Cash payments for excise-linked purchases fell within Rule 6DD exceptions, so the section 40A(3) disallowance was deleted.

Cash payments made for country spirit purchases through a bottling and packaging arrangement were treated as falling within the Rule 6DD exceptions to section 40A(3) because the bottling plant operated under the West Bengal Excise Rules, 2005 and was regulated as a warehouse under the excise framework. The Tribunal accepted that the payments were effectively made to a Government-linked authority under rule 6DD(b), and also that the licensee functioned as an agent of the State Government within rule 6DD(k). Relying on its earlier decision in the assessee's own case, the Tribunal upheld deletion of the disallowance and held that no addition under section 40A(3) could survive.

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Issues: Whether the disallowance under section 40A(3) of the Income-tax Act, 1961 for cash payments made to the bottling and packaging company was rightly deleted on the ground that the payments fell within the exceptions under the Income-tax Rules.

Analysis: The cash payments were made in the context of country spirit purchases governed by the West Bengal Excise Rules, 2005. The bottling plant was treated as a warehouse under Rule 2(vii) of those Rules and was controlled through the excise regulatory framework under section 22 of the Bengal Excise Act, 1909. On that basis, the payment was regarded as effectively made to a Government-linked authority, attracting the exception for payments made to the Government under rule 6DD(b). The arrangement was also treated as one where the licensee acted as an agent for the State Government, bringing the case within rule 6DD(k). The Tribunal upheld the finding that the facts were covered by the earlier decision in the assessee's own case and that no disallowance under section 40A(3) could survive.

Conclusion: The deletion of the disallowance under section 40A(3) was upheld and the revenue's challenge failed.

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