ITO, Jaipur V. M/S MAHESHWARI KILN COMPANY, Jaipur

ITA 15/JPR/2011

• Counselvise Citation: 1523114 RSA 2011
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 06-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Section: 133A; 194C; 145

Judgement Text

1 ITA 15(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 15/JP/2011. ASSTT. YEAR : 2008-09. THE INCOME-TAX OFFICER, VS. M/S. MAHESHWARI KILN COMPANY, WARD 6(1), C-75, VALMIKI MARG, HANUMAN JAIPUR. NAGAR, VAISHALI NAGAR, JAIPUR. (APPELLANT) (RESPONDENT) C.O. NO. 13/JP/2011 ( ARISING OUT OF ITA NO. 15/JP/2011 ) ASSTT. YEAR : 2008-09. M/S. MAHESHWARI KILN COMPANY VS. THE INCOME-TAX OF FICER, JAIPUR. WARD 6(1), JAIPUR. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : NONE ORDER DATE OF ORDER : 28/07/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AND CROSS OBJECTIO N BY ASSESSEE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2008-09. 2. THE DEPARTMENT IN ITS APPEAL THROUGH GROUND NO. 1 IS OBJECTING IN DELETING THE ADDITION OF RS. 38,51,265/- MADE BY THE AO UNDER SE CTION 40(A)(IA) ON ACCOUNT OF DISALLOWANCE FOR NOT MAKING TDS ON PAYMENTS MADE FO R MANUFACTURING OF BRICKS HOLDING THAT THERE WAS NO CONTRACT BETWEEN THE PAYER I.E. A SSESSEE AND PAYEE. THE DEPARTMENT IS 2 FURTHER OBJECTING THAT SINCE THE PAYMENT WERE LESS THEN RS. 20,000/- ON EACH OCCASION PROVISIONS OF SECTION 194C WERE NOT APPLICABLE SO T HE DISALLOWANCE UNDER SECTION 40(A)(IA) WAS NOT WARRANTED WITHOUT APPRECIATING TH AT THE TOTAL PAYMENTS MADE DURING THE YEAR TO EACH SAID PAYEE WAS EXCEEDING RS. 50,000/-, AND A FURTHER GROUND HAS BEEN TAKEN BY THE DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) IN HOLDING THAT PROVISIONS LAID DOWN UNDER SECTION 40(A)(IA) ARE APPLICABLE ONLY FOR THE AMOUNT WHICH REMAINS PAYABLE AT THE END OF THE PERIOD. SINCE THE SAID AMOUNT HAS ALREA DY BEEN PAID AND NO AMOUNT WAS PAYABLE AND, THEREFORE, SECTION 40(A)(IA) WAS NOT A PPLICABLE WITHOUT APPRECIATING THAT THIS WAS NOT THE INTENTION OF LEGISLATURE AND THE PAYABL E INCLUDES PAID ALSO. 3. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICE D THAT THE ASSESSEE HAS PAID BHARAI EXPENSES, JALAI EXPENSES, NIKASI EXPENSES, T HAPAI EXPENSES ON THE BASIS OF AGREED RATES AND NUMBER OF BRICKS PROCESSED BY THEM. THE AO WAS OF THE OPINION THAT THE ASSESSEE WAS LIABLE TO DEDUCT TDS UNDER SECTION 194 C OF THE ACT AS PAYMENTS WERE MADE IN PURSUANCE OF A CONTRACT. ACCORDINGLY, THE AO CO NCLUDED THAT PROVISIONS OF SECTION 194C WERE APPLICABLE IN CASE OF ORAL CONTRACT ALSO. THE AO FURTHER HELD THAT ASSESSEE HAD CHOSEN TO CARRY THE WORK THROUGH SOME PERSONS AND, THEREFORE, IT SHOULD HAVE DEDUCTED TAX AT SOURCE. ACCORDINGLY, THE AO MADE AN ADDITIO N OF RS. 38,51,265/- SINCE THE ASSESSEE HAD FAILED TO DEDUCT TDS UNDER SECTION 194 C OF THE ACT. 4. IT WAS ARGUED BEFORE LD. CIT (APPEALS) THAT ASSE SSEE ENGAGED IN MANUFACTURING ACTIVITY FOR CARRYING OUT PRODUCTION OF BRICKS IN W HICH DIFFERENT STAGES OF PROCESS ARE DONE BY WORKERS INDIVIDUALLY. THE WORKERS ARE PAID WAGE S FOR THE WORK DONE AT DIFFERENT STAGES INDIVIDUALLY. THE ASSESSEE HAS INCURRED EXP ENSES DURING THE YEAR AT DIFFERENT STAGES, THE DETAILS OF WHICH ARE AS UNDER :- 3 BHARATI EXPENSES RS. 8,13,705/- JALAI EXPENSES RS. 4,77,500/- NIKASI EXPENSES RS. 8,59,410/- THAPAI EXPENSES RS.17,00,650/- IT WAS FURTHER EXPLAINED THAT THE NATURE OF BUSINES S IS SUCH THAT THE INVOLVEMENT OF THE DAILY AND CASUAL WORKER IS INDISPENSABLE FOR CARRYI NG OUT PRODUCTION OF BRICKS. THE ASSESSEE VIDE HIS SUBMISSION DATED 09/16.8.2010 STA TED THAT THE WORK HAD NOT BEEN DONE ON JOB WORK OR CONTRACT BASIS. THEY WERE ALSO NOT I N PERMANENT EMPLOYMENT OF THE ASSESSEE. THEY HAD BEEN PAID ON THE BASIS OF WORK DONE INDIVIDUALLY AND THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE. IT WAS CRYSTAL CLEAR THAT THE EXPENSES WERE DIRECT AND MANUFACTURING EXPENSES FOR PRODUCTION PURPOSES AND NOT FOR ANY OTHER PURPOSE. THESE MANUFACTURING EXPENSES WERE OUTSIDE THE PURVIEW OF THE PROVISIONS OF SECTION 194C AS THE PAYMENTS WERE NOT TO ANY CONTRACTOR OR SUB-CONT RACTOR FOR CARRYING OUT ANY WORK. THE ASSESSING OFFICER DID NOT TAKE PAID TO GO THROUGH T HE SUBMISSIONS OF THE ASSESSEE AND REJECTED THE SAME TO INVOKE THE PROVISIONS OF SECTI ON 40(A)(IA) OF THE I.T. ACT 1961. HE HAD NOT TRIED TO UNDERSTAND THE NATURE OF THE BUSIN ESS OF THE ASSESSEE. THE ASSESSING OFFICER TOOK UNILATERAL, INJUDICIOUS AND IMPRACTICA L DECISION TO DISALLOW A TOTAL SUM OF RS. 38,51,265/- TO THE TOTAL INCOME OF THE ASSESSEE ON THE GROUND THAT TAX WAS NOT DEDUCTED AT SOURCE AT THE TIME OF INCURRING OF SUCH EXPENSES. THE ASSESSING OFFICER HAD FAILED TO UNDERSTAND THE PROVISIONS OF SECTION 40(A)(IA) OF T HE INCOME-TAX ACT, 1961. THE RELEVANT PORTION OF THE PROVISIONS OF SECTION 40(A)(IA) IS R EPRODUCED AS UNDER :- ANY INTEREST, COMMISSION, OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB CONTRACTOR, BEING RE SIDENT, FOR CARRYING OUT ANY WORK 4 (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID. 4.1. IT IS VERY MUCH CLEAR FROM THE ABOVE THAT THE ASSESSEE HAD NOT MADE ANY PAYMENT TO A CONTRACTOR OR SUB CONTRACTOR FOR CARRYING OUT HIS MANUFACTURING ACTIVITY AT DIFFERENT STAGES OF PRODUCTION OF BRICKS. SO THE EXPENSES INC URRED UNDER BHARAI, JALAI, NIKASHI AND THAPAI STAGES WERE OUT OF THE PURVIEW OF SECTION 40 (A)(IA) OF THE INCOME-TAX ACT 1961. THE AO HAS HELD THAT IT IS APPLICABLE EVEN ON ORAL CONTRACTS. WRITTEN CONTRACT IS NOT NECESSARY FOR DEDUCTING TAX AT SOURCE U/S 194C. IT IS OBSERVED FROM THE WORDING OF THE ABOVE PARA THAT THE ASSESSING OFFICER WAS OF THE OP INION THAT SECTION 194C IS APPLICABLE ON THE PAYMENTS MADE TO A CONTRACTOR OR SUB-CONTRACTOR IN PURSUANCE OF ANY CONTRACT. BUT, THE ASSESSING OFFICER FAILED TO APPRECIATE THAT IN THE CASE OF ASSESSEE, NO PAYMENT WAS MADE TO A CONTRACTOR OR SUB-CONTRACTOR IN PURSUANCE OF ANY CONTRACT. NO CONTRACT OR SUB- CONTRACT WAS IN EXISTENCE IN THE CASE OF THE ASSESS EE. THEREFORE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT AND PAY TAX AT SOURCE AT THE TIME OF INCURRING EXPENSES ON ACCOUNT OF MANUFACTURING EXPENSES UNDER DIFFERENT HEADS. THE DECISION OF JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF PREMIER CARGOES VS. ITO (20 10) XLIII TW 118 HAS MADE CRYSTAL CLEAR THAT WHERE NO CONTRACTOR OR SUB-CONTRACTOR RE LATIONSHIP EXISTED BETWEEN THE ASSESSEE AND THE PAYEES IN ABSENCE OF ANY SPECIFIC AGREEMENT , THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 194C AND HENCE NO DISAL LOWANCE CAN BE MADE UNDER SECTION 40(A)(IA) OF THE I.T. ACT 1961. THE TRIBUNAL WAS OF THE FIRM VIEW THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE CONTRACTOR OR SUB-CONTRA CTOR WAS ENGAGED ON SOME DEFINITE TERMS AND CONDITIONS FOR EXECUTING THE WORK OF THE ASSESSEE. IT WAS ALSO NOT A CASE TO 5 SUGGEST THAT THE ASSESSEE HAD ASSIGNED ANY PARTICUL AR PORTION OF WORK TO A PARTICULAR AGENCY. IN THE CASE OF INCOME-TAX OFFICER VS. BHOR UKA ROAD LINES LTD. (2008) 300 ITR (AT) 193, MUMBAI BENCH OF THE TRIBUNAL HAS RIGHTLY OBSERVED THAT ONCE IT WAS FOUND THAT THERE WAS NO CONTRACT BETWEEN THE ASSESSEE AND THE AGENT BUT THE CONTRACT WAS BETWEEN THE ASSESSEE AND TRUCK OWNERS OR DRIVERS, THE PROVI SIONS OF SECTION 194C WERE NOT APPLICABLE AND HENCE NO DISALLOWANCE CAN BE MADE UN DER SECTION 40(A)(IA) OF THE ACT. REFERENCE MAY ALSO BE MADE IN THE CASE OF COMMISSIO NER OF INCOME-TAX (TDS) VS. UNITED RICE LAND LTD., IN WHICH HONBLE HIGH COURT OF PUNJAB AND HARYANA HAS BEEN PLEASED TO HOLD THAT THERE BEING NEITHER ANY ORAL O R WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE TRANSPORTERS FOR CARRIAGE OF GOODS NOR IT IS PROVED THAT ANY FREIGHT CHARGES WERE PAID TO THEM IN PURSUANCE OF A CONTRAC T FOR A SPECIFIC PERIOD, QUANTITY OR PRICE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX UN DER SECTION 194C FROM THE PAYMENTS MADE TO THE TRANSPORTERS. HONBLE HIGH COURT OF DE LHI HAS BEEN PLEASED TO DELIVER THE JUDGEMENT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. DEWAN CHAND (2009) 178 TAXMAN 173 BY UPHOLDING THE VIEWS OF THE APPELLATE AUTHORITIES THAT THE PAYMENTS MADE BY THE ASSESSEE TO ITS WORKERS WERE NOT IN THE NATU RE OF PAYMENTS UNDER CONTRACT BUT WERE IN THE NATURE OF WAGES AND THEREFORE THE ASSESSEE W AS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM SUCH PAYMENTS UNDER SECTION 194C OF I.T. ACT 1 961. THUS, THERE IS A VERY POSITIVE FORCE IN THE CASE OF THE ASSESSEE AS BECAUSE THE PA YMENTS HAVE BEEN MADE TO WORKERS IN THE FORM OF WAGES FOR CARRYING OUT MANUFACTURING OP ERATIONS AT DIFFERENT STAGES. THERE WAS NO WRITTEN OR ORAL CONTRACT BETWEEN THE ASSESSE E AND THE WORKERS. THE PAYMENTS WAS NOT IN THE NATURE OF CONTRACT PAYMENTS. THE EXPENS ES INCURRED BY THE ASSESSEE DID NOT HAVE THE CHARACTER OF CONTRACT PAYMENTS. CONTRACT O R SUB-CONTRACT RELATIONSHIP BETWEEN 6 THE ASSESSEE AND THE PAYEE DID NOT EXIST. THE ASSES SEE HAD FILED THE LEDGER ACCOUNTS OF ALL DIRECT MANUFACTURING AND MINING EXPENSES WITH THE A SSESSING AUTHORITY. THE TRANSACTIONS OF PAYMENTS OF ALL MANUFACTURING EXPENSES WERE WELL RECORDED IN CASH BOOK, LEDGER AND THE SAME WERE SHOWN IN TRADING ACCOUNT TO ARRIVE AT GROSS PROFIT RATE. THE ENTIRE EXPENSES INCURRED WERE GENUINE, MATERIAL AND NECESS ARY FOR EXECUTION OF MANUFACTURING PROCESS TO PRODUCE BRICKS. THESE IMPORTANT BUSINESS ASPECTS HAVE COMPLETELY BEEN IGNORED BY THE ASSESSING OFFICER WHICH CANNOT IN AN Y WAY BE HELD AS JUSTIFIED. THE ASSESSING OFFICER SHOULD HAVE GONE THROUGH THE DETA ILS OF EXPENSES FILED BY THE ASSESSEE, THE NATURE OF PAYMENTS MADE BY THE ASSESSEE, THE NO N-EXISTENCE OF THE CONTRACT OR SUB- CONTRACT, ORAL OR WRITTEN, BETWEEN THE ASSESSEE AND THE PAYEE, THE PAYMENT IN THE FORM OF WAGES TO LABOURERS, WITHOUT GOING INTO THESE DETAIL S, THE ASSESSING OFFICER HURRIEDLY AND ABRUPTLY PREPARED HIMSELF FOR INVOKING OF THE PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT TO DISALLOW THE EXPENSES OF RS. 38,51,265/-. THE ACTIO N OF THE ASSESSING AUTHORITY HAS NO MERIT, IT HAS PREJUDICE ELEMENT AND SUFFERS FROM DO GMATISM. IN VIEW OF THE ABOVE, THE ADDITION OF RS. 38,51,265/- IS FIT TO BE DELETED. 5. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) WAS SATISFIED WITH THE EXPLANATION FILED ON BEH ALF OF THE ASSESSEE. VARIOUS CASE LAWS ON WHICH RELIANCE WAS PLACED BEFORE LD. CIT (A) WER E CONSIDERED BY LD. CIT (A) AND THEREAFTER HE HELD THAT THE PROVISIONS OF SECTION 1 94C ARE NOT APPLICABLE AS THE ASSESSEE HAD PAID INDIVIDUAL PAYMENT WHICH DID NOT EXCEED TH E PRESCRIBED LIMIT AND, THEREFORE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS. 6. THE ALTERNATE CONTENTION OF THE ASSESSEE WAS ALS O ACCEPTED BY LD. CIT (A) THAT ALL THE PAYMENTS WERE PAID BEFORE THE END OF THE YEAR A ND THERE WAS NO OUTSTANDING, 7 THEREFORE, FOR THIS REASON ALSO THE PROVISIONS OF S ECTION 40(A)(IA) WERE NOT APPLICABLE. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF JAIPUR BENCH OF THE TRIBUNAL IN CASE OF JAIPUR VIDYUT VITRAN NIGAM LTD. VS. DCIT, 123 TTJ 8 88. 7. NOW THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL. 8. THE LD. D/R PLACED RELIANCE ON THE ORDER OF A.O. IT WAS FURTHER SUBMITTED THAT PROVISIONS OF SECTION 40(A)(IA) ARE VERY CLEAR WHIC H PROVIDES THAT IF THE PAYMENT EXCEEDS RS. 50,000/-, THEN TDS HAS TO BE DEDUCTED ON THE AM OUNT PAID BY ASSESSEE. IT WAS FURTHER SUBMITTED THAT IT IS A MATTER OF COMMON KNOWLEDGE T HAT BRICK WORK IS TO BE DONE THROUGH CONTRACTOR AND PAYMENTS HAVE BEEN MADE THROUGH CONT RACTOR, THEREFORE, FOR THIS REASON ALSO THE AO WAS CORRECT IN HOLDING THAT PROVISIONS OF SECTION 40(A)(IA) WERE APPLICABLE ON THE FACTS OF THE PRESENT CASE. IN REGARD TO ALTERN ATE FINDING OF LD. CIT (A) THAT SINCE THE PAYMENTS WERE MADE BEFORE THE END OF THE YEAR AND T HERE WAS NO PAYMENT OUTSTANDING AND ACCORDINGLY PROVISIONS OF SECTION 40(A)(IA) WER E NOT APPLICABLE, IT WAS SUBMITTED THAT INTENTION OF THE LEGISLATURES IS VERY CLEAR WHETHER THE AMOUNT WAS PAID OR PAYABLE DOES NOT GIVE BENEFIT TO THE ASSESSEE IN RESPECT TO DEDU CTION OF TDS. THE DEDUCTION OF TDS IS TO BE MADE IF THE PAYMENTS ARE EXCEEDED RS. 20,000/ - TO A CONTRACTOR. 9. NONE APPEARED ON BEHALF OF THE ASSESSEE. 10. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A), WE NOTED THAT THE LD. CIT (A) HAS GIVEN A CATEGORICAL FINDING THAT THE PAYMEN TS WERE MADE TO THE INDIVIDUAL LABOURER AND, THEREFORE, PROVISIONS OF SECTION 40(A )(IA) WERE NOT APPLICABLE. THE LD. CIT (A) FURTHER ASCERTAINED THAT EACH PAYMENT WAS LESS THAN RS. 20,000/-, THEREFORE, FOR THIS REASON ALSO THE PROVISIONS OF SECTION 40(A)(IA) WER E NOT APPLICABLE. SUCH FINDINGS HAVE 8 BEEN RECORDED BY LD. CIT (A) IN PARA 4.2 TO 4.6 OF HIS ORDER WHICH ARE REPRODUCED HERE AS UNDER :- 4.2. I HAVE DULY CONSIDERED THE SUBMISSIONS OF TH E APPELLANT. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URING AND TRADING OF BRICKS. THE BUSINESS OF THE ASSESSEE IN VOLVES A LARGE NUMBER OF CASUAL AND TEMPORARY LABOURERS. THERE ARE DIFFERENT STAGES IN THE MANUFACTURING PROCESSES SUCH AS BHARA I PROCESS, JALAI PROCESS, NIKASI PROCESS AND THAPAI PROCESS. FURTHE R THE BRICKS IN RAW FORM HAVE TO BE HEATED IN THE FURNACE (BHATTI). AT DIFFERENT STAGES OF MANUFACTURING, THE ASSESSEE FIRM HAS PAID RS. 8,51,265/- TO VARIOUS LABOURERS. THE AO WAS OF THE VIEW THAT T HERE WAS CONTRACTUAL PAYMENT. THE AO ALSO HELD THAT THERE WA S ORAL CONTRACT BETWEEN THE ASSESSEE AND VARIOUS PERSONS. HE WAS OF THE VIEW THAT WRITTEN CONTRACT WAS NOT NECESSARY TO ATTRACT THE P ROVISIONS OF SECTION 194C OF THE I.T. ACT. THE AO ALSO HELD THAT THE LABOURERS WERE PAID ON THE BASIS OF AGREED RATES. AT THE OUT SET, THE AO HAS FAILED TO DIG OUT ANY EVIDENCE REGARDING ORAL AGREE MENT OR CONTRACT BETWEEN THE ASSESSEE AND THE INDIVIDUAL LABOURERS T O WHOM THE AMOUNTS WERE PAID. THE PAYMENTS TO THESE CASUAL LAB OURERS ARE LESS THAN RS. 20,000/- ON EACH OCCASION. THE ASSESSEE H AS FILED ALL THE DETAILS OF PAYMENTS I.E. JOB-WISE AND MONTH-WISE FO R WHOLE OF THE YEAR WHICH THE AO DID NOT PUT TO ANY VERIFICATION. AS SEEN FROM THE DETAILS, THERE IS NO INDICATION THAT THE ASSESS EE HAD ENGAGED ANY OF THE LABOURER ON REGULAR BASIS SO AS TO COME UNDE R THE PROVISIONS OF SECTION 194C. IN THE PRESENT CASE, THE AO HAS N OT MADE OUT THE CASE THAT THE LABOURERS WHO ARE ALLEGED TO BE SUB-C ONTRACTORS, WERE ENGAGED ON SOME DEFINITE TERMS AND CONDITIONS FOR E XECUTING THE WORK OF THE ASSESSEE. THERE IS ALSO NOTHING ON REC ORD TO SUGGEST THAT THE ASSESSEE HAD ASSIGNED ANY SPECIFIC PORTION OF WORK TO A PARTICULAR LABOURER. AS PER PROVISIONS OF SECTION 194C OF THE 9 INCOME TAX ACT, ANY PERSON RESPONSIBLE FOR PAYING A NY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK IN PURSUANCE OF A CONTRACT SHALL AT THE TIME OF CREDIT OF SUCH SUM OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY CHEQUE DEDUCT TAX THEREON AT A PRESCR IBED RATE. HOWEVER, NO SUCH DEDUCTION AT SOURCE IS REQUIRED TO BE MADE, IF THE SUM PAID OR CREDITED DOES NOT EXCEED RS. 20,000/-. IN THE PRESENT CASE, ALL THE PAYMENTS TO LABOURERS ARE BELOW RS. 2 0,000/-. THERE IS NO DISPUTE THAT THERE WAS NEITHER ANY ORAL OR WR ITTEN AGREEMENT BETWEEN THE ASSESSEE AND VARIOUS LABOURERS NOR IT H AS BEEN PROVED THAT ANY SUM OF MONEY REGARDING LABOUR CHARGES WAS PAID TO THEM IN PURSUANCE OF A CONTRACT OR SPECIFIC PERIOD, QUAN TITY OR PRICE. THE AOS FINDINGS ARE PURELY ON SURMISES WHICH CAN NOT BE TAKEN INTO CONSIDERATION. AS SEEN FROM THE DETAILS FURNISHED, THE ASSESSEE DID ENGAGE VARIOUS LABOURERS FOR VARIOUS JOBS. THE A.O . HAS NOT ENQUIRED AT ALL WHETHER ANY LABOURER WAS ENGAGED ON ROUTINE BASIS OR NOT. THIS EXERCISE COULD HAVE BEEN DONE BY THE A.O. THE ASSESSEES CONTENTION THAT IT HAS ENGAGED TEMPORARY AND CASUAL LABOURERS AVAILABLE IN THE MARKET FOR VARIOUS JOBS CANNOT BE BRUSHED ASIDE. 4.3. THE COUNSEL OF THE APPELLANT HAS SUBMITTED THA T THE AO HAD INVOKED PROVISIONS OF SECTION 194C OF THE ACT WRONG LY FOR MAKING THE DISALLOWANCES. IT WAS SUBMITTED THAT NO PAYMENT WAS MADE TO ANY LABOUR CONTRACTOR AND THE PAYMENTS WERE ACTUALL Y MADE TO INDIVIDUAL LABOURERS. THEREFORE, THE ASSESSING OFFI CER WAS NOT JUSTIFIED IN SAYING THAT THE PAYMENTS WERE MADE TO LABOUR CONTRACTORS. SINCE THE PAYMENTS WERE MADE TO INDIVI DUAL LABOUR DEPENDING UPON THE NUMBER OF DAYS/HOURS FOR WHICH T HEY WERE ENGAGED, THE AMOUNT WAS ALLOWABLE AS DEDUCTION. THE AO HAD NOT DOUBTED THE PAYMENT OF LABOUR CHARGES. HE HAD MADE THE SUBJECT DISALLOWANCE IN TERMS OF SECTION 194C AS NO TDS WAS MADE BY THE ASSESSEE COMPANY. EVEN WITHOUT PREJUDICE TO THE AB OVE, THE ACTION 10 OF THE ASSESSING OFFICER IS NOT SUSTAINABLE FOR THE REASON THAT HE HAS NOT JUSTIFIED AS TO HOW PAYMENT OF RS. 20,000/- AND ABOVE WOULD HAVE MANDATED DEDUCTION OF TAX AT SOURCE UNDER SECT ION 194C OF THE ACT. THERE IS NOTHING ON RECORD TO SUGGEST THA T THE PAYMENTS ON ACCOUNT OF LABOUR CHARGES WERE MADE TO CONTRACTO RS. ON THE CONTRARY THE ASSESSEE HAD MADE PAYMENT TO LABOURERS DIRECTLY. THEREFORE, PROVISIONS OF SECTION 194C OF THE ACT AR E NOT APPLICABLE. 