Rule 6DD exception applied to cash payments for country spirit purchases, defeating disallowance under section 40A(3).

Cash deposits directly into a supplier's bank account for purchases of country spirit were treated as falling within the Rule 6DD exception to section 40A(3), because the payments were made in the regulated West Bengal Excise supply framework and were linked to the statutory arrangement governing the supplier's role. The Tribunal accepted that, on these facts, the payment could be regarded as payment to the Government or alternatively to an agent required to receive cash on the principal's behalf. The disallowance was therefore deleted and the assessee succeeded.

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Issues: Whether the disallowance made under section 40A(3) of the Income-tax Act, 1961 was sustainable where the assessee made cash deposits directly into the supplier's bank account for purchases of country spirit.

Analysis: The assessee's payments were made to the same supplier and in the same factual setting as an earlier coordinate-bench decision where such payments were held to fall within the exceptions in rule 6DD. The Tribunal accepted that the supplier functioned under the West Bengal Excise framework for regulated supply of country spirit, and that the payment mechanism was tied to the statutory scheme. In those circumstances, the transaction was treated as falling within the exception for payment to the Government or, alternatively, payment to an agent required to receive cash payments on behalf of the principal.

Conclusion: The disallowance under section 40A(3) was deleted and the issue was decided in favour of the assessee.

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