Case Law Details
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:-
This appeal by Assessee is against the impugned order date 27-3- 2015 passed under section 263 of the Act by the Commissioner (Appeals), Burdwan for the assessment year 2010-11.
2. It is noticed that none appeared for the respondent Revenue, but, however, an application date 1-5-2017 filed seeking adjournment. The learned Authorized Representative of the assessee before us submits that the issue involved in this appeal is covered by an order date 29-2-2016 of ITAT Pune Bench, Pune and urged to dispose of the present appeal in terms of the said order. Therefore, on perusal of the record and the issue involved in this appeal is covered by the said decision as relied on by the learned Authorized Representative of the assessee proceed to hear the learned Authorized Representative and dispose of the same on the basis of material available on record and on merits. Therefore, the adjournment application date 1-5-2017 filed by the revenue is rejected.
3. The only issue in this appeal is to be decided by us as to whether the CIT has rightly exercised his jurisdiction under section 263 of the Act in declaring the assessment order date 17-12-2012 passed under section 143(3) of the Act is erroneous and prejudicial to the interest of the revenue in respect of cash payments made by the assessee to West Bengal State Electricity Distribution Company Limited (WBSEDCL) exceeding the prescribed limits in terms of rule 6DD(b) of the Income Tax Rules 1962 read with section 40A(3) of the Act in the facts and circumstances of the case.
4. Brief facts of the case are that the assessee is a partnership firm engaged in the business of rice mill and selling of rice. The assessee filed its return of income for the assessing officer 2010-11 i.e. the year under consideration declaring at Rs. 29,221. The assessing officer determined the income of assessee at Rs. 1,63,030 under section 143(3) of the Act by an order date 17-12-2012.
5. The CIT by exercising his power under section 263 of the Act on a reference from the JCIT, Range-2, Burdwan under revision found that the assessee has debited Rs. 3,03,957 towards power charges payment made to West Bengal State Electricity Distribution Company Limited (WBSEDCL) in the P & L account. According to CIT the said payments were made in cash to West Bengal State Electricity Distribution Company Limited (WBSEDCL) in contravention of the provisions contemplated in section 40A(3) of the Act. Under show cause, the assessee submitted that the revision initiated under section 263 by the CIT is barred by limitation and West Bengal State Electricity Distribution Company Limited (WBSEDCL) is controlled by Govt. of West Bengal and is functioning under the Department of Electricity, Govt. of West Bengal. The Govt. of W.B is the owner of West Bengal State Electricity Distribution Company Limited (WBSEDCL) and submitted that there was no violation of section 40A(3) of the Act. The CIT, however, not found acceptable the submissions of assessee. He observed that while declaring the assessment order is erroneous as well as prejudicial to the interest of revenue that the assessing officer completely overlooked the payments made in cash to West Bengal State Electricity Distribution Company Limited (WBSEDCL) in the assessment proceedings and the said payments on different dates are in contravention of provisions of section 40A(3) of the Act and as such it did not fall under the exception provided under rule 6DD(b) of the Income Tax Rules 1962. Relevant portion of finding of the CIT is reproduced herein below :–
“ It may further be mentioned that in the assessment order under section 143(3) the assessing officer has completely overlooked this issue and therefore, it is erroneous in nature. The payment made to West Bengal State Electricity Distribution Company Limited on different dates is in contravention of the provision of section 40A(3) as these payment on different dates do not fall in any exception clause of rule 6DD. It may be mentioned that the A/R was given opportunity to clarify the specific section/rule clause under which such payment is outside the proviso of section 40A(3). The assessee failed to make any submission on this point.
In view of the above stated discussions the order passed by the assessing officer is erroneous as well as prejudicial to the interest of Revenue. Therefore, proceedings initiated under section 263 is as per law.
It may be mentioned here that under rule 6DD(b) payment made to the Government and, under the rules framed by it, such payment is required to be made in legal tender. The payment made to West Bengal State Electricity Distribution Company Limited does not appear to fall under this exclusion clause as such. However, the assessing officer is directed to re-assure himself by making further inquiry and investigation whether such payment falls under rule 6DD(b) or any other exclusion clause of rule 6DD and then to take action as per law.”
