A(3) and disallowed 20% of the total cash payments amounting to Rs. 94,42,806/-, resulting in an addition of Rs. 18,88,560/- to the assessee's income.

The assessee argued that these payments were covered by exceptions under Rule 6DD of the Income Tax Rules, 1962. Specifically, the payments were made in a village (Chakdola) not served by any bank, and the payments were mandated to be in cash by the government authorities under the Essential Commodities Act, 1955. The CIT(A) considered these submissions but upheld the AO's disallowance, stating that the appellant did not meet the requirements of Rule 6DD and that the payments were not made to the government but to M.R. Dealers.

Upon appeal to the Tribunal, it was noted that the assessee's village, Chakdola, did not have banking facilities and that the payments were made as per government directives. The Tribunal referred to the case of "Sri Basudev Seth v. ITO," where similar circumstances were considered, and it was held that Section 40A(3) was not applicable due to the lack of banking facilities. The Tribunal concluded that the assessee's case fell within the exception provided in Rule 6DD(h) and directed the deletion of the disallowance.

3. Disallowance of Rs. 13,050/- on Account of Tanker Rent:
The third ground pertained to the disallowance of Rs. 13,050/- on account of tanker rent. However, during the hearing, the assessee's representative did not press this ground. Consequently, it was dismissed without further consideration.

Conclusion:
The Tribunal allowed the appeal of the assessee on the ground related to the disallowance under Section 40A(3), holding that the payments were covered by the exception in Rule 6DD(h) due to the lack of banking facilities in the village where the payments were made. The other grounds were either dismissed or not pressed by the assessee. The disallowance of Rs. 18,88,560/- was directed to be deleted, and the appeal was allowed in favor of the assessee.

---