Cash deposits for liquor purchases fell within rule 6DD exceptions where excise regulations required payment through the supplier's bank account.

Cash deposits made directly into the bank account of a liquor wholesale supplier were treated as falling within the exceptions in rule 6DD because the supplier operated under the West Bengal excise framework as a State-controlled warehouse and wholesale licensee, and the payment mode was required by the excise authorities. On that basis, the Tribunal treated the transaction as payment to the Government or to an agent acting on its behalf under rule 6DD(b) and rule 6DD(k). Applying its earlier coordinate bench view on materially identical facts, the disallowance under section 40A(3) was deleted.

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Issues: Whether the disallowance under section 40A(3) of the Income-tax Act, 1961, was sustainable in respect of cash deposits made for purchase of liquor, or whether the payments fell within the exceptions in rule 6DD of the Income-tax Rules, 1962.

Analysis: The impugned payments were made by depositing cash directly into the bank account of the wholesale supplier for liquor purchases. The Tribunal followed its earlier view that the supplier functioned under the West Bengal Excise regulatory framework as a State-controlled warehouse and wholesale licensee, and that the payment mechanism was mandated by the excise authorities. On that basis, the payment was treated as one made to the Government or to an agent acting on its behalf, bringing the transaction within the exceptions under rule 6DD(b) and rule 6DD(k) of the Income-tax Rules, 1962. Since the facts were materially identical to those in the relied-upon coordinate bench decision, the disallowance could not survive.

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

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