6. Before us the learned Authorized Representative reiterated the same submissions as made before the CIT and also argued that the Government of West Bengal is the owner of West Bengal State Electricity Distribution Company Limited (WBSEDCL) and the issue is covered by exception provided under rule 6DD(b) of the IT Rules 1962 read with section 40A(3) of the Act. In support of the contention, the learned Authorized Representative of the assessee placed his reliance on the order of the ITAT Pune Bench, Pune [IT Appeal Nos. 1267 TO 1278 (PN.) of 2014, date 29-2-2016] in the case of Smt. Sapna Sanjay Raisoni v. ITO, Ward 2(1) Pune and submitted that the assessee therein has made cash payment exceeding Rs. 20,000 for the purpose of purchase of scrap from MSRTC Maharashtra State Transport Corporation, MSEB Mahatrashtra State Electricity Board and other Government organizations and the assessing officer disallowed the same in terms of violation of section 40A(3) of the Act. The CIT confirmed the same. The Tribunal (ITAT Pune) while relying on the decision of the Hon’ble Supreme Court in the case of Jaswant Sing Charan Singh (1967) AIR 1454 in Civil Appeal No. 2011 of 1966 held that the MSRTC is a State and cash payment made therein is covered by 6DD(b) of the Income Tax Rules read with section 40A(3) of the Act.
7. Heard the learned Authorized Representative and perused the material available on record. We find that 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. Relevant portion of which is reproduced herein below :–
12. If these tests are applied on the MSRTC, we observe that the Corporation satisfies majority of the conditions. The entire share capital of MSRTC is owned by State and Central Government. The State has full control over the working, policies and the framework of the Corporation. The Corporation is providing public transport facility to the subjects of the State, even in for remote areas, where ITA Nos. 1270 to 1272PN/2014 and others of Raisoni Group sometimes it is not economically viable to provide transport service. Thus, it is providing vital function of public importance.
13. The Hon’ble Bombay High Court in the case of Maharashtra State Road Transport Corporation v. Diwakar Madhukarrao Malkapure and Others in Writ Petition No. 2762/2012 decided on 12-11- 2013 while dealing with an issue relating to payment of compensation to one of the employee of MSRTC has observed as under :–
“The Petitioner employer is a body Corporate and is State within the meaning of Article 12 of the Constitution of India and therefore it has to act as a Model Employer.”
14. Thus, in view of the facts of the case and in the light of observations of the Hon’ble Bombay High Court, we are of the considered opinion that the Commissioner (Appeals) has erred in holding that MSRTC is not a “State” and cash payments made to MSRTC are hit by the provisions of section 40A(3) of the Act.
15. In so far as genuineness of the payments to MSRTC by the assessees, they are not disputed by the department. Once it has been held that MSRTC is a “State” within the meaning of Article 12 of the Constitution of India, the payments cannot be disallowed under section 40A(3). The provisions of rule 6DD would protect the assessee from such dis allowance. The assessees have explained that cash payments have been made to MSRTC on successful bid of scrap auction. The payments are made in cash immediately to guard against the pilferage of scrap. Thus, cash payments are also made out of business expediency. Therefore, in our considered view, no ITA Nos. 1270 to 1272PN/2014 and others of Raisoni Group dis allowance can be made under section 40A(3) in the facts of the present case.
16. Our view is fortified by the decision rendered in the case of Shri Laxmi Satyanarayan Oil Mill v. CIT (Supra). The Hon’ble High Court has held that no dis allowance can be made under section 40A(3) where genuineness of payment is not doubted. The relevant extract of the observation of the Hon’ble Court are as under :–
“18…….………Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque 0n crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are no taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the assessing officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions.”
17. In the case of Gurudev Garg v. CIT the Hon’ble Punjab & Haryana High Court has held that where genuineness of transaction made in cash in excess of Rs. 20,000 was not disbelieved by the authorities, the same cannot be disallowed under section 40A(3) of the Act.
18. In view of the facts of the case and the case laws discussed above, we are of the considered view that the provisions of section 40A(3) are not attracted on the cash payments made by the ITA Nos. 1270 to 1272PN/2014 and others of Raisoni Group assessees to MSRTC. The provisions of rule 6DD (b) provide exception to section 40A(3) where cash payments are made to Government. The aforesaid exception will operate in the case of the assessee. Thus, the Commissioner (Appeals) has erred in holding that dis allowance under section 40A(3) is to be made in respect of cash payments made by assessees to MSRTC. The impugned orders are set aside and the assessing officer is directed to delete the disallowing made under section 40A(3) in the impugned assessment years. Accordingly, ground Nos. 1 to 5 raised in the appeals are allowed.
Respectfully following the above, 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.
8. In the result, the appeal of the assessee is allowed.
