2018 (2) TMI 271 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on payment disallowance under Section 40A(3).

ITO, Ward-2 (2), Durgapur Versus Pravat Kumar Gupta

The tribunal upheld the CIT(A)'s decision to delete the disallowance of Rs. 1,20,06,656 under Section 40A(3) for payments made to M/s IFB Agro Industries ... Disallowance made u/s 40A(3) - Held that:- Assessee’s case falls under the exceptions provided in Rule 6DD(b) and (k) of the Rules and accordingly, no disallowance u/s 40A(3) of the Act could be made and accordingly we direct the ld AO to delete the same. Accordingly the grounds raised by the revenue are dismissed. See Ramnagar Pachai & C.S. Shop vs ITO [2017 (2) TMI 400 - ITAT KOLKATA] - Decided in favour of assessee Issues Involved:1. Justification of deletion of disallowance made under Section 40A(3) of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Justification of Deletion of Disallowance under Section 40A(3)The primary issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance made under Section 40A(3) of the Income Tax Act, 1961. The appellant, an individual engaged in the retail vending of excisable commodities such as country spirit, beer, and rum, made payments exceeding Rs. 20,000 in cash to M/s IFB Agro Industries Ltd for purchases. The Assessing Officer (AO) disallowed a sum of Rs. 1,20,06,656 under Section 40A(3) due to the violation of the cash payment threshold.The CIT(A) deleted this disallowance, prompting the Revenue to appeal on the grounds that the CIT(A) erred by referencing Rule 6DD(b) without considering that the cash payments to M/s IFB Agro Industries Ltd could not be treated as payments made to the Government, and that there was no binding obligation on the assessee to make cash purchases only.Upon review, it was noted that the issue is covered by a previous tribunal decision in the case of Ramnagar Pachai & C.S. Shop vs ITO, where it was held that cash payments made directly into the bank account of the payee fulfill the criteria of Rule 6DD, ensuring that the payee alone receives the payment and the transaction is traceable.The tribunal examined the provisions of The West Bengal Excise Rules 2005 and The Bengal Excise Act, 1909. According to the revised procedures, retail vendors must make payments directly to the wholesale licensee's bank account, which the assessee complied with. This method of payment is mandated by the Excise Department's notification dated 29.8.2005.The tribunal found that the payments made by the assessee to M/s Asansol Bottling & Packaging Co. Pvt. Ltd (a wholesale licensee) by depositing cash directly into their bank account were in line with the regulations. The tribunal referenced a Bangalore Tribunal decision in Sri Renukeswara Rice Mills vs ITO, which supported the view that such payments qualify for exemption under Rule 6DD.Further, it was established that the wholesale licensee acts as an agent of the State Government, making the cash payments fall under the exceptions provided in Rule 6DD(b) and Rule 6DD(k) of the Income Tax Rules. Therefore, the tribunal concluded that no disallowance under Section 40A(3) could be made in this case.However, the tribunal noted an exception for a separate cash payment of Rs. 3,48,392 made to M/s United Spirits Ltd for the purchase of beer, which was conceded by the assessee's representative as a violation of Section 40A(3). Consequently, this specific disallowance was upheld.Conclusion:The tribunal upheld the CIT(A)'s decision to delete the disallowance of Rs. 1,20,06,656 under Section 40A(3) for payments made to M/s IFB Agro Industries Ltd, as these payments met the exceptions under Rule 6DD(b) and Rule 6DD(k). The appeal of the revenue was dismissed, except for the disallowance of Rs. 3,48,392 for payments made to M/s United Spirits Ltd, which was affirmed.Order Pronouncement:The appeal of the revenue was dismissed, and the order was pronounced in the Court on 02.02.2018.