Payments made to WB State Electricity Distribution Company cannot be disallowed u/s 40A(3): Kolkata ITAT [Read Order]

Recently in Narayan Rice Mill v. CIT, the division bench of the Kolkata bench of ITAT held that the payments made to WB State Electricity Distribution Company cannot be disallowed by invoking the provisions of section 40A(3) of Income Tax Act.

In the instant case, the Commissioner of Income Tax revised the original assessment order passed by the assessing Officer on ground that it 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 I.T Rules 1962 r.w.s 40A(3) of the Act.

Assessee maintained that the 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. According to them, there was no violation of S. 40A(3) of the Act since the Govt. of W.B is the owner of West Bengal State Electricity Distribution Company Limited (WBSEDCL.

The asseessee further relied on the decision of the Pune ITAT wherein the Tribunal relied on the decision of the Hon’ble Supreme Court in the case of Jaswant Sing Charan Singh and held that the MSRTC is a State and cash payment made therein is covered by 6DD(b) of the IT Rules r.w.s 40A(3) of the Act.

Accepting the contentions of the assessee, the bench noted that West Bengal State Electricity Distribution Company Limited (WBSEDCL) is controlled and owned by the Govt. of West Bengal and there is no dispute with regard to genuineness of such payments made to West Bengal State Electricity Distribution Company Limited (WBSEDCL). The sole ground for disallowance was 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 IT Rules.

The bench said that “the decision as relied on by the ld.AR 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.”

Following the above decisions, the bench held that cash payments made to West Bengal State Electricity Distribution Company Limited (WBSEDCL) is covered by the exception Rule 6DD(b) of the Income Tax Rules and as such no disallowance under Section 40A(3) of the Income Tax Act can be made.

Read the full text of the Order below.

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