Victply Industries Vs ITO (ITAT Cochin)
Victply Industries, a partnership firm, filed its return of income for AY 2015-16 declaring nil income after setting off brought forward depreciation loss of ₹1,25,649. The return was scrutinised & the AO completed the assessment u/s 143(3) determining the total income at ₹14,32,070.
The entire difference arose due to the AO’s disallowance of ₹14,32,070 u/s 40A(3), holding that electricity charges paid in cash to the Kerala Electricity Board (KEB) violated the provision restricting cash payments above the prescribed limit.
Before CIT(A), Assessee contended that payments were made to KEB, a government-controlled entity wholly funded by the Government of Kerala & such payments are specifically excluded from the ambit of sec 40A(3) under Rule 6DD of the Income-tax Rules. CIT(A), rejected the claim, citing judicial precedents & holding that KEB does not fall under the defined “Government” exception for this purpose. The disallowance was confirmed.
Before the Tribunal, Assessee contended that the payment was made to Kerala Electricity Board which is wholly funded by Government of Kerala & payment made to it, is covered by the exceptions enumerated under rule 6DD.
The issue that arises for Tribunal’s determination is whether the electricity charges paid to Kerala Electricity Board in cash attracts the provisions of sec 40A(3) or not. The provisions of rule 6DD enumerates that any payment made to the Government is exempt from the rigorous of the provisions of sec 40A(3). The Kerala Electricity Board is no doubt is a “State” within the meaning of Article 12 of the Constitution of India. Although, strictly speaking, it does not fall within the definition of ‘State Government’, however, for the purpose of section 40A(3) & it can be treated as a government & no disallowance attracted. Respectfully following the decisions of Hon’ble Delhi High Court in the case of CIT vs. SRC Aviations (P) Ltd. 280 taxman.com 62 (mag.) (Del.) & also the decision of Hon’ble Karnataka High Court in the case of CIT vs. Venkatesh V. Kabade (2014) 45 taxman.com 403 (Mag.) (Kar.).
