The kolkata bench of the Income Tax Appellate Tribunal recently ruled that Section 40A(3) of the Income Tax Act, 1961 has no application in case of amount deposited with the whole sale licensee in accordance with the rules prescribed by the State government in case of sale and purchase of excisable goods. The Tribunal observed that the Revenue shall not disallow the amount paid on the same.
The assessee in the present case, is a retail dealer of country spirit which an excisable good. The purchase and sale of the said commodity is strictly controlled by the Central government. Earlier, the assessee was asked to follow the procedure of depositing the cost price, excise duty, bottling charges, etc. in the Treasury for getting supplies from the wholesale licensee. In the year 2005, the same procedure was changed by the government. Since then the assessee was required to make payment consisting of cost of the stock-in-trade, excise duty and bottling charges, etc. only to the wholesale licensee appointed by the State Government. During the assessment year in question, the assessee deposited the amount for the above purpose with the whole sale licencee. However, the assessing Officer, disallowed the cash deposits which were in excess of Rs.20,000/- and passed an order accordingly.
The Commissioner of Income Tax (Appeals) confirmed the said additions with slight modifications. Therefore, the assessee preferred a second appeal before the Income Tax Appellate Tribunal.
The Tribunal found that the transaction made by the assessee was genuine while considering the facts and circumstances of the case.The assessee followed the mandatory requirement which was prescribed by the State government. Regarding the application of section 40A(3) of the Income Tax Act, in the present case, the tribunal observed that “we find from the CBDT Circular No. 6P dated 06.07.1968 that this provision under section 40A(3) was designed to counter evasion of tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the department as to the identity of the payee and reasonableness of the payment. When this is the primary object of enacting section 40A(3), we will have to see whether the payments made by the assessee into the account of M/s. IFB Agro Industries Limited, Durgapur would frustrate the purpose of enactment of section 40A(3). By virtue of payment through cash dated 04.09.2006, the wholesale licensee with exclusive privilege for bottling and/or sale by wholesale country spirit in sealed or capsule bottles and for manufacture and wholesale supply of country spirit in bulk litter enjoyed now by the holders of license in terms of section 22 of the Bengal Excise Act, 1909 and IFB Agro Industries Limited, Durgapur has become an arm of State Government. On this aspect, for all practical purposes, the relationship between the Government and wholesale licensee in so far as dealing with the country made liquor is concerned, i.e. the principal and agent, subject to the territorial limitation prescribed in such Notification. We, therefore, can safely conclude that the payments made to M/s. IFB Agro industries Limited, Durgapur for all practical purposes are the payments to be reached to the State Government and once this is so, the said wholesale licensee shall be construed as an agent of the State Government. We, therefore, can safely conclude that once such payments are made to the credit of IFB Agro Industries Limited, Durgapur, the source and destination of such funds cannot be doubted. Therefore, the provision of section 40A(3) is not frustrated by the assessee making payments into the account of M/s. IFB Agro Industries Limited, Durgapur maintained in the State Bank.”
Read the full text of the order below.
