2018 (4) TMI 645 - AT - Income Tax

Tribunal Allows Appeal Overturning Cash Payment Disallowance (3) (b)

Shee And Co Versus ITO Ward 48 (4), Kolkata

The Tribunal allowed the appeal, overturning the disallowance under section 40A(3) of the Income Tax Act for cash payments exceeding Rs. 20,000 for liquor ... Addition u/s 40A(3) - cash payments made against purchases of liquor exceeding ₹ 20,000/- - Held that:- In the case of M/s. Amrai Pachwai & C.S. Shop (2014 (2) TMI 979 - ITAT KOLKATA) similar payments were made by the assessee against purchase of liquor by depositing the cash directly in the bank account of the supplier in the sums exceeding ₹ 20,000/- and the disallowance made for the same under section 40A(3) was deleted by the Tribunal as held 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 and is in legal tender specified by the notification - the payment made by the assessee for the purchase of country liquor and country spirit from the territorial licensee bottling plant is protected by the exemption in terms of Rule 6DD(b) of the I.T Rules 1962 - the addition as made by the AO and as confirmed by the CIT(A) by invoking the provisions of section 40A(3) of the I.T Act 1961 stands deleted – Decided in favour of Assessee. Issues: Disallowance under section 40A(3) of the Income Tax Act on cash payments exceeding Rs. 20,000 for liquor purchases.Analysis:1. The appeal was against the disallowance of Rs. 1,29,53,207 made by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) under section 40A(3) concerning cash payments exceeding Rs. 20,000 for liquor purchases. The partnership firm, engaged in liquor trading, deposited cash directly into the supplier's bank account. The A.O. deemed this a violation of Section 40A(3) as no exceptional circumstances were explained as per Rule 6DD of the Income Tax Rules, 1963. The Commissioner upheld the disallowance, leading to the appeal before the Tribunal.2. The Tribunal noted that a similar issue was previously addressed in the case of M/s. Amrai Pachwai & C.S. Shop, where cash payments exceeding Rs. 20,000 for liquor purchases were allowed due to specific circumstances. The Tribunal referred to the establishment of a warehouse under State Excise Rules, which was considered a State Government entity. The payments made to the warehouse were seen as payments to a State Government authority, falling under an exception in Rule 6DD(b) of the IT Rules. Additionally, the relationship between the retail vendor and the Government's authorized wholesaler licensee was deemed that of 'Principal' and 'Agent,' justifying the cash payments.3. Given the similarities between the present case and the precedent, the Tribunal followed the decision in M/s. Amrai Pachwai & C.S. Shop, thereby deleting the disallowance made by the A.O. and confirmed by the Commissioner under section 40A(3) of the Act. The appeal of the assessee was allowed, emphasizing the application of relevant rules and exceptions in determining the legality of cash payments for liquor purchases.4. The judgment was pronounced on 11th April 2018, with the Tribunal ruling in favor of the assessee based on the interpretation of State Excise Rules, IT Rules, and the nature of the relationship between the retail vendor and the authorized wholesaler licensee, aligning with the principles established in the previous case law.