Section 40A(3) not applies to cash payment exceeding Rs. 20000 made to Government controlled electricity distribution company

There is no dispute in respect of said West Bengal State Electricity Distribution Company Limited (WBSEDCL) is controlled and owned by the Govt. of West Bengal. We also find that there is no dispute with regard to genuineness of such payments made to West Bengal State Electricity Distribution Company Limited (WBSEDCL). We find that the CIT assumed his jurisdiction only on the ground that the said cash payments were made on different dates and the same do not fall under any of the exceptions of rule 6DD of the Income Tax Rules. The CIT also found that inspite of opportunities availed by the assessee, the assessee did not point out any specific section/rule clause on which such payment is outside the proviso of section 40A(3). Admittedly, the assessee paid such cash payments towards power charges to West Bengal State Electricity Distribution Company Limited (WBSEDCL) and debited the same to its P & L account on different dates from April‘09 to February’10. In such circumstances, the question arises before us for our consideration whether West Bengal State Electricity Distribution Company Limited (WBSEDCL) is a State amenable to the article 12 of the Constitution. The decision as relied on by the learned Authorized Representative of the assessee of the Co-ordinate Bench, ITAT Pune in the case of (supra), the ITAT Pune has relied on the decision of the Hon’ble Supreme Court in the case of supra for the purpose of interpretation of expression of other authorities. The Co-ordinate Bench discussed the tests that if a state holds entire capital, control over the corporation can be a state agency or instrumentality of a state. If such corporation enjoys monopoly status and the functions of which are public importance can be termed as State instrumentality.

In view of we hold that cash payments made to West Bengal State Electricity Distribution Company Limited (WBSEDCL) is covered by the exception Rule 6DD(b) of the IT Rules and as such no dis allowance under section 40A(3) of the Act can be made. Therefore, the grounds raised by the assessee are allowed.

Full Text of the ITAT Order is as follows:-

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