ACIT, Cuttack V. M/s Pasupati Feeds, Cuttack

ITA 101/CTK/2012

• Counselvise Citation: 10122114 RSA 2012
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 13-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 06-02-2012
• Court: TRIBUNAL
• Department Lawyers: AS WELL AS ON PART SUSTE
• Assessee Lawyers: I T A NOS; AYS; HAVE BEEN PREFERRED BOTH; CTK AYS
• Keywords: Additional evidence; Non compliance
• Section: 144; 40A(3); 142(1); 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 (C.OS.FILED BY ASSESSEE) ITA NOS.143 & 144/CTK/2012 AYS 2006 - 07 & 2008 - 09 AYS 2006 - 07 & 2008 - 09 ACIT,CIRCLE 2(1), CUTTACK. .. APPELLANT - VERSUS - M/S.PASUPATI FEEDS, AT:TANGI,KOTSAHI, CUTTACK. .. RESPONDENT M/S.PASUPATI FEEDS, AT:TANGI,KOTSAHI, CUTTACK. .. APPELLANT - VERSUS - ACIT, CIRCLE 2(1), CUTTACK. .. RESPONDENT FOR THE ASSESSEE : / SHRI P.R.MOHANTY, AR FOR THE DEPARTMENT : / S HRIMATI . PARAMITA TRIPATHY, CIT - DR / DATE OF HEARING: 13.07.2012 / DATE OF PRONOUNCEMENT: 14.08.2012 / ORDER . . . , , SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER . APPEALS FOR THE AYS 2006 - 07 AND 2008 - 09 HAVE BEEN PREFERRED BOTH BY THE ASSES SEE AS WELL AS THE REVENUE ON THE PART SUSTENANCE O F THE DISALLOWANCES MADE U/S.40( A)( IA) OF THE INCOME - TAX ACT,1961 FOR NON - DEDUCTION OF TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194C WHEN THE REMAINING DISALLOWANCES HAVE BEEN RESTORED TO THE ASSESSING OFFICER FOR VERIFICATION WHETHER THE EXPENDITURE INCURRED WAS ON THE SIMILAR LINES I NSOFAR AS THE ASSESSEES BUSINESS OF PROCURING MATERIAL FROM VARIOUS VENDORS TO MANUFACTURE AND SALE OF CATTLE AND POULTRY FEES COULD BE CONSIDERED FOR ISOLATING THE FREIGHT CHARGED BY THE ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 2 SELLERS IN THE WAY BILLS ALONG WITH VALUE OF GOODS TRANSPORTED COUL D BE CONSIDERED IN ITS ENTIRETY. CROSS OBJECTIONS BY THE ASSESSEE HAVE BEEN PREFERRED ON THE REVENUES APPEAL INDICATING THAT O N THE FACTS AND CIRCUMSTANCES , THE DELETION OF THE DISALLOWANCE U/S.40(A)(IA) BY THE LEARNED CIT(A) HAS TO BE ACCEPTED ON SIMILA R SITUATION WHEN THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO RE - VERIFY. THE REVENUE IS IN APPEAL AGAINST DELETION OF THE EXPENSES DISALLOWED U/S.40(A)(IA) BY INDICATING THAT THE LEARNED CIT(A) WAS NOT LAWFULLY JUSTIFIED IN HOLDING THAT THE ASSESSI NG OFFICER COULD NOT INVOKE THE PROVISIONS OF SECTION 194C WHEN THE DETAILS CALLED FOR U/S.142(1) WERE NOT COMPLIED WITH BY THE ASSESSEE. THE REVENUE AGITATES THAT THE LAW PROVIDES FOR DENYING THE ASSESSEE INTEREST AND SALARY PAID TO ITS PARTNERS WHEN THE ASSESSMENTS HAVE BEEN MADE U/S.144. 2. WE PROPOSE TO DISPOSE OF THESE APPEALS AND THE CROSS OBJECTION BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE BEING A PARTNERSHIP FIRM FILED ITS RETURNS FOR THE RESPECTIVE AYS WHEN FOR THE AY 2006 - 07 THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTIONS 147/148 OBSERVING THAT THE DEDUCTIONS HAVE BEEN CLAIMED FOR ADJUSTMENT AND INCOME TAX AND EMBEZZLEMENT OF CASH HAS BEEN CLAIMED A S EXPENDITURE U/S.37. HOWEVER, THE ASSESSMENT WAS MADE U/S.144 ALONG WITH ASSESSMENT YEAR 2008 - 09 WHEN THE ASSESSING OFFICER INSPITE OF HIS BEST EFFORTS WAS NOT ABLE TO VERIFY THE BOOKS OF ACCOUNT AS PERTAINING TO THE FINANCIAL STATEMENTS FILED ALONG WITH THE RETURN OF INCOME. FOR THE ASSESSMENT YEAR 2006 - 07 THE ASSESSING OFFICER AFTER VERIFYING THE CLAIM OF PURCHASES ALONG WITH THE FREIGHT CHARGES EMBEDDED IN THE INVOICES PROCEEDED TO HOLD THAT THE ADJUSTMENT IN THE CASE OF M/S.PASUPATI FEEDS AGAINST SALE INVOICE TO VARIOUS ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 3 PARTIES, THE ASSESSEE COULD NOT CLAIM THE SAME AS PURCHASES DISALLOWED A SUM OF 42 LAKHS. HE FURTHER VERIFIED THE BILLS WHICH INCLUDED THE COST OF GOODS ALONG WITH THE FREIGHT CHARGED BY THE VENDORS TO HOLD THAT THEY ARE NOT ALLOWABLE AS DEDUCTION U/S.40A(3) BUT BECAUSE THEY HAVE BEEN TO BE CONSIDERED TO BE DISALLOWABLE U/S.40(A)(IA) FOR NON - DEDUCTION OF TAX AT SOURCE DISALLOWED A SUM OF 24,73,981 . ON HAVING PASSED THE ORDER U/S.144/147 HE DISALLOWED SALARY AND INTEREST TO PARTNERS CLAIMED AT 26,60,499. FOR THE ASSESSMENT YEAR 2008 - 09, THE ASSESSING OFFICER DISALLOWED A SUM OF 29,8 6,842 U/S.40A(3) BEING THE PURCHASE OF SEEDS FOR MANUFACTURING CATTLE FEEDS AND ALSO DISALLOWED A SUM OF 22,39,053 U/S.40(A)(IA) OVER AND ABOVE WHAT HE HAD ALREADY CONSIDERED FOR DISALLOWANCE U/S.40A(3). HE OBSERVED THAT THE LEDGER ACCOUNT DID NOT PROVE A NY EVIDENCE OF TDS FROM THESE PAYMENTS BEING FOR THE PURCHASE. HE FURTHER DISALLOWED A SUM OF 30,44,743 BY VERIFYING THE TRUCK NUMBERS FROM THE VARIOUS PA RTIES TO WHOM CASH EXCEEDING 20,000 WAS PAID ON VARIOUS DATES IN THE MONTHS OF FEBRUARY AND MARCH WH ICH ARE INSCRIBED IN THE ASSESSMENT ORDER. HE ALSO DISALLOWED SALARY AND INTEREST PAID TO PARTNERS ON HAVING PASSED THE ASSESSMENT ORDER U/S.144 UNDER REFERENCE TO SECTION 184(5) OF 35,53,958 AS INTEREST AND SALARY TO THE PARTNERS. 4. AGGRIEVED, THE ASSE SSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY. APART FROM AGITATING THE I NITIATION OF PROCEEDINGS U/S.147 /148 FOR THE ASSESSMENT YEAR 2006 - 07, THE ASSESSEE SUBMITTED WITH RESPECT TO DISALLOWANCE U/S.40A(3) AND SECTION 40(A)(IA) AS FOLLOWS : ADDITION U/S. 40A(IA) OF 24,73,981 IT IS SUBMITTED BEFORE THE A.O. THAT THE ALL PAYMENTS ARE MADE TO SUPPLIER OF GOODS TOWARDS TRANSPORTATION CHARGES. THOUGH THE PAYMENT VOUCHERS ARE MADE IN THE NAME OF VENDERS/SUPPLIERS AS FREIGHT IS INCLUDED IN THE PURCHASE INVOICE. ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 4 THE PAYMEN TS ARE IN THE NATURE OF REIMBURSEMENT OF TRANSPORT CHARGES TO THE VENDOR. THE ONUS OF MAKING TDS FROM TRANSPORT CHARGES LIES WITH THE VENDOR. MOREOVER WE DO NOT HAVE ANY CONTRACT WITH THE TRANSPORTER TO CARRY GOODS TO US. TRANSPORTERS ARE UNKNOWN AND RANDO M IN NATURE TO WHOM THE ASSESSEE HAS PAID CASH AND HENCE DOES NOT ATTRACT THE PROVISION OF 194C OF I. T. ACT. FURTHER THE SAID TRANSPORT CHARGES ARE ALSO ALREADY COVERED UNDER 194C BY THE SUPPLIER M/S. PRATISTHA COMMERCIAL PVT. LTD. FOR WHICH HE HAS GIVEN A CERTIFICATE TO THAT EFFECT AND ANNEXED TO THIS SUBMISSION. HENCE WE APPEAL YOUR GOOD SELF TO DELETE THE ENTIRE ADDITIONS OF 24,73,981 U/S. 40A ( I A). ADDITION OF 42,00,000 (PURCHASE ADJUSTMENT) IN THIS CONTEXT, DURING THE COURSE OF ASSESSMENT THE AS SESSEE HAS SUBMITTED IN EVIDENCE OF THE AFORESAID FACT THE DETAILS OF THE PARTIES FROM WHOM MATERIALS ARE RECEIVED DURING THE MONTH OF MARCH 2006 AND INVOICES SUBSEQUENTLY RAISED/RECEIVED ARE FURNISHED IN A LIST. A DETAILED STOCK STATEMENT AS ON 31/03/200 6 HIGHLIGHTING THE STOCKS RECEIVED DURING MARCH 2006 ARE INCLUDED IN THE CLOSING STOCK IS ALSO FURNISHED. AGAIN THE PURCHASE ABSTRACT OF 2006 - 07 IS FURNISHED HEREWITH SHOWING THE SAME AMOUNT OF PURCHASE I.E. 42,00000 IS DEDUCTED FROM THE PURCHASE OF APRIL 2006 OF ACCOUNTING YEAR 2006 - 07. THE ASSESSEE HAS ALSO PRODUCED FOLLOWING DOCUMENTS AND EVIDENCES AS ENQUIRED UPON BY ASSESSING OFFICER. 1. STOCK STATEMENT AS ON 3 1/03/2006 DULY CERTIFIED BY THE BANKER. 2. DETAILS OF PARTIES AND INVOICES FROM WHOM GOODS ARE PURCHASED. 3. RAW MATERIAL STOCK REGISTER FROM 2 1/03/2006 TO 3 0/04/2006 OF RELEVANT STOCK ITEMS. 4. RAW MATERIAL LEDGER ACCOUNT OF APRIL, 2006 OF F.Y. 2006 - 07 SHOWING JOURNAL ENTRY OF 42, 00,000 W HICH HAS REDUCED PURCHASE OF APRIL, 2006 TO THAT EXTENT. 5. CONFIRMATION LETTER FROM PARTIES REGARDING DISPATCH OF RELATED GOODS PRIOR TO 31/03/2006. BUT THE ASSESSING OFFICER HAS ONLY CONSIDERED THE LEDGER COPIES OF THE VENDERS PARTICULARLY GOPIRARN PREM CHAND JAM & ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 5 PRATISHTA COMMERCIAL PVT. LTD. AND REFERRING THEIR INVOICE DETAILS AND TRANSPORT DETAILS MENTIONED IN THE LEDGER COPY, HAS DISALLOWED THE SAID PURCHASES OF 42,00,000 CONTENDING THAT IS DELIBERATE TO REDUCE THE G.P. BY THAT AMOUNT . OUR SUBMISSION IN THIS REGARD IS THAT: A. THE ASSESSING OFFICER HAS NOT REFUTED THAT CLOSING STOCK DOES NOT INCLUDE THE IMPUGNED PURCHASES. ASSESSEE HAS SUBMITTED STOCK STATEMEN T DULY CERTIFIED BY BANKER. B. THE DISALLOWANCE OF PURCHASE OF 42, 00,000 BY ASSESSING OFFICER SHOULD ALSO DEFLATE THE CLOSING STOCK TO THAT EXTENT AND SHALL HAVE NIL EFFECT ON REVENUE. C. THE ASSESSING OFFICER HAS NOT ALSO COUNTERED THE CONFIRMATION OF SUPPLIER REGARDING DISPATCH OF GOODS SUBMITTED BY THE ASSESSEE. D. THE ASSESSEE HAS ALSO DEFLATED THE PURCHASE OF APRIL,2006 TO THAT EXTENT BY JOURNAL ENTRY. THE DISALLOWANCE OF 42, 00,000 ON THE F. Y. 2005 - 06 BY THE ASSESSING OFFICER SHOULD BE ALLOWED A S PURCHASE DURING F. Y. 2006 - 07 DEFLATE PROFIT TO THAT AMOUNT IN THE SAID FINANCIAL YEAR. CONSIDERING THE ABOVE SUBMISSION, WE APPEAL YOUR GOOD SELF TO KINDLY DELETE THE ENTIRE ADDITIONS OF 42, 00,000 5. FOR THE ASSESSMENT YEAR 2008 - 09, IT WAS SUBMITT ED BEFORE THE LEARNED CIT(A) AS UNDER: NO JUSTIFICATION FOR ASSESSMENT U/S 144 & ADDITION OF 35,53,958 U/S 184(5) IS BAD IN LAW. THE ASSESSING OFFICER HAS ISSUED NOTICES U/S 142(1) & 143(2) ON DATED 8TH JULY 2010, 25TH AUGUST 2010 & DECEMBER 2010 ARE SE RVED TO THE ASSESSEE AND COMPLIED ON VARIOUS DATES OF APPEARANCES ON DATED. 04/10/2010, 18/11/2010, 29/11/2010 & 20/12/2010. THERE REMAINS NO NON COMPLIANCE BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS. PLEASE REFER THE PARAGRAPH OF ASSESSMENT ORDER FOR W HICH SEC 144 IS RESORTED TO AND MENTIONS AS: - NO REGULAR SET OF BOOKS OF ACCOUNT WAS PRODUCED. THOUGH ASKED TO PRODUCE THE BOOKS OF ACCOUNT FOR THE RELEVANT PREVIOUS YEAR, ONLY THE PRINT OUT OF THE CASH BOOK FOR FEW MONTHS, SOME LEDGER ACCOUNTS, ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 6 INVOICE F OLDERS OF MARCH, 2008, SOME EXTRACTS AND WRITTEN SUBMISSIONS WERE FILED DURING THE COURSE OF HEARING. IN THIS CONTEXT WE HUMBLY SUBMIT THAT LEDGER COPIES OF ALL ACCOUNTS AS HAVE BEEN ASKED UPON IN VARIOUS NOTICES U/S 142(1) HAVE BEEN FILED BY US ON VARIOUS DATES OF OUR APPEARANCES FOR THE CASE. 20 NOS. OF ARCH FILES CONTAINING INVOICES, VOUCHERS FOR MARCH 2008 AS HAVE BEEN ASKED UPON WERE KEPT UNDER THE CUSTODY OF ASSESSING OFFICER FOR 3 MONTHS ALONG WITH PRINT OUT OF CASH BOOK FOR JANUARY, FEBRUARY AND MAR CH 2008. THE ASSESSING OFFICER HAS ALSO RETAINED THE CASH BOOK OF MARCH,2008. SINCE OUR ACCOUNTS BOOK IS VOLUMINOUS AND IT IS EVIDENT FROM RETAINED CASH BOOK CONTAINING AROUND 200 PAGES, THE ASSESSING OFFICER HAS CHOSEN BOOKS OF ACCOUNTS FOR THIS RANDOM MO NTHS AND THE SAME IS PRODUCED BY THE ASSESSEE ACCORDINGLY. MOREOVER, THE ASSESSEE HAS FULLY COOPERATED WITH DEPARTMENT DURING THE ASSESSMENT PROCEEDINGS AND RESPECTFULLY CARRIED OUT HIS STATUTORY DUTIES. IN VIEW OF THE ABOVE FACTS AND REFERRING CASE LAWS: - RAJNIKANT N. SHROFF V. ITO (1987) 32 TAX MAN 98 (AHD)(MAG). DHANALAKSHMI PICTURES V. CIT (1983) 144 ITR 452 (MAD) ASSESSMENTS U/S 144 IS UNJUSTIFIED AND BAD IN LAW. HENCE I APPEAL YOUR GOOD SELF TO DELETE THE ADDITION MADE U/S 184(5) OF 35,53,958 AS SA LARY TO PARTNERS AND INTEREST TO PARTNE DISALLOWANCE OF 29,86642 U/S. 40A(3) 100% DISALLOWANCE FOR ASST. YEAR 2008 - 09 IS NOT AS PER LAW. THE ASSESSING OFFICER HAS ERRED IN OPTING FOR 100% DISALLOWANCE INSTEAD OF 20% DISALLOWANCE U/S 40A(3) FOR ASST. Y EAR 2008 - 09. IN THIS CONTEXT HUMBLE SUBMISSION IS THAT FINANCE ACT 2007 PROVIDES AMENDMENT OF SEC 40A(3) INCORPORATING FULL DISALLOWANCE INSTEAD OF 20% DISALLOWANCE TO BE SUBSTITUTED FROM 0 1/04/2008. AGAIN FINANCE ACT 2008 BRINGS IN THE SAME AMENDMENT OF SEC 40A(3) CLEARLY SPECIFYING TO BE EFFECTIVE FROM ASST. YEAR 2009 - 10 WHICH LITERALLY CLARIFIES THE AMBIGUITY ON APPLICABILITY PERIOD OF 40A(3) AMENDMENTS BROUGHT IN BY FINANCE ACT 2007 AND THUS HAVING OVERRIDING IMPACT ON THE AMENDMENT MADE IN SEC 40A(3) BY FINANCE 2007. READING OF BOTH FINANCE ACT WITH RESPECT TO AMENDMENT OF SEC 40A(3) AND FOLLOWING CARDINAL RULE OF INTERPRETATION OF TAXING STATUTES THE INTENT OF LEGISLATION IN CLEARLY UNDERSTOOD THAT THE SAID AMENDMENT IS TO BE EFFECTIVE FROM ASST. YEAR 2009 - 10 INSTEAD OF ASST.YEAR 2008 - 09. HENCE IT IS AMPLY CLEAR WITHOUT ANY AMBIGUITY THAT 20% DISALLOWANCE U/S 40A(3) IS EXISTING IN ASST. YEAR 2008 - 09. HENCE YOUR GOOD SELF IS PRAYED TO CONSIDER RECTIFICATION FROM ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 7 100% DISALLOWANCE TO 20% OF 29,86,642 U/S 40A(3) FOR THIS ASST. YEAR 2008 - 09. DISALLOWANCE U/S. 40(A)(IA) OF 30,44,743. IN THIS CASE THE ASSESSEE IS A MANUFACTURER/TRADER OF ANIMAL FEED, AND PURCHASES RAW INGREDIENTS, MAIZE, SOYA ETC FROM VARIOUS SUPPLIERS. M/S PRATISHTHA COMMERC IAL PVT. LTD., M/S. GOPIRAM CHAND, M/S. JAY GANESH TRADING CO., ASHOK TRADING COMPANY, M/S. MAA HIRAMANI TRADERS ETC. WHO SUPPLY MAIZE, SOYA AND RAISE INVOICES ALONG WITH TRANSPORTATION SHOWN SEPARATELY ON THE FACE OF THE INVOICE. ASSESSEE PLACES ORAL ORDE RS TO THE SUPPLIER FOR PURCHASE OF MAIZE, SOYA ETC. WHICH ARE THE MAIN INGREDIENT FOR PRODUCTION OF ANIMAL FEEDS. THE SUPPLIERS SEND GOODS THROUGH VARIOUS TRUCKS AND TRANSPORTERS ARRANGED BY THEMSELVES WITH QUANTITY AND PRICE OF TRANSPORT DECIDED BY THEMSE LVES. THE SUPPLIER ALSO PAY PART PAYMENT OF TRANSPORT CHARGES AS CLAIMED IN THE INVOICES AND THE REST AMOUNT IS PAID BY THE ASSESSEE. DETAILS OF THE BILLS ALONG WITH FREIGHT CHARGES PAID BY SUPPLIER AND PAID BY ASSESSEE IS GIVEN BELOW FOR YOUR KIND PERUSAL . ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 8 IN THIS CONTEXT WE SUBMIT THAT 1. SINCE PURCHASE INVOICE INCLUDES TRANSPORTATION CHARGES ITS INDICATES TRANSPORT CHARGES IS PART OF COST OF GOODS. ANY PAYMENT AGAINST THE BILL BY THE ASSESSEE CANNOT BE CONSTRUED MADE SEPARATELY TOWARDS FREIGHT CHAR GES RATHER THE PAYMENTS ARE TOWARDS THE COST OF GOODS PURCHASED. 2. SUPPLIER MAKES PART PAYMENT OF TRANSPORTATION CHARGES AT POINT OF ORIGIN INDICATES TRANSPORT CONTRACT MADE BY THE SUPPLIER. ASSESSEE ONLY REPAYS THE SAID AMOUNT AS PAYMENT AGAINST BILLS. ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 9 3 . SUBSEQUENT PART PAYMENT OF TRANSPORT CHARGES MADE BY ASSESSEE ALSO DO NOT EXCEED 20,000 IN EACH TRANSACTION AND HENCE DOES NOT ATTRACT THE PROVISION OF SEC. 40(A)(IA). 4. ASSESSEE STRONGLY BELIEVE THE ONUS OF MAKING TDS LIES WITH THE SUPPLIER NOT WITH HIM. WE ALSO BRING TO YOUR KIND ATTENTION THAT ASSESSING OFFICER HAS NO MATERIAL ON RECORD TO PROVE ANY WRITTEN OR ORAL AGREEMENT BETWEEN THE ASSESSEE AND THE TRANSPORTER/RECIPIENTS OF CARRIAGE. THERE IS ALSO NO MATERIAL TO SHOW THAT THE PAYMENTS OF FREIGHT HAVE BEEN MADE IN PURSUANCE OF A CONTRACT OF TRANSPORTATION OF GOODS FOR A SPECIF IC PERIOD, QUANTITY OR PRICE. WITHOUT ESTABLISHING THE ABOVE FACTS WHICH ARE ESSENTIAL FEATURE TO TEST THE APPLICABILITY OF SEC 1 94C OF THE ACT (REF CIT VS UNITED RICE LAND LTD (2008) 217 CTR (P&H) 332), ASSESSING OFFICER HAS DISALLOWED THE SAID AMOUNT O F 3 0,44,743 U/S 40(A)(IA) IS ABSOLUTELY UNJUSTIFIED. FURTHER IN THIS CASE THE ASSESSEE IS A MANUFACTURER/TRADER OF ANIMAL FEED, AND PURCHASES RAW INGREDIENTS, MAIZE, SOYA ETC FROM VARIOUS SUPPLIERS WHO SUPPLY MAIZE, SOYA ETC. AND RAISE INVOICES ALONG WIT H TRANSPORTATION SHOWN SEPARATELY. TO THE ASSESSEE THE TRANSPORT CHARGES BECOME PART OF THE COST OF THE PRODUCT PURCHASED FROM THE SUPPLIER. HENCE IN THIS CASE ASSESSEE CANNOT BE CONSTRUCTED TO INFER THAT THE ASSESSEE HAS PAID ANY AMOUNT FOR TRANSPORTATION OF GOODS SEPARATELY THAN THE COST OF THE GOODS PURCHASED BY IT. OSTENSIBLY, IN SUCH CIRCUMSTANCES, THERE WOULD NOT ARISE ANY NECESSITY OF DEDUCTION OF TAX AT SOURCE ON THE FREIGHT AMOUNT SEPARATELY SHOWN IN THE INVOICES, IN TERMS OF SECTION 1 94C OF THE A CT. PLACING RELIANCE ON CASE LAWS CIT (TDS), CHANDIGARH V. ASST. MGR. (ACCOUNTS) FCI JAGADHRI, ITA NO. 407 (2008) AND CIT - I V. M/S. BHAGAWATI STEELS ITA NO. 693 (2009) AND FOLLOWING THE PARITY OF REASONING LAID DOWN IN THE ABOVE CASES, THE AMOUNT RAISED BY VARIOUS SUPPLIERS IN THE INVOICES SHOWN AS FREIGHT DID NOT CREATE AN OBLIGATION ON THE ASSESSEE TO DEDUCT TAX ON SUCH AMOUNTS AS PER SECTION 194C OF THE ACT. IN OUR VIEW, IF THE FREIGHT EXPENSES PAID BY SUPPLIER AND ASSESSEE TOGETHER ARE ADDED TO THE COST OF GOODS IN THE INVOICE RAISED, IT CANNOT BE INFERRED THAT THE ASSESSEE HAS PAID ANY AMOUNT OF FREIGHT SEPARATELY BECAUSE THE SAME IS A PART OF THE COST OF PRODUCT PURCHASED. THE ASSESSEE COULD NOT BE SAID TO BE AN ASSESSEE IN DEFAULT FOR NON DEDUCTION OF TAX AT SOURCE IN TERMS OF SECTION 1 94C OF THE ACT ON THE AMOUNT OF FREIGHT BILLED SEPARATELY BY SUPPLIERS. AS A CONSEQUENCE, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CANNOT BE APPLIED TO DISALLOW THE AMOUNT OF SUCH FREIGHT AMOUNTING TO 30,44,743. ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 10 FURTHER THE SAID TRANSPORT CHARGES A RE ALSO ALREADY COVERED UNDER 1 94C BY THE SUPPLIER M/S. PRATISTHA COMMERCIAL PVT. LTD. FOR WHICH HE HAS GIVEN A CERTIFICATE TO THAT EFFECT AND ANNEXED TO THIS SUBMISSION. 5. THE LEARNED CIT(A) PARTLY DELETE D THE ADDITIONS ON ACCOUNT OF DISALLOWANCES UNDER THE RESPECTIVE HEADS AS MENTIONED ABOVE WHEN FOR THE ASSESSMENT YEAR 2006 - 07, THE REVENUE IS AGITATING ON THE FOLLOWING GROUNDS. 01. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. FIRST APPELLA TE AUTHORITY IS JUSTIFIED IN GIVING DIRECTION TO THE A.O. TO RECALCULATE THE DISALLOWANCE MADE U/S.40(A)(IA) IN PLACE OF 24,73,981 MADE BY THE A.O IN THE ASSESSMENT ORDER ON THE BASIS OF THE ASSESSEES CONTENTION THAT ONUS OF TDS U/S.194C LIES WITH THE SUPPLIERS/VENDORS TO THE TRANSPORT OF GOODS TO THE ASSESSEES STOCK YARD AND THE PAYMENTS ARE IN THE NATURE OF REIMBURSEMEN T OF TRANSPORTATION CHARGES. 02. THE LD.CIT(A) IS NOT JUSTIFIED TO TOTALLY IGNORE THE MATERIAL EVIDENCES ON RECORD THAT SHOWS THAT 24,73,981WAS CLAIMED BY THE ASSESSEE AS CARRIAGE OUTWARDS EXPENSES WHICH CLEARLY ATTRACTS THE PROVISIONS OF SECTION 194C/40 (A)(IA) OF THE I.T.ACT, 1961 . 03. WHETHER THE LD.CIT(A) IS JUSTIFIED TO HOLD THAT THE AO CANNOT LAWFULLY INVOKE THE PROVISIONS OF SECTION 144 OF I.T.ACT,1961 WHEN THE DETAILS CALLED FOR IN TERMS OF STATUTORY NOTICE/S.142(1) WERE PARTLY COMPLIED AND COMPL ETE DETAILS HAVE BEEN WITHHOLD AT THE TIME OF THE ASSESSMENT PROCEEDINGS. 04. WHETHER WITHIN THE MEANING OF SECTION 144 OF THE I.T.ACT, 1961 WHILE MAKING AN ASSESSMENT OF TAXABLE INCOME TO THE BEST OF HIS JUDGMENT THE ASSESSING OFFICER IS LAWFULLY DEBARR ED TO INVOKE THE PROVISIONS OF SECTION 184(5) OF THE I.T.ACT, 1961 BY DISALLOWING THE SALARY OF 8,10,000 AND INTEREST OF 18,50,499 PAYABLE TO THE PARTNERS OF THE FIRM WHEREAS THE LD.CIT(A) IN HIS OWN ORDER PASSED IN ITA NO:371/2010 - 11 DATED 21.11.2011 FOR THE A/Y:2008 - 09 HAS BEEN CONFIRMED THE ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 11 DISALLOWANCE MADE U/S. 184(5) OF THE ACT FOR THE SAME ASSESSEE . 5.2. FOR THE ASSESSMENT YEAR 2008 - 09, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS. 01 . WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D.FIRST APPELLATE AUTHORITY IS JUSTIFIED IN GIVING DIRECTION TO THE A.O. TO RECALCULATE THE DISALLOWANCE MADE U/S.40(A)(IA) IN PLACE OF 30,44,743 AND 22,39,053 MADE BY THE AO IN THE ASSESSMENT ORDER ON THE BASIS OF THE ASSESSEES CONTENTION THAT ONUS OF TDS U/S.194C LIES WITH THE SUPPLIERS/VENDORS WHO ARE SUPPOSED TO TRANSPORT THE GOODS TO THE ASSESSEES STOCK YARD AND THE PAYMENTS ARE I N THE NATURE OF REIMBURSEMENT OF TRANSPORTATION CHARGES. 02 . THE LD.CIT(A) IS NOT JUSTIFIED TO TOTALLY IGNORE THE MATERIAL EVIDENCES ON RECORD WHICH SHOWS THAT THE ASSESSEE HAS CLAIMED 22,39,053 AND 30,44,743 AS CARRIAGE OUTWARDS EXPENSES THAT CLEARLY ATTRACT THE PROVISIONS OF SECTION 194C/40(A)(IA) OF THE I.T.ACT, 1961. 03. THE LD.CIT(A) WAS NOT JUSTIFIED TO RELY ON ADDITIONAL EVIDENCES PRODUCED BY THE APPELLANT BEFORE HIM WITHOUT AFFORDING AN OPPORTUNITY TO THE A.O. TO EXAMINE THE ISSUE IN QUESTION I N CONTRAVENTION OF PROVISIONS OF RULE 46A OF THE I.T.RULE,1962. 6. THE ASSESSEE IS ON THE SOLITARY ISSUE OF HAVING UNDERSTOOD THE FACTS OF THE ASSESSEES CASE THERE WAS NO REASON BEFORE THE LEARNED CIT(A) TO RESTORE CONSIDERATION PART OF THE EXPENDITURE S DISALLOWED FOR RE - VERIFICATION AS HAVING PARTLY ACCEPTED THE ASSESSEES CONTENTION THAT THERE WAS NO USEFUL PURPOSE SERVED FOR THE ASSESSING OFFICER TO VERIFY THE SAME AGAIN. FOR THIS PROPOSITION THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED A PAPER BOOK IDENTIFYING THE NATURE OF PAYMENTS ALONG WITH SAMPLE COPIES OF ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 12 INVOICES WHICH HAS BEEN RAISED BY THE VENDORS INDICATING THE FREIGHT TO BE PAID ALONG WITH THE PURCHASE VALUE OF THE GOODS WHICH HAVE BEEN INCORPORATED IN THE BOOKS OF ACCOUNT AND NOT BEC AUSE THE A O UNDER THE PROVISIONS OF SECTION 144 HAS SOUGHT TO BIFURCATE THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40(A)(IA) WHEN THE TRUCK NUMBERS NOTED IN THE ROAD WAY BILLS REQUIRE D NO FURTHER VERIFICATION FOR TDS DEDUCTION AS NO CONTRACT HAD BEEN ENTERED BY THE ASSESSEE WITH THE VENDORS IN THIS REGARD. THE REVENUE HAS RELIED ON THE GROUNDS RAISED BY THE ASSESSING OFFICER MENTIONED ABOVE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AT LENGTH AND PERUSED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND T HE MATERIAL AVAILABLE ON RECORD ALONG WITH THE SAMPLE INVOICES DRAWN ON THE ASSESSEE FOR THE PURCHASE OF GOODS WHICH INCORPORATE THE FREIGHT TO BE BORNE BY THE ASSESSEE IRRESPECTIVE OF THE TRANSPORT CONTRACTORS RECEIVING THE FREIGHT CHARGES ALONG WITH THE COST OF THE GOODS AS NOTED BY THE ASSESSING OFFICER. THE LEARNED COUNSEL FOR THE A SSESSEE HAS RELIED ON THE ISSUE REGARDING NON - DEDUCTION OF TAX AT SOURCE WHEN THE SUPPLY OF OUT SOURCES MANUFACTURED GOODS WHETHER CONSTITUTE OUTRIGHT SALE AND NOT CONTRACT OF WORKS WITHIN THE SCOPE OF SECTION 194C WAS TO DEDUCT TAX AT SOUR CE ON THE PURPO RTED FREIGHT CHARGES INCLUDED IN THE CASE OF GOODS. ON IDENTICAL FACTS, ITAT, DELHI H BENCH IN THE CASE OF TUAREG MARKETING (P) LTD V. ACIT (122 TTJ (DEL) 343 HAVE HELD THAT SUPPLY OF OUTSOURCED MANUFACTURED GOODS BY CONTRACT MANUFACTURERS CONSTITUTED OUTR IGHT SALE AND NOT CONTRACT OF WORKS WITHIN THE SCOPE OF SECTION 194C, HENCE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE PURCHASE PRICE OF GOODS PAID BY THE ASSESSEE TO CONTRACT MANUFACTURERS. WITH RESPECT TO THE DELETION OF EXPENDITURE DISALLO WED U/S.40A(3), THE ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 13 LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISIONS OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. CPL TANNERY (318 ITR 179) WHEN THE PURCHASE IS IDENTIFIED BY THE ASSESSING OFFICER RELATE TO PURCHASE OF POULTRY AND FI SH PRODUCE WHETHER CAN BE SUBJECT TO DISALLOWANCE U/S.40A(3) WHICH IS ALSO SUPPORTED BY THE DECISION OF KERALA HIGH COURT IN THE CASE OF CIT V. INTESEAS (233 CTR 77) WHEN A CLASS OF GOODS HAVE BEEN DEFINED AS PRODUCE OF ANIMAL HUSBANDRY COVERS FISH PRODUCTS A ND GENERALLY COVERED CLASS OF GOODS OF ALL FORM WITHOUT CONFINING ITSELF TO ANY PARTICULAR FORM L E AVING OTHER FORMS OF IT FROM THE VERY SAME CLASS WHEN FISH AND MANUFACTURED PRODUCTS OF FISH ARE COVERED BY THE EXCEPTION CLAUSE THAN THE DEC AYED MATERIAL THE RE FROM INCLUDING BLOOD WHETHER COULD BE CONSIDERED NOT TO BE EXEMPT FOR DISALLOWANCE U/S.40A(3). IN ANOTHER DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SMT.HARSHILA CHORDIA V. INCOME - TAX OFFICER (298 ITR 349) THE GENUINENESS OF A TRANSACTION AND THE IDENTITY OF THE PAYEE IS NOT DISPUTED , THE DISALLOWANCE U/S.40A(3) HAS TO BE CONSIDERED WHETHER WAS EXCEPTIONAL OR UNDER UNAVOIDABL E CIRCUMSTANCES INSOFAR AS RULE 6DD (J) HAS TO BE LIBERALLY CONSTRUED WHEN THE ASSESSING OFFICER HAS BEEN ABLE TO IDE NTIFY THE PAYMENTS TO GENUINE PARTIES. THE LEARNED DR HAS SUPPORTED THE ORDERS OF THE ASSESSING OFFICER FOR HER PART SUBMISSION S AND FOR THE ASSESSEE, THE LEARNED COUNSEL HAS SUPPORTED THE ORDER OF THE LEARNED CIT(A) TO THE EXTENT HE HAS AGREED TO THE PRIN CIPLE THAT THE VOUCHERS HAVE BEEN MADE ALONG WITH THE COST OF GOODS WAS NOT A CONTRACT OF TRANSPORTATION OF GOODS BY WAY OF PAYMENT OF FREIGHT CANNOT BE FURTHER PROBED FOR VERIFICATION AS DIRECTED BY THE LEARNED CIT(A) HAVING ACCEPTED THE FACT THAT ROAD WA YBILLS WERE MADE ALONG WITH THE COST OF GOODS TO THE TRANSPORTERS WAS NOT BY WAY OF ANY CONTRACT INSOFAR AS THE CASE OF THE ASSESSEE IS ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 14 SQUARELY COVERED BY THE DECISION OF ITAT, DELHI BENCH (SUPRA). HE HAS ALSO SUPPORTED THE LEARNED CIT(A)S CONTENTION OF ALLOWING THE SALARY AND INTEREST TO PARTNERS IN THE ASSESSMENT YEAR 2006 - 07 IN VIEW OF THE FACT THAT HAVING VERIFIED THE BOOKS OF ACCOUNT AND HAVING FOUND THE DISALLOWANCE U/S.40A(3) AND SECTION 40(A)(IA) THE ASSESSING OFFICER COULD NOT BE SAID TO HAVE PA S SED ORDER U/S.1 44 TO INVOKE THE DEEMING PROVISIONS OF SECTION184(5) FOR DISALLOWING THE INTEREST AND SALARY TO PARTNERS. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ARGUED THAT ON IDENTICAL FACTS, THE LEARNED CIT(A) ERRED IN CONFIRMING SUCH DISALLOWANCE FOR T HE ASSESSMENT YEAR 2008 - 09 WHICH WE HAVE OBSERVED IS PATENTLY INCORRECT INSOF AR AS IN THE ASSESSMENT YEAR 20 06 - 07 THE LEARNED CIT(A) HAS ALLOWED SUCH CLAIM ON IDENTICAL FACTS AGAINST WHICH HE HAS NOT REASONED OUT DENIAL OF THE SAME FOR THE ASSESSMENT YEAR 2008 - 09. WE HAVE BEEN HOLDING A VIEW THAT IT IS NEVER THE CASE OF THE AO TO PASS A BEST JUDGMENT ORDER AFTER HAVING REJECTING THE BOOK RESULTS U/S.145(3) WHEN EVEN IF ONCE HE HAS VERIFIED THE DETAILS OF CLAIM OF EXPENDITURE U/S.40A(3) AND SECTION 40(A)(IA) , THEY BECOME CONFLICTING TO THE VERY PROPOS ITION THAT BEST JUDGEMENT U/S.1 44 IS TO BE ADHERED TO DENY INTEREST AND SALARY TO THE PARTNERS WHICH ARE ALLOWABLE AS EXPENDITURE OTHERWISE. WE ALSO FIND THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE JUS TIFIED THAT AS PER THE PROVISIONS OF THE I.T.ACT W.E.F. 1.6.2001 THE LEARNED CIT(A) CANNOT RESTORE AN ISSUE FOR RE - VERIFICATION TO THE ASSESSING OFFICER ON PART BASIS WHEN HE HAS CONSIDERED THE MAJOR EXPENDITURE ALLOWABLE AS DEDUCTION U/S.40(A)(IA) AS THE CRUX OF THE ISSUE IS THAT PURCHASES HAVE BEEN MADE ALONG WITH THE COST OF GOODS INCLUDED IN THE ROAD WAY BILLS CANNOT BE ISOLATED TO FORM AN OPINION WHETHER THE ASSESSEE WAS HAVING A CONTRACT WITH THE TRANSPORTER OR WHETHER THE ASSESSEE WAS UNDER A CONTRAC T WITH THE VENDOR TO ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 15 PAY TO THE TRANSPORTER OR WHETHER THE VENDOR OF GOODS WAS IN CONTRACT WITH THE TRANSPORTER FOR THE SAFE DELIVERY OF THE GOODS TO THE ASSESSEE. HAVING VERIFIED THE SAME IT WAS NOBODYS CASE THAT THE EXPENDITURE ON FREIGHT CAN BE DISALLO WED IN SUCH A MANNER FOR NON - DEDUCTION OF TAX U/S.194C R.W.S. 40(A)(IA). FOR DISALLOWANCE U/S.40A(3), WE ARE INCLINED TO FIND FAVOUR IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE BEING A MANUFACTURER OF ANIMAL AND CATTLE FOOD IS INVOLVED IN PROCURING INGREDIENTS WHICH CANNOT BE SAID TO BE PURCHASES FROM ORGANIZED SECTOR. HAVING IDENTIFIED THE SELLERS BY VARIOUS METHODS , COLLECTED THE MATERIALS FOR SALE TO THE ASSESSEE ARE TO BE PAID IN CASH INSOFAR AS THE DECISION OF HONBLE KE RALA HIGH COURT IN THE CASE OF CIT V. INTERSEAS (233 CTR 77) DIRECTLY COVERS FACTS OF THE ASSESSEES CASE THAT THE INGREDIENTS ARE TO BE ALLOWED FOR PURCHASE IN CASH UNDER RULE 6DDJ(F)(III). IN VIEW OF THE ABOVE, THE DISALLOWANCE U/S.40(A)(IA) AND SECTION 40A(3) CANNOT BE PARTLY SUSTAINED FOR DISALLOWANCE AS HELD BY THE LEARNED CIT(A) ARE DIRECTED TO BE DELETED ENTIRELY. INTEREST AND SALARY TO PARTNERS ALLOWED BY THE LEARNED CIT(A) IN ASSESSMENT YEAR 2006 - 07 ARE CONSIDERED ALLOWABLE ALSO IN THE ASSESSMENT Y EAR 2008 - 09 AS PER THE FACTS BROUGHT ON RECORD AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME ACCORDINGLY. AS THE CONFIRMATION OF ADDITION OF 42 LAKHS BY THE LEARNED CIT(A)HAS NOT BEEN RAISED BEFORE US BY WAY OF A SPECIFIC GROUND ON THE BELIEF THAT THE AO AFTER GIVING APPEAL EFFECT WOULD BE OBLIGED TO GIVE CORRESPONDING EFFECT IN THE NEXT YEAR AS SUBMITTED BEFORE THE LEARNED CIT(A), WE DO NOT N EED TO FURTHER ADJUDICATE THEREON. ITA NO.101 & 102/CTK/2012 & C.O.NOS.11 AND 12/CTK/2012 ITA NOS.143 & 144/CTK/2012 16 8. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED AND THE APPEALS FILED BY THE DEPARTMENT ARE DISMISSED. THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISPOSED OF ACCORDINGLY. S D/ - S D/ - ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( ) DATE: 14.08.2012 - COPY OF THE ORDER FORWARDED TO: 1 . THE ASSESSEE : M/S.PASUPATI FEEDS, AT:TANGI,KOTSAHI, CUTTACK. 2 THE DEPARTMENT : ACIT,CIRCLE 2(1), CUTTACK. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 08.08.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 09/13.08.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.08.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER .. ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.