4.4. IT WAS HELD BY HONOURABLE MUMBAI TRIBUNAL IN T HE CASE OF ITO VS. KISHORE TITTA (2010-TIOL-276-ITAT-MUM) THAT THE PROVISIONS OF SECTION 194C ARE APPLICABLE IN CASE O F CONTRACTOR AND NOT APPLICABLE TO THE OWNER OF THE BUSINESS. THIS DECISION IS SIGNIFICANT IN THE SENSE BECAUSE IT IS ESSENTIAL FO R ATTRACTING THE PROVISIONS OF SECTION 194C OF THE IT ACT THAT THE A SSESSEE MUST BE A CONTRACTOR WHO ALONE CAN SUB-CONTRACT HIS WORK. IF THE ASSESSEE IS NOT A CONTRACTOR AND HE HAS NOT GIVEN ANY OF HIS WORK ON SUB- CONTRACT, THEN HE IS NOT HIT BY THE PROVISIONS OF S ECTION 194C OF THE IT ACT. 4.5. IT WAS HELD BY HONOURABLE PUNJAB & HARYANA HIG H COURT IN THE CASE OF CIT VS. BHAGWATI STEELS (326 ITR 108 ) THAT THE TRIBUNAL RECORDED A CATEGORICAL FINDING OF FACT THA T THERE WAS NO MATERIAL ON RECORD TO PROVE ANY WRITTEN OR ORAL AGR EEMENT BETWEEN THE ASSESSEE AND THE RECIPIENTS OF GOODS FOR TRANSP ORTATION OR CARRIAGE THEREOF. THE TRIBUNAL HAD FURTHER OBSERVED THAT THERE WAS NO MATERIAL TO SHOW THAT THE PAYMENTS OF FREIGHT HA D BEEN MADE IN 11 PURSUANCE OF A CONTRACT OF TRANSPORTATION OF GOODS FOR A SPECIFIC PERIOD, QUANTITY OR PRICE. THE AFORESAID FACT IS AN ESSENTIAL FEATURE TO TEST THE APPLICABILITY OF SECTION 194C OF THE AC T. ALTHOUGH THE AGGREGATE OF PAYMENTS OF TWO TRUCK OWNERS DURING TH E ASSESSMENT YEAR EXCEEDED RS. 20,000 WHICH WOULD STILL NOT LEAD TO DEDUCTION OF TAX AT SOURCE BECAUSE THERE WAS NO CONTRACT FOR A SPECIFIC PERIOD, PRICE OR QUANTITY FOR CARRIAGE OF GOODS. FOLLOWING THE PARITY OF REASONING LAID DOWN BY THE HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT VS. UNITED RICE LAND LTD (2010) 322 ITR 594, IN THE INSTANT CASE, IT HAS TO BE HELD THAT THE ASSESS EE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 194C OF THE ACT ON THE PAYMENT OF FREIGHT CHARGES OF RS. 1,72,723/-, AS DETAILED B Y THE ASSESSING OFFICER. 4.6. THE FINDING OF HONOURABLE AHMEDABAD ITAT, A-BE NCH IN THE CASE OF DCIT VS. LAXMI PROTEIN PRODUCTS PVT. LT D. (2010-003 ITR (TRIB) 768 ARE PERTINENT FOR THE ISSUE UNDER CO NSIDERATION. IN THE INSTANT CASE THE ASSESSEE WAS ENGAGED IN THE BU SINESS OF PURCHASE, PROCESSING AND SALE OF TUR DAL AND A SU RVEY UNDER SECTION 133A OF THE INCOME-TAX ACT, 1961, WAS CARRI ED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE. DURING THE COUR SE OF SURVEY, THE STATEMENT OF THE DIRECTOR OF THE COMPANY WAS RECORD ED WHEREBY THE DETAILS OF LABOUR CHARGES PAID FOR LOADING AND UNLO ADING, SORTING AND CLEANING AND TRANSPORTATION CHARGES WERE REQUIR ED TO BE 12 EXPLAINED. THE ASSESSING OFFICER NOTED IN THE ASSE SSMENT ORDER THAT THESE LABOUR ACTIVITIES WERE ORGANIZED AND MAI NTAINED AND CONTROLLED BY ONE PERSON LOCALLY KNOWN AS MUKADUM . ACCORDING TO HIM, THESE PAYMENTS WERE MADE TO SUCH MUKADUM AND THE ONLY RECORD IN RESPECT OF THESE PAYMENTS MA INTAINED BY THE ASSESSEE WAS VOUCHERS AND THE COPIES OF VOUCHERS WE RE KEPT ON RECORD. ACCORDING TO THE ASSESSING OFFICER THESE V OUCHERS WERE SIGNED BY MUKADUM, WHO RECEIVED THE PAYMENTS ON DAY -TO-DAY BASIS IN CASH. THE ASSESSING OFFICER STATED THAT T HE ASSESSEE WAS COVERED UNDER THE PROVISIONS OF SECTION 194C OF THE ACT BUT HE HAD FAILED TO DEDUCT TAX. ACCORDINGLY, HE TREATED THE ASSESSEE AS DEFAULTER UNDER SECTION 201 AND 201(1A) READ WITH S ECTION 194C OF THE ACT. THE COMMISSIONER (APPEALS) HELD THAT THE F ACT THAT THE RECEIPT BY ONE PERSON FOR FURTHER REDISTRIBUTION WA S MERELY AN ADMINISTRATIVE CONVENIENCE AND NO EXISTENCE OF A CO NTRACT HAD BEEN ESTABLISHED BETWEEN THE RECIPIENT AND THE ASSESSEE COMPANY, THE PROVISIONS OF SECTION 194C WOULD NOT APPLY AND THER EFORE, THE ASSESSING OFFICER WAS DIRECTED TO DELETE THE DEMAND RAISED UNDER SECTION 201 AND 201(1A) OF THE ACT. ON APPEAL BY T HE DEPARTMENT, IT WAS HELD DISMISSING THE APPEAL, THAT THE ASSESSE E HAD FILED COMPLETE DETAILS AND IT WAS NOTED THAT THE ASSESSEE INSTEAD OF MAKING PAYMENTS TO LABOURERS, HAD MADE PAYMENT TO T HE REPRESENTATIVE OF THE LABOURERS THROUGH THEIR MUKAD UM, WHO WERE 13 EMPLOYEES OF THE ASSESSEE. THE INDIVIDUAL PAYMENT DID NOT EXCEED THE PRESCRIBED LIMIT AND THE ASSESSEE WAS NOT OBLIG ED TO DEDUCT TAX UNDER SECTION 194C OF THE ACT. 11. AFTER GOING THROUGH THESE FINDINGS, WE FIND THA T LD. CIT (A) HAS ASCERTAINED THE FACTUAL METRICS OF THE CASE. IT WAS FOUND BY HIM T HAT BUSINESS OF THE ASSESSEE INVOLVES A LARGE NUMBER OF CASUAL LABOURERS. THERE ARE DIFFER ENT STAGES AT THE MANUFACTURING PROCESS SUCH AS BHARAI, JALAI, NIKASI AND THAPAI PROCESS. THE BRICKS IN RAW FORM HAVE TO BE HEATED IN THE FURNACE/BHATTI. AT DIFFERENT STAGES OF MANUFACTURING, THE ASSESSEE HAD PAID RS. 38,51,265/- TO VARIOUS LABOURERS AND PAYMENT OF THESE LABOURERS WERE TREATED TO BE PAID TO THE CONTRACTOR. THE AO ALSO VIEWED THAT TH ERE WAS AN ORAL CONTRACT BETWEEN ASSESSEE AND CONTRACTOR. HOWEVER, NO MATERIAL WAS B ROUGHT ON RECORD THAT THESE PAYMENTS WERE MADE THROUGH CONTRACTOR, WHEREAS ASSESSEE HAS FILED THE COPIES OF RECEIPTS OF THE PAYMENT MADE TO INDIVIDUAL LABOURERS. ALL THOSE PA YMENTS WERE LESS THAN RS. 20,000- PAID TO THE CASUAL LABOURER AND OTHER LABOURERS. T HEREFORE, THERE WAS NO REASON TO HOLD AT THE END OF THE AO THAT THERE WAS AN AGREEMENT BETWE EN THE ASSESSEE AND THE CONTRACTOR AND THE PAYMENTS HAVE BEEN MADE EXCEEDING RS. 20,00 0/-. COPIES OF ACCOUNT OF LABOURERS AS WELL AS RECEIPTS WERE FILED BEFORE THE AO. THE LD. CIT (A) HAS RIGHTLY OBSERVED THAT THE AO FAILED TO ENQUIRE WHETHER ANY LABOUR WAS ENGAGED ON WRITTEN BASIS OR NOT OR THEY HAVE RECEIVED PAYMENT THROUGH ANY CO NTRACTOR OR THE PAYMENTS WERE MADE EXCEEDING RS. 20,000/- THROUGH CONTRACTOR. THEREFO RE, IN OUR CONSIDERED VIEW THE LD. CIT (A) WAS CORRECT IN HOLDING THAT PROVISIONS OF SECTI ON 194C ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. THE FINDING OF LD. CIT (A) RE PRODUCED SOMEWHERE ABOVE IN THIS ORDER REMAINS UNCONTROVERTED AS NOTHING HAS BEEN FILED TO CONTROVERT THE FINDING OF LD. CIT (A). 14 WHATEVER THE OBJECTIONS WERE RAISED BY THE AO, THEY HAVE BEEN SUCCESSFULLY MET WITH BY LD. CIT (A) AND THEREAFTER THE LD. CIT (A) HAS GIVE N HIS DETAILED FINDING. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE HOLD THAT LD. CIT (A) W AS JUSTIFIED IN ALLOWING THE ISSUE IN FAVOUR OF THE ASSESSEE. 12. NOW WE WILL TAKE UP THE ALTERNATE GROUND RAISED BY THE AO IN RESPECT TO ALTERNATE FINDING GIVEN BY LD. CIT (A). 13. SINCE WE HAVE ALREADY THE FINDING THE FINDING O F LD. CIT (A) THAT PROVISIONS OF SECTION 194C ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE, THEREFORE, THIS GROUND OF THE DEPARTMENT HAS BECOME AN ACADEMIC IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION UPON. THEREFORE, WE DECLINE TO DISPOSE OFF THIS GR OUND AT THIS POINT OF TIME. 14. NOW WE WILL TAKE UP THE CROSS OBJECTION OF THE ASSESSEE. 15. THE ASSESSEE THROUGH ITS CROSS OBJECTION IS OBJ ECTING SUSTENANCE OF LUMP SUM ADDITION OF RS. 1,00,000- UNDER TRADING ACCOUNT MAD E BY AO BY INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. 16. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTIC ED THAT THERE WAS A FALL IN GROSS PROFIT FROM 25.23% TO 24.93% IN THE CURRENT YEAR. THE STOCK REGISTER WAS NOT MAINTAINED. IT WAS FURTHER NOTICED BY AO THAT OPENING AND CLOSI NG STOCK OF BRICKS WAS VALUED ON ESTIMATED BASIS. THE OPENING STOCK AND CLOSING STO CK OF BRICKS WAS ALMOST SAME EXCEPT FOR A SMALL VARIATION. THE SHORTAGE CLAIMED BY ASS ESSEE WAS NOT VERIFIABLE. THE MANUFACTURING PROCESS SUCH AS TURI EXPENSES AND BHA TTA EXPENSES WERE PAID IN CASH. ACCORDINGLY, THE AO INVOKED PROVISIONS OF SECTION 1 45(3) AND MADE A LUMP SUM ADDITION OF RS. 1,00,000 IN THE TRADING ACCOUNT. IT WAS SUB MITTED BEFORE LD. CIT (A) THAT THE ADDITION MADE IS UNJUDICIOUS AND UNJUSTIFIED. IT W AS FURTHER SUBMITTED THAT IN THE 15 ASSESSMENT ORDER ITSELF IT HAS BEEN MENTIONED THAT THE REGULAR BOOKS OF ACCOUNTS, CONSISTING OF CASH BOOK, LEDGER AND VOUCHERS FOR EX PENSES WERE MAINTAINED, WHICH WERE AUDITED UNDER SECTION 44AB. THE BOOKS OF ACCOUNTS WERE PRODUCED, WHICH WERE EXAMINED ON TEST CHECK BASIS. ACCORDINGLY IT WAS SUBMITTED THAT IS VERY MUCH CLEAR THAT ASSESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNT FO LLOWED CONSISTENTLY THE ACCOUNTING METHOD UNDER SECTION 145 OF THE ACT. MERCANTILE SY STEM OF ACCOUNTING HAS BEEN FOLLOWED. BOOKS OF ACCOUNT ARE AUDITED. ENTIRE PU RCHASES, SALES AND OTHER EXPENSES WERE FULLY VOUCHED AND WERE FULLY SUBJECT TO AUDIT. THE RE IS ONLY DECREASE IN GROSS PROFIT RATE @ 0.03% AS COMPARED TO THE RATE OF IMMEDIATELY PREC EDING YEAR. THEREFORE, DISTURBING THE TRADING RESULT BY REJECTING THE BOOKS OF ACCOUN T IS NOT PROPER. RELIANCE WAS PLACED ON VARIOUS CASE LAWS. AFTER CONSIDERING THE SUBMISSIO NS AND PERUSING THE MATERIAL ON RECORD, LD. CIT (A) WAS IN AGREEMENT WITH THE FINDI NG OF AO, ACCORDINGLY HE UPHELD THE REJECTION OF BOOKS OF ACCOUNT AND UPHELD THE TRADIN G ADDITION MADE. THE CASE LAWS RELIED UPON BY THE LD. COUNSEL OF THE ASSESSEE WERE FOUND DISTINGUISHABLE. 17. AFTER CONSIDERING THE ORDERS OF AO AND LD. CIT (A), WE FIND THAT TECHNICALLY PROVISIONS OF SECTION 145(3) MAY BE APPLICABLE ON T HE FACTS OF THE PRESENT CASE AS OPENING AND CLOSING STOCK WAS PREPARED ON ESTIMATE BASIS. H OWEVER, WE FIND THAT EACH AND EVERY DETAIL OF EXPENSES WERE MAINTAINED AND WERE FILED B EFORE THE AO. BOOKS OF ACCOUNT ARE AUDITED. THEREFORE, REJECTING THE BOOKS OF ACCOUNT AND THEREAFTER MAKING AN ADDITION OF RS. 1,00,000-, IN OUR CONSIDERED VIEW WAS NOT JUSTI FIED. MERELY DECLINE IN GROSS PROFIT RATE DOES NOT ATTRACT REJECTION OF BOOKS OF ACCOUNT . THE DECLINE IN GROSS PROFIT RATE IS ONLY 0.03% AS COMPARED TO EARLIER YEAR. THERE WAS MUCH D ECLINE IN GROSS PROFIT RATE IN THE IMMEDIATELY PRECEDING YEAR AS COMPARED TO EARLIER Y EAR WHEN THE GROSS PROFIT RATE 16 DECLARED BY ASSESSEE WAS 32.11% AGAINST THE GROSS P ROFIT RATE IN THE IMMEDIATELY PRECEDING YEAR DECLARED AT 25.23% AND AS PER ORDERS OF AO AND LD. CIT (A) NOTHING IS BORNE OUT FROM THE ORDER THAT TRADING ADDITION WAS MADE IN THE PAST. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT MAY BE TECHNICALLY THE PRO VISIONS OF SECTION 145(3) CAN BE APPLICABLE BUT TRADING ADDITION IS NOT JUSTIFIED. ACCORDINGLY WE DELETE THE TRADING ADDITION OF RS. 1,00,000/-. 18. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 19. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28 .7.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE ITO WARD 6(1), JAIPUR. M/S. MAHESHWARI KILN COMPANY, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 15(2)/JP/2011) BY ORDER, AR ITAT JAIPUR.