Direct cash deposit in suppliers bank a/c not attract disallowance u/s 40A (3)

Brief of the case:

• The ITAT Kolkata in the above cited case held that the consequence, which were to be fall on  account of non-observation of section 40A(3) must have nexus to the failure of object of introducing of the provision. Therefore, no disallowance can be made if the transactions do not defeat the object of Sec 40A(3) in as much as there genuiness is not challenged and they can be tracked end to end.
• Therefore , deposit in bank account of supplier in compliance with govt. regulations who is wholesale dealer  where genuiness of transaction is not disputed by revenue cannot be disallowed  as the same is routed through banking channel making evasion of taxes difficult thus, not defeating the provisions of Sec 40A(3).
  

Facts of the case:

• The assessee is a partnership firm engaged in the business of retail trading of liquor under the name and style of M/s Bolkunda Pachwai & (S) C.S.Shop. During the course of assessment proceedings AO observed that the assessee had made cash payments in excess of Rs. 20,000/- to M/s Asansol Bottling & Packaging Co. Pvt Ltd (ABPL) for purchase of country spirit by way of cash deposits into the bank account of ABPL.
• AO asked assessee as to why such payments made by cash deposit in bank account not to be disallowed u/s 40A(3).
• Assessee pleaded that the payment was made to the wholesale licensee who is an agent of the Government and hence the payment would fall under the exception provided in Rule 6DD(k) of the IT Rules.
• AO not convinced with this reply proceeded to make disallowance u/s 40A(3) of the Act in respect of cash purchases made by the assessee which was confirmed by the ld CITA on first appeal. Aggrieved, the assessee is in appeal before tribunal.
  

Contention of the Assessee: