DCIT (TDS), Chandigarh V. M/s The Manager Distt. Office, Chandigarh

ITA 1334/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5015 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2014-2015
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI SARANGA L
• Assessee Lawyers: MANINDER ARORA
• Keywords: Period of limitation; Time period of passing order; Condonation of delay
• Section: 194C; 201(1); 32; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 1333/CHD/2016 ASSESSMENT YEAR: 2013-14 THE DCIT(TDS), VS. THE MANAGER, CHANDIGARH FOOD CORPORATION OF INDIA, CHANDIGAR H TAN NO. PTLF10163G & ITA NO. 1334/CHD/2016 ASSESSMENT YEAR: 2014-15 THE DCIT(TDS), VS. THE MANAGER, CHANDIGARH FOOD CORPORATION OF INDIA, CHANDIGAR H TAN NO. PTLF10163G APPELLANT BY : SH. RAVI SARANGAL RESPONDENT BY : SH. MANINDER ARORA (APPELLANT) (RESPONDENT) DATE OF HEARING : 10.07.2017 DATE OF PRONOUNCEMENT : 13.07.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEALS HAVE BEEN PREFERRED BY THE REVE NUE AGAINST THE SEPARATE ORDERS OF COMMISSIONER OF INCOME TAX (A), [HEREINAFTER REFERRED TO AS CIT(A)], CHANDIGARH DATED 01.09.2016 AND 23 .09.2016 RESPECTIVELY. THE APPEALS ARE BARRED BY LIMITATION PERIOD OF 3 DA YS. AN APPLICATION FOR CONDONATION OF DELAY HAS BEEN MOVED BY THE DEPARTME NT. IN VIEW OF THE 2 SUBMISSIONS MADE IN THE APPLICATION AND CONSIDERING THE SHORTNESS OF THE DELAY PERIOD, THE DELAY IN FILING THE APPEALS IS CO NDONED. 2. SINCE THE GROUNDS RAISED AND ISSUES INVOLVED IN BOTH THE APPEALS ARE IDENTICAL, THE SAME WERE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. WE SHALL BE TAKING ITA NO. 1333/CHD/2016 AS THE LEAD CASE FOR DISPOSING OF BOT H THE APPEALS TOGETHER. THE GROUNDS RAISED IN THIS APPEAL ARE AS UNDER:- (I) IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS ERRED IN DELETING THE DEMAND IGNORING THAT THE PROVISIONS OF SECTION 194C ARE SQUARELY APPLICABLE ON THE WORK CARRIED OUT BY THE MILLERS. (II) IN THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) IS ERRED IN DELETING THE DEMAND CREATED ON ACCOUNT OF NON / SHORT DEDUCTION OF TAX U/S 201(I) / 201(1A) OF TH E INCOME- TAX ACT, 1961 IGNORING THE FACT THAT THE ASSESSEE D EDUCTOR APPLIED PROVISIONS OF SECTION 194C ON THE CASH PART OF THE PAYMENTS BUT NOT ON THE PAYMENTS WHICH WERE PAID IN KIND AND THUS NOT DEDUCTED TDS ON WHOLE PAYMENT. (III) IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS ERRED IN LINKING THE JUDGMENT OF HON'BLE ITAT, B ENCH A, NEW DELHI IN THE CASE OF M/S AHAAR CONSUMER PRODUCTS PVT. LTD. WITH THE FACTS OF THE PRESENT CA SE AS IN THE CASE OF M/S AHAAR CONSUMER PRODUCTS PVT. LTD, T HERE DID NOT INVOLVE ANY PAYMENT OF CONSIDERATION FOR TH E SERVICES RENDERED WHEREAS IN THE PRESENT CASE EXECU TION OF WORK UPON SUPPLIED MATERIAL IS IN LIEU OF PAYMENTS ON WHICH TDS HAS ALSO BEEN DEDUCTED BY THE ASSESSEE. 3. BOTH THE LD. REPRESENTATIVES OF THE PARTIES HA VE SUBMITTED THAT THE FACTS AND THE ISSUES RAISED IN THESE APPEALS ARE SQ UARELY COVERED BY THE 3 DECISION OF THE COORDINATE ITAT CHANDIGARH BENCH O F THE TRIBUNAL IN THE CASE OF ACIT(TDS) VS. PUNJAB STATE GRAIN PROCUREMEN T CORPORATION LTD, BARNALA IN ITA NOS. 69, 70 & 71/CHD/2016, DECIDED VIDE COMMON ORDER DATED 11.8.2016 WHEREIN THE TRIBUNAL WHILE RELYING UPON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF AAHA R CONSUMER PRODUCTS PVT LTD IN ITA NO. 2910/DELHI/2010 DATED 28.2.2011 HAS HELD THAT THE PROVISIONS OF SECTION 194C AS WELL AS SECTION 201(1 ) / 201(1A) OF THE INCOME-TAX ACT, 1961 ARE NOT APPLICABLE TO THE FA CTS AND CIRCUMSTANCES OF THE CASE. THE RELEVANT PART OF THE ORDER OF THE TRI BUNAL FOR THE PURPOSE OF REFERENCE IS REPRODUCED HEREWITH:- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. DR HAS FAIRLY ADMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL DATED 28.02.2011 PASSED IN IT A NO. 2910/DEL/2010 & ANOTHER WHEREIN THE TRIBUNAL AFTER CONSIDERING TH E RIVAL SUBMISSIONS AND DISCUSSING THE ISSUE IN DETAIL HAS OBSERVED THA T IN CASE WHERE THE ASSESSEE WAS INTO THE BUSINESS OF TRADING OF WHEAT, ATTA AND OTHER FOOD GRAINS AND THE ASSESSING OFFICER HAD FOUND THAT THE Y USED TO PURCHASE WHEAT FROM OPEN MARKET AND DELIVER IT TO M/S AAHAR INTERNATIONAL LTD (AIL) FOR MAKING BY-PRODUCT SUCH AS ATTA, DALIA ET C., THE ASSESSEE WAS REQUIRED TO PROVIDE THE RAW MATERIAL (WHEAT) AND PA CKAGING MATERIAL AND IN RETURN M/S AAHAR INTERNATIONAL PVT. LTD. WOULD G IVE 85% DALIA OR 88% ATTA BY WEIGHT OF THE WHEAT SUPPLIED BY THE ASSESSE E. THE WASTE OR THE REMAINING QUANTITY OF WHEAT / RESIDUALS, IF ANY, SH ALL BE KEPT BY AIL AS A CONSIDERATION FOR THE SERVICES RENDERED. THE DELH I BENCH OF THE TRIBUNAL WHILE RELYING UPON VARIOUS CASE LAWS HELD THAT NO T DS WAS LIABLE TO BE DEDUCTED IN RESPECT OF THE VALUE OF THE BY-PRODUCTS RETAINED BY THE MILLER. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PART OF T HE ORDER OF THE TRIBUNAL IS AS UNDER:-- 8. THERE IS NO DISPUTE THAT THE PARTIES, APART FRO M ENTERING INTO AGREEMENT HAVE ALSO ACTED UPON THE AGREEMENT A ND THE TRANSACTIONS APPEAR TO BE STRICTLY FALLING WITHIN T HE AGREEMENT THAT IS ENTERED INTO BY THE PARTIES. THAT IS TO SAY, THIS AGREEMENT, ALTHOUGH BETWEEN THE TWO RELATED CO NCERNS, 4 IS ENTERED IN THE ITA NO.2310/DEL/2010 & OTHRS 14 C OURSE OF BUSINESS AND IS ACTED UPON BY BOTH THE SIDES. THERE FORE, ONE CANNOT IGNORE THE TERMS OF THIS AGREEMENT IN DETERM INING THE NATURE OF THE TRANSACTION THAT HAVE TAKEN PLACE BET WEEN THE PARTIES, AS THERE IS NOTHING IN THE IMPUGNED ORDERS TO DOUBT THE GENUINENESS OF THIS AGREEMENT. 8.1 NOW, IT IS FOR THE REVENUE TO UNDERSTAND THIS A GREEMENT AND DETERMINE THE NATURE OF THE ASSESSEES TAX LIAB ILITY ARISING FROM THE TRANSACTION ENTERED INTO THROUGH T HIS AGREEMENT. IN FACT, IT IS STATED THAT THE ASSESSEE HAS GIVEN THE WHEAT UNDER A DELIVERY CHALLAN-CUM-INVOICE AND THE VALUE IS PROVIDED ONLY FOR SETTLEMENT OF CLAIMS. ON THE B ASIS OF THE QUANTITY OF THE WHEAT SUPPLIED BY THE ASSESSEE TO A IL, THE ASSESSEE HAS COLLECTED THE END PRODUCTS NAMELY ATTA OR DALIA AND IS NOT BOTHERED ABOUT THE OTHER PRODUCTS AND WA STAGE ARISING THEREFROM. IN OTHER WORDS, UNDER THE TERMS OF AGREEMENT, BY-PRODUCTS, WASTE AND THE RESIDUAL OF T HE WHEAT AFTER MANUFACTURE BELONG TO AIL AND NOT TO THE ASSE SSEE. NOWHERE IN THE BOOKS OF THE ASSESSEE, THE ASSESSEE HAS MADE ANY PAYMENT TOWARDS THE SERVICES RENDERED BY AIL IN PRODUCING THE ATTA AND DALIA FOR AND ON BEHALF OF T HE ASSESSEE IN THE PACKETS AND CONTAINERS PROVIDED BY THE ASSESSEE IN TERMS OF THE AGREEMENT. 9. THE AO HAS INVOKED THE PROVISIONS OF SECTION 194 C AND WAS OF THE OPINION THAT EVEN UNDER THE TERMS OF THE AGR EEMENT, THE ASSESSEE IS UNDER AN OBLIGATION TO DEDUCT TAX A T SOURCE ON THIS JOB WORK. ACCORDING TO HIM, THE ITA NO.2310 /DEL/2010 & OTHERS 15 PAYMENTS CONTEMPLATED IN SECTION 194C C AN ALSO BE MADE IN KIND AND THE ASSESSEE IS UNDER AN OBLIGA TION TO DEDUCT TAX AT SOURCE AND SUCH TAXES HAVE NOT BEEN D EDUCTED. THE SO-CALLED PAYMENT, CONSTRUCTIVELY DETERMINED, A TTRACT THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT. 10. THE ASSESSEE RELIED UPON THE AGREEMENTS AND ARG UED THAT THE ASSESSEE HAS NOT PAID ANY SUM FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOR IN PURSUANCE OF A CONTRAC T AND THE ASSESSEE IS NOT OBLIGED TO MAKE ANY PAYMENT NOR THE ASSESSEE HAS CREDITED ANY AMOUNT IN THE ACCOUNT OF THE CONTRACTOR AS PAYABLE WHICH REQUIRES THE ASSESSEE T O DEDUCT TAX AND, THEREFORE, THE APPLICATION OF THE PROVISIO NS OF SECTION 194C AS WELL AS THE PROVISIONS OF SECTION 4 0(A)(IA) OF THE ACT IS NOT JUSTIFIED. ALL THE CONTENTIONS THAT WERE TAKEN 5 BEFORE THE TWO REVENUE AUTHORITIES ARE REITERATED B EFORE US INCLUDING THE CASE LAWS. 11. LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTED T HE FINDINGS OF THE AO AND TO THE EXTENT THE ADDITION I S SUSTAINED BY THE CIT(A) TO THE FINDINGS CONTAINED THEREIN. TH E PROVISIONS OF SECTION 194C WHICH OBLIGES THE DEDUCT ION OF TAX AT SOURCE RELEVANT TO THE AY 2006-07 ARE REPRODUCED BELOW:- [PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS. 194C.[(1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREINAFTER IN THIS SECTION REFERRED TO A S THE CONTRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SU PPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND (A) THE CENTRAL GOVERNMENT OR ANY STATE GOVERNMENT; OR (B) ANY LOCAL AUTHORITY; OR (C) ANY CORPORATION ESTABLISHED BY OR UNDER A CENT RAL, STATE OR PROVINCIAL ACT; OR (D) ANY COMPANY; OR (E) ANY CO-OPERATIVE SOCIETY; OR (F) ANY AUTHORITY, CONSTITUTED IN INDIA BY OR UNDER ANY LAW, ENGAGED EITHER FOR THE PURPOSE OF DEALING WITH AND SATISFYING THE NEED FOR HOUSING ACCOMMODATION OR FOR THE PURPO SE OF PLANNING, DEVELOPMENT OR IMPROVEMENT OF CITIES, TOW NS AND VILLAGES, OR FOR BOTH; OR G) ANY SOCIETY REGISTERED UNDER THE SOCIETIES REGIS TRATION ACT, 1860 (21 OF 1860) OR UNDER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF INDIA; OR (H) ANY TRUST; OR (I) ANY UNIVERSITY ESTABLISHED OR INCORPORATED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT AND AN INSTITUTION DECLARED TO BE A UNIVERSITY UNDER SECTION 3 OF THE UNIVERSITY G RANTS COMMISSION ACT, 1956 (3 OF 1956) ; OR (J) ANY FIRM; OR (K) ANY INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO SE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LI MITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE A CCOUNT OF THE CONTRACTOR, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CAS H OR BY 6 ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WH ICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO (I)ONE PER CENT, IN CASE OF ADVERTISING, (II) IN ANY OTHER CASE TWO PER CENT, OF SUCH SUM A S INCOME- TAX ON INCOME COMPRISED THEREIN: PROVIDED THAT NO INDIVIDUAL OR A HINDU UNDIVIDED FAMILY SHA LL BE LIABLE TO DEDUCT INCOME-TAX ON THE SUM CREDITED OR PAID TO THE ACCOUNT OF THE CONTRACTOR WHERE SUCH SUM IS CRE DITED OR PAID EXCLUSIVELY FOR PERSONAL PURPOSES OF SUCH INDI VIDUAL OR ANY MEMBER OF HINDU UNDIVIDED FAMILY.] (2) ANY PERSON (BEING A CONTRACTOR AND NOT BEING A N INDIVIDUAL OR A HINDU UNDIVIDED FAMILY) RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE SUB-CONTRACTOR) IN PURSUANCE OF A CONTRACT W ITH THE SUB-CONTRACTOR FOR CARRYING OUT, OR FOR THE SUPPLY OF LABOUR FOR CARRYING OUT, THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR OR FOR SUPPLYING WHETH ER WHOLLY OR PARTLY ANY LABOUR WHICH THE CONTRACTOR HAS UNDE RTAKEN TO SUPPLY SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE SUB-CONTRACTOR OR AT THE TIME OF PAYMENT THE REOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTH ER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO ONE PER CENT OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THERE IN: [PROVIDED THAT AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE A CCOUNT OF THE SUB-CONTRACTOR, SHALL BE LIABLE TO DEDUCT INCOM E-TAX UNDER THIS SUBSECTION.] [EXPLANATION I.FOR THE PURPOSES OF SUB-SECTION (2 ), THE EXPRESSION CONTRACTOR SHALL ALSO INCLUDE A CONTRA CTOR WHO IS CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR F OR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN TH E CONTRACTOR AND THE GOVERNMENT OF A FOREIGN STATE OR A FOREIGN ENTERPRISE OR ANY ASSOCIATION OR BODY ESTAB LISHED OUTSIDE INDIA.] [EXPLANATION II].FOR THE PURPOSES OF THIS SECTION , WHERE ANY SUM REFERRED TO IN SUB-SECTION (1) OR SUB-SECTION ( 2) IS CREDITED TO ANY ACCOUNT, WHETHER CALLED SUSPENSE A CCOUNT OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF TH E PERSON 7 LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYE E AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. ] [EXPLANATION III.FOR THE PURPOSES OF THIS SECTION, THE EXPRESSION WORK SHALL ALSO INCLUDE (A) ADVERTISING; (B) BROADCASTING AND TELECASTING INCLUDING PRODUCTI ON OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; (C) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS; (D) CATERING.] (3) NO DEDUCTION SHALL BE MADE UNDER SUB-SECTION (1 ) OR SUB- SECTION (2) FROM [(I) THE AMOUNT OF ANY SUM CREDITED OR PAID OR LIKE LY TO BE CREDITED OR PAID TO THE ACCOUNT OF, OR TO, THE CONT RACTOR OR SUB-CONTRACTOR, IF SUCH SUM DOES NOT EXCEED TWENTY THOUSAND RUPEES: PROVIDED THAT WHERE THE AGGREGATE OF THE AMOUNTS OF SUCH SUMS CREDITED OR PAID OR LIKELY TO BE CREDITED OR P AID DURING THE FINANCIAL YEAR EXCEEDS FIFTY THOUSAND RUPEES, T HE PERSON RESPONSIBLE FOR PAYING SUCH SUMS REFERRED TO IN SUB -SECTION (1) OR, AS THE CASE MAY BE, SUB-SECTION (2) SHALL B E LIABLE TO DEDUCT INCOME-TAX [UNDER THIS SECTION:] [PROVIDED FURTHER THAT NO DEDUCTION SHALL BE MADE UNDER SUB- SECTION (2), FROM THE AMOUNT OF ANY SUM CREDIT ED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE PREVIOU S YEAR TO THE ACCOUNT OF THE SUB-CONTRACTOR DURING THE COURSE OF BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAG ES, ON PRODUCTION OF A DECLARATION TO THE PERSON CONCERNED PAYING OR CREDITING SUCH SUM, IN THE PRESCRIBED FORM AND V ERIFIED IN THE PRESCRIBED MANNER AND WITHIN SUCH TIME AS MAY B E PRESCRIBED, IF SUCH SUB-CONTRACTOR IS AN INDIVIDUAL WHO HAS NOT OWNED MORE THAN TWO GOODS CARRIAGES AT ANY TIME DURING THE PREVIOUS YEAR: PROVIDED ALSO THAT THE PERSON RESPONSIBLE FOR PAYING ANY SUM AS AFORESAID TO THE SUB-CONTRACTOR REFERRED TO IN THE SECOND PROVISO SHALL FURNISH TO THE PRESCRIBED INCO ME-TAX AUTHORITY OR THE PERSON AUTHORISED BY IT SUCH PARTI CULARS AS MAY BE PRESCRIBED IN SUCH FORM AND WITHIN SUCH TIME AS MAY BE PRESCRIBED; OR] (II) ANY SUM CREDITED OR PAID BEFORE THE 1ST DAY O F JUNE, 1972; [OR] [(III) ANY SUM CREDITED OR PAID BEFORE THE 1ST DAY OF JUNE, 1973, IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRA CTOR AND 8 A CO-OPERATIVE SOCIETY OR IN PURSUANCE OF A CONTRAC T BETWEEN SUCH CONTRACTOR AND THE SUBCONTRACTOR IN RELATION T O ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK) UNDERTAKEN BY THE CONTRACTOR FOR THE CO-OPERATIVE S OCIETY.] [EXPLANATION.FOR THE PURPOSES OF CLAUSE (I), GOOD S CARRIAGE SHALL HAVE THE SAME MEANING AS IN THE EXP LANATION TO SUB-SECTION (7) OF SECTION 44AE.] (4) [***] (5) [***]] 12. NOW, WE HAVE TO EXAMINE WHETHER THE ASSESSEE IS OBLIGED TO DEDUCT TAX AT SOURCE ON THE SO-CALLED CONSTRUCTI VE PAYMENT AS CONSTRUED BY THE AO IN TERMS OF THE AGREEMENT. T HE ASSESSEE, IN THIS CASE, SUPPLIES 100 KG OF WHEAT AN D TAKES BACK 88 KGS OF ATTA OR 85 KGS OF DALIA AFTER ITS PR OCESSING DONE BY THE AIL AND AIL IS REQUIRED TO DELIVER THE END PRODUCT IN THIS PROPORTION TO THE ASSESSEE WHO HAS SUPPLIED THE RAW MATERIAL. DOES THE PROVISION OF SECTION 194C OF THE ACT CREATE AN OBLIGATION ON THE PART OF ASSESSEE TO DEDUCT TAX AT SOURCE IN RESPECT OF ANY OF THE TRANSACTIONS IT HAS ENTERE D INTO WITH THE AIL? SECTION 194C OF THE ACT WAS BROUGHT INTO S TATUTE BY THE FINANCE ACT, 1972. CIRCULAR NO. 86 DATED MAY 29 , 1972 WAS ISSUED INTER ALIA STATING THAT THE PROVISIONS O F SECTION 194C WOULD APPLY ONLY IN RELATION TO LABOUR CONTACT S AND WOULD NOT COVER CONTRACTS FOR SALE OF GOODS. IF A MANUFACTURER PURCHASES MATERIAL ON HIS OWN AND MANUFACTURES A PRODUCT AS PER THE REQUIREMENT OF A SPECIFIC CUSTOMER, IT WAS A CASE OF SALE AND NOT A CONTRACT FOR CARRYING OUT ANY WORK. THE FACT THAT THE GOODS MANU FACTURED WERE ACCORDING TO THE REQUIREMENT OF THE CUSTOMER D ID NOT MEAN OR IMPLY THAT ANY WORK WAS CARRIED OUT ON BEHA LF OF THAT CUSTOMER. IN CASE OF ANY ISSUE WHERE THE CONTR ACT IS A CONTRACT OF SALE AND NOT A CONTRACT FOR CARRYING OU T ANY WORK, THE MATTER SHOULD BE DECIDED IN THE LIGHT OF THE PR INCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE AIR 1 972 SC 1148. THE BOMBAY HIGH COURT HAS ALSO ANALYZED THE DIFFERENCE BETWEEN THE SALE AND WORKS CONTRACT IN T HE CASE OF BDA LTD. VS ITO(TDS) 281 ITR 99. THE ASSESSEE IN TH AT CASE HAD A DISTILLERY AT AURANGABAD AND PURCHASED MATERI ALS REQUIRED FOR BOTTLING AND MARKETING FOREIGN MADE IN DIAN LIQUOR, INCLUDING THE PRINTING AND PACKING MATERIAL . M, ANOTHER ESTABLISHMENT SUPPLIED THE PRINTED LABELS T O BE WRAPPED ON THE BOTTLES TO THE ASSESSEE. THE ITO(TDS ) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE THAT THE TRA NSACTION WITH M WAS A CONTRACT FOR SALE AND NOT A WORKS CO NTRACT. WHEN THE PRINTING WORK WAS BEING CARRIED OUT IN THE PREMISES 9 OF M, THOUGH AS PER THE SPECIFICATIONS OF THE AS SESSEE, THE SUPPLY WAS LIMITED TO THE QUANTITY SPECIFIED IN THE PURCHASE ORDER. THERE WAS NOTHING ON RECORD TO SHOW THAT, AL L OTHER ANCILLARY COSTS LIKE THE LABELS, INK, PAPERS, SCREE N-PRINTING SCREENS, ETC. WERE BEING SUPPLIED BY THE ASSESSEE T O M. IN THE FACTS OF THIS CASE, THE SUPPLY OF PRINTED LABEL S BY M TO THE ASSESSEE WAS CONTRACT OF SALE AND IT COULD NO T BE TERMED A WORKS CONTRACT. HENCE THE PROVISIONS OF SECTION 194C WERE HELD TO BE NOT APPLICABLE. 13. THE HIGH COURT WHILE DECIDING THIS CASE HAS REV IEWED A NUMBER OF CASES AND DECIDED THAT THE SALE OF CONTRA CT DOES NOT CONVERT A CONTRACT OF SALE INTO A WORKS CONTRAC T ALTHOUGH WE AGREE THAT THESE CASES BY THEMSELVES MAY NOT BE ABLE TO THROW ANY LIGHT ON THE PRESENT CONTRACT ENTERED INT O BY THE ASSESSEE. HENCE, THE ASSESSEE IS SUPPLYING WHEAT AN D GETTING BACK ATTA OR DALIA AS THE CASE MAY BE, IN AN AGREED PROPORTION. FOR SUCH EXCHANGE, THERE IS ABSOLUTELY NO PAYMENT OF ANY CONSIDERATION. EVEN IF ONE WERE TO T REAT IT AS A WORK CONTRACT AND NOT A CONTRACT OF SALE, IT IS D IFFICULT TO SAY THAT THERE IS A PAYMENT AS A CONSIDERATION FOR THE LABOUR OR THE WORK THAT IS RENDERED. THE ASSESSEE IS JUST EXCHANGING THE PRODUCT; IN THE EXCHANGE HE IS NOT GETTING THE SAME PRODUCT BUT A DIFFERENT PRODUCT AND NOT TO THE SAME EXTENT BUT TO A DIFFERENT EXTENT. IN OTHER WORDS, IT IS DI FFICULT TO SAY THAT THE ASSESSEE HAS MADE ANY PAYMENT IN UNDERTAKI NG THIS CONTRACT ON THE BASIS OF THE AGREEMENT THAT IS ACTE D UPON BY THE PARTIES. THERE IS NO PAYMENT OF ANY SUM BY THE ASSESSEE TO AIL. EVEN IF ONE WERE TO SAY THAT THERE IS A CON STRUCTIVE PAYMENT, IT IS DIFFICULT TO QUANTIFY THE SAME AND S AY THAT THE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT TAX AT S OURCE AT SUCH CONSTRUED PAYMENTS. THE ASSESSEE HAS NOT EVEN CREDITED SUCH CONSTRUED CONSIDERATION FOR SUPPLY OF LABOUR I N THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IN FACT, IT HAS NOT EVEN CLAIMED ANY EXPENDITURE AS DEDUCTION. TO SAY THAT S UCH EXPENDITURE HAS RESULTED IN AN OUTFLOW WITHOUT DEDU CTION OF TAX AT SOURCE IS TOO MUCH AND IS NOT BORNE OUT FROM THE TRANSACTION ENTERED INTO BETWEEN THE PARTIES. THE Q UESTION OF DISALLOWANCE BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA), IN OUR OPINION, IS NOT IN ACCORDANCE WITH LAW AS TH E ASSESSEE IS UNDER NO OBLIGATION TO DEDUCT THE TAX AT SOURCE IN TERMS OF A CONTRACT WHERE IT DOES NOT REQUIRE ANY PAYMENT OF ANY SUM EVEN IF THE SUM HERE MEANS THAT THE PAYMENT COULD B E OF SOME KIND BUT IT IS DIFFICULT TO SAY THAT THE ASSES SEE HAS MADE THESE PAYMENTS TO THE EXTENT OF SHORTFALL IN GETTIN G THE WHEAT SUPPLIED BACK AND CONSTRUE IT AS THE PAYMENT TO THE 10 OTHER FOR PROCESSING THE WHEAT INTO ATTA OR DALIYA. THE DEPARTMENT MUST HAVE APPRECIATED THE CONTRACT AS A WHOLE WHICH DOES NOT INVOLVE ANY PAYMENT OR GETTING THE P AYMENT FOR SERVICES RENDERED. IT IS A CASE OF BARTER OR EX CHANGE OR ONE GOOD AGAINST THE OTHER. IT IS A TYPE OF SALE CO NTRACT IN A VERY CRUDE FORM BUT IT IS CERTAINLY NOT A WORKS CO NTRACT AS UNDERSTOOD BY THE COURTS IN CASES UNDER THE SALES T AX WHICH WAS DISCUSSED BY THE HONBLE SUPREME COURT IN THE C ASE CITED IN AIR 1972 SC 1148 OR IN THE CASE DEALT WITH BY TH E BOMBAY HIGH COURT IN THE CASE OF BDA LTD. (SUPRA). THE ASS ESSEE HAVING REGARD TO THE CONTRACT WHICH IT HAS ENTERED ON 2.2.2005, IN OUR OPINION, DOES NOT GIVE RISE TO ANY OBLIGATION FOR IT TO DEDUCT TAX AT SOURCE AS IN OUR OPINION IT IS NOT SIMPLY A WORKS CONTRACT EXECUTED FOR CONSIDERATION IN THE FORM OF SOME PAYMENT FOR WHICH DEDUCTION HAS BEEN CLAIMED U NDER THE ACT. THE ASSESSEE HAS NOWHERE CLAIMED THE PAYME NT AS DEDUCTION. ONLY PURCHASE PRICE OF WHEAT IS WHAT IT HAD PAID ON WHICH NO DEDUCTION OF TAX IS REQUIRED AND THAT G OT LOST IN EXCHANGE FOR OBTAINING A FINISHED PRODUCT IN THE FO RM OF ATTA OR DALIA, NOT INVOLVING THE MEDIUM OF PAYMENT. IT I S A CONTRACT OF BUSINESS WHICH DOES NOT INVOLVE ANY PAY MENT OF CONSIDERATION FOR THE SERVICES RENDERED. WE MUST EX AMINE THE ISSUE FROM ANOTHER ANGLE. HAD THE ASSESSEE OWNE D THE PLANT AND GOT THE ATTA AND DALIA MANUFACTURED FROM WHEAT, IT COULD HAVE CLAIMED A PROCESS LOSS AND THAT COULD HAVE BEEN IMPLIEDLY A PART OF BUSINESS TRANSACTION AND NO QUE STION OF ANY DISALLOWANCE OF SUCH LOSS COULD POSSIBLY HAVE A RISEN. MERELY BECAUSE THE ASSESSEE HAS GOT IT ROUTED THROU GH ANOTHER CONCERN ON A SORT OF OUTSOURCING BASIS, IT DOES NOT RESULT IN AN OUTFLOW. IT IS JUST AN EXCHANGE AND BA RTER OF ONE COMMODITY AGAINST THE OTHER AND THE WHOLE CONTRACT CANNOT BE TERMED AS WORKS CONTRACT IN THE STRICT SENSE OF THE TERM WHICH IS GENERALLY UNDERSTOOD UNDER THE PROVISIONS OF SECTION 194C. IN OUR OPINION, THE AO WENT WRONG IN PRESUMIN G THAT THE DIFFERENCE IN THE WHEAT SUPPLY AND THE ATTA OR DALIA GOT IN RETURN REPRESENTS SUM PAID FOR SERVICES RENDERED AND PAYMENTS FOR SUCH SERVICES ARE CLAIMED AS DEDUCTION FROM THE PROFIT AND GAINS OF BUSINESS U/S 32 TO SECTION 38. ONLY WHEN THE CLAIM OF THE ASSESSEE FOR DEDUCTION IS U/S 32 T O SECTION 38, THE PROVISIONS OF SECTION 40(A)(IA) CAN BE PRES SED INTO SERVICE TO DISALLOW SUCH CLAIMS FOR DEDUCTION. AT T HE COST OF REPETITION, WE MAY SAY THAT TO INVOKE SAID PROVISIO N OF SECTION 40(A)(IA), FIRST OF ALL, THE CASE SHOULD BE MADE OUT BY THE DEPARTMENT THAT THE ASSESSEE IS CONTEMPLATING D EDUCTION U/S 32 TO 38 ON WHICH TAX IS DEDUCTIBLE AND THE ASS ESSEE HAS NOT DEDUCTED TAX AT SOURCE. IN OUR OPINION, TAX IS NOT 11 DEDUCTIBLE AND THE ASSESSEE HAS NOT CLAIMED ANY DED UCTION U/S 32 TO SECTION 38. THIS LOSS, IF ANY, IS IN THE NET PROFIT IN THE TRADING ACCOUNT WHICH IS A COMPUTATION U/S 28 A ND 29 AND NOT CLAIMS U/S 32 TO 38 OF THE INCOME TAX ACT. EVEN TAKING THIS VIEW OF THE MATTER, IN OUR OPINION, THE ASSESSEE IS ENTITLED TO SUCCEED AND THERE IS NO QUESTION OF DED UCTION OF TAX AT SOURCE AND CONSEQUENTLY NO QUESTION OF MAKIN G ANY DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 14. WE MUST ALSO VIEW THE WHOLE TRANSACTION UNDER THE AGREEMENT FROM A DIFFERENT ANGLE. THE ASSESSEE GIVE S THE WHEAT AND ACCEPTS ATTA AND DALIA IN RETURN BY WEIGH T TO WEIGHT BASIS AND WHAT HE GOT IN RETURN ARE THE VALU E ADDED PRODUCTS OF LOWER QUANTITY. THE ASSESSEE BY THIS ME THOD HAS PREVENTED ITSELF FROM FACTORS LIKE FALL IN THE PRIC ES OF EITHER RAW MATERIAL OR OF THE FINISHED PRODUCTS. THE MARKE T VALUE OF THE WHEAT AND THE END PRODUCTS ARE TOTALLY DIFFEREN T AND FLUCTUATE IN DIFFERENT DIRECTIONS. ALL THESE FLUCTU ATIONS ARE WARDED OFF BY THE PRESENT AGREEMENT, WHICH IS JUST EXCHANGE OF GOODS FOR GOODS AND DOES NOT INVOLVE ANY CASH OU TFLOW. ALTHOUGH SERVICES WERE TAKEN, IT IS DIFFICULT TO SA Y THAT THE RESIDUALS AND THE LOSSES LEFT BY THE ASSESSEE IN FA VOUR OF AIL ARE PURELY CONSIDERATION FOR THE JOB THAT IS DONE. THE MARKET FLUCTUATIONS IN THE PRICE STRUCTURE OF THE RAW MATE RIAL AND THE END PRODUCT CANNOT BE JUST IGNORED IN THE WHOLE TRANSACTION NOR THE PROCESS LOSS. THE PROCESS LOSS COULD BE EITHER MORE OR LESS THAN THE PERCENTAGE AGREED TO B ETWEEN THE PARTIES. BUT STILL THE PARTIES SETTLE THE TRANS ACTIONS AT AN AGREED PROPORTION. IN OTHER WORDS, THE RESIDUAL THA T IS LEFT BY THE ASSESSEE, APART FROM COVERING THE LABOUR COST O F PROCESSING, ALSO INCLUDES THE PROTECTION FROM MARKE T FLUCTUATIONS AS ALSO PROTECTION FROM ADVERSE PROCES S LOSS. TO CONCLUDE, THE ENTIRE RESIDUAL IS ONLY FOR THE PURPO SE OF JOB WORK IS NOT FAIR AND CORRECT HAVING REGARD TO THE T OTALITY OF THE TRANSACTION ENTERED INTO BY THE PARTIES. 15. IN THE LIGHT OF THIS DISCUSSION, WE ALLOW THE ASSESSEES APPEAL AND DISMISS THE REVENUES APPEAL ON THIS ISS UE. 8. IN THE CASE IN HAND, WHATEVER AMOUNT THE ASSESSE E HAS PAID AS MILLING CHARGES FOR THE PADDY, THE ASSESSEE HAS D EDUCED THE TDS THEREUPON. HOWEVER, THE ASSESSEE WAS NOT OBLIGED T O MAKE ANY PAYMENT ON THE VALUE OF THE BY-PRODUCT RETAINED BY THE MILL ER, THEREFORE, IN THE 12 LIGHT OF THE DECISION OF THE DELHI BENCH OF THE TRI BUNAL IN AAHAR CONSUMER PRODUCTS PVT. LTD.(SUPRA), PROVISIONS OF SECTION 194C OF THE ACT AS WELL AS 201(1) / 201 (1A) OF THE INCOME-TAX ACT WOULD NOT BE APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CA SE. THE LD. CIT(A) THEREFORE, HAS RIGHTLY DELETED THE ADDITION IMPOSED BY THE AO ON ACCOUNT OF NON / SHORT DEDUCTION OF TAX US 201(1) / 201(1A ) OF THE ACT. WE, THEREFORE, CONFIRM THE ORDER OF LD. CIT(A). 10. IN THE RESULT, ALL THE THREE APPEALS OF THE REV ENUE ARE HEREBY DISMISSED. 4. A PERUSAL OF THE IMPUGNED ORDER OF THE CIT(A) AL SO REVEALS THAT THE LD. CIT(A) HAS ALSO FOLLOWED THE DECISION OF THE ITAT DELHI BENCH OF THE TRIBUNAL IN THE CASE OF AAHAR CONSUMER PRODUCTS PVT LTD (SUPRA). THERE BEING NO CONTRARY DECISION BROUGHT TO OUR KNO WLEDGE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE IN THE WELL REASONED ORDER OF CIT(A). THE ISSUE BEING CLEARLY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE, WE DO NOT FIND ANY MERIT IN THE APPEAL OF REVENUE. HENCE, BOTH THE APPEALS PREFERRED BY TH E REVENUE ARE HEREBY DISMISSED. 5. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.07.2017. SD/- SD/- (DR. B.R.R. KUMAR) (SANJAY GARG) ACCOUNTAN T MEMBER JUDICIAL MEMBER DATED : 13 TH JULY, 2017 RKK 13 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR