Cash payments for purchase of liquor to government authorized licencee are covered by exception provided under Rule 6DD-ITAT

Cash payments for purchase of liquor to government authorized licencee covered by exception provided under Rule 6DD. ITAT deletes addition u/s 40A(3)

ABCAUS Case Law Citation:
ABCAUS 2432 (2018) 07 ITAT

The Appellant assessee had filed the present appeal against the order passed by CIT(A) inter alia in confirming the addition made by the Assessing Officer (AO) on account of cash purchase violating section 40A(3) the Income Tax Act, 1961 (the Act).

The assessee was engaged in retail trading of country liquor. The return of the assessee was re-opened on an information that huge cash purchase of liquor in excess of Rs. 20,000/- on each occasion from various parties in violation of provision u/s 40A(3) of the Act.

It was also found the said cash purchases were not mentioned in the tax audit report filed. The assessee filed written submissions and contended that the payments made in a single day and consolidated payment of several shops wherein the single payment bill or memo did not exceeds Rs. 20,000/-. The AO did not accept the said submissions made by the assessee and added the amount of cash purchases to the total income of assessee for violation of provision of Section 40A(3) of the Act vide order passed u/s 147/143(3) of the Act.

Before CIT(A), the assessee contended that the purchases had been made from government authorized licencee and the payments are covered by exception under Rule 6DD(b) and Rule 6DD(k) of the Income Tax Rule, 1962 and placed reliance on the order of  ITAT Allahabad Bench and submitted that the provision of Section 40A(3) as held by the Tribunal are not attracted in case of liquor purchases from government authorized distributors.

The CIT(A) however did not accept the submission of assessee and by placing reliance on the decision of Hon’ble High Court of Karnataka upheld the view of AO.

The Tribunal observed that the issue was covered by the order of co-ordinate bench of the Tribunal wherein it was held that cash payments made to an agent of government is covered by exception provided under Rule 6DD(b) of IT Rules, 1962.

The Tribunal opined that the cash payments made to the licencee appointed by Government of Uttar Pradesh as its agent was to be treated as if paid to Government of U.P and as such said cash payment were covered by the Rule 6DD(b) of the Rules.

Accordingly the Tribunal deleted the addition made.

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