ACIT, Madurai V. Smt. S.Susila, Madurai

ITA 1535/CHNY/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4310 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 29-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 09-09-2011
• Court: TRIBUNAL
• Department Lawyers: MURALI MOHAN ADDITIONAL
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Question of law
• Section: 234B; 194C; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , ! ' ! # . $% & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 1494/MDS./2011 / ASSESSMENT YEAR : 2005-06 SMT. S.SUSILA, 4/56, PALANI ARUMUGA NAGAR, ANUPPANADY ROAD, CHINTHAMANI, MADURAI 625 009. VS. THE INCOME TAX OFFICER, WARD II(5), MADURAI. [PAN AOUPS 9230 E ] ( )* / APPELLANT) ( +,)* /RESPONDENT) ./ I.T.A.NO.1535 /MDS./2011 / ASSESSMENT YEAR : 2005-06 THE INCOME TAX OFFICER, WARD II(5), MADURAI. VS. SMT. S.SUSILA, 4/56, PALANI ARUMUGA NAGAR, ANUPPANADY ROAD, CHINTHAMANI, MADURAI 625 009. [PAN AOUPS 9230 E ] ( )* / APPELLANT) ( +,)* /RESPONDENT) ASSESSEE BY : MR.T.N.SEETHARAMAN, ADVOCATE REVENUE BY : MR.MURALI MOHAN, ADDITIONAL. CIT DR / DATE OF HEARING : 29 - 05 - 2017 / DATE OF PRONOUNCEMENT : 02 - 06 - 2017 ITA NOS.1494,1535/MDS/2011 :- 2 -: - / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE CROSS APPEALS OF THE ASSESSEE AND THE REVE NUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, MADURAI DATED 13.06.2011 PERTAINING TO ASSESSMENT YEAR 2005-06. 2. THE MAIN GRIEVANCE OF THE ASSESSEE IN ITS APPEA L IS WITH REGARD TO DISALLOWANCE OF RS.1,07,69,581/- BY INVOK ING SECTION 40(A)(IA) OF THE ACT AND LEVIABILITY OF INTEREST U/ S.234A/234B/234D OF THE ACT. 2.1 THE ASSESSEE RAISED THE FOLLOWING ADDITIONAL G ROUNDS FOR OUR ADJUDICATION. 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N UPHOLDING THE DISALLOWANCE U/S 40(A)(IA) OF PAYMENTS MADE TO THE MANUFACTURERS OBSERVING THAT THE PAYMENTS IN QUESTION WERE REQUIR ED TO BE MADE AFTER DEDUCTION OF TAX AND AS THE ASSESSEE HAD NOT DONE SO SUCH PAYMENTS WOULD NOT BE AN ALLOWABLE EXPENDITURE IN T ERMS OF THE DISQUALIFICATION CONTAINED IN THE PROVISIONS OF SEC TION 40(A)(IA). 2. THE PETITIONER I APPELLANT SUBMITS THAT ON THE F ACTS OF HER CASE THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE; CONS EQUENTLY, THE DISQUALIFICATION CONTAINED IN THE PROVISIONS OF SEC TION 40(A)(IA) ARE NOT ATTRACTED. 3. THE PETITIONER I APPELLANT FURTHER SUBMITS THAT THE PAYEES ARE NOT SUB-CONTRACTORS WITHIN THE MEANING OF SECTION 194 C(2) SINCE THE ITA NOS.1494,1535/MDS/2011 :- 3 -: RESPONSIBILITY FOR THE WHOLE PROCESS OF MANUFACTURE OF APPALAMS LAY WITH THE APPELLANT ALONE AND NO LIABILITY WAS PASSE D ON TO THE PAYEES. 4. THE PETITIONER I APPELLANT SUBMITS THAT THE RISK S ASSOCIATED WITH THE MAIN CONTRACT TOTALLY REMAINED WITH THE APPELLANT A ND THE RELATIONSHIP BETWEEN THE APPELLANT AND THE MANUFACTURERS DID NOT HAVE THE CHARACTERISTIC ATTACHED TO A SUB-CONTRACT. 5. THE PETITIONER I APPELLANT IS ADVISED TO RELY ON THE PRINCIPLES LAID DOWN IN THE FOLLOWING DECISIONS: I. CIT VS. POOMPUHAR SHIPPING CORPORATION LTD [(200 6) 282 ITR 3 (MAD)] II. MYTHRI TRANSPORT CORPORATION VS. ACIT [(2010) 1 ITR (TRIB) 290 (VISAKHAPATNAM)] III. KRANTI ROAD TRANSPORT P. LTD VS. ACIT [(2012) 50 SOT 15 (VISAKHAPATNAM)] IV. PRASHANT H SHAH VS. ACIT [(2012) 52 SOT 69 (AHM ADABAD) (URO)] V. KAVITA CHUG VS. INCOME TAX OFFICER [(2011) 44 SO T 95 (KOL) (URO)] 6. THE PETITIONER I APPELLANT SUBMITS THAT THE ABOV E ADDITIONAL GROUNDS GIVE RISE TO A QUESTION OF LAW FOR CONSIDERATION BY THE HONBLE TRIBUNAL AND ARE BASED ON FACTS ALREADY ON RECORD AND THE OM ISSION TO RAISE THESE GROUNDS IS BONAFIDE. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS DOING CONTRACT WORK IN PRODUCTION OF APPALAM FOR M/S.SAKTHI MASALA (P) LTD., AND FILED HER TI ON 01.09.2005 ADMITTING A TOTAL INCOME OF ` 1,56,450/-, WHICH WAS ACCEPTED U/S.143(1) OF THE ACT. SUBSEQUENTLY, T HE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPL ETED U/S.143(3) OF ITA NOS.1494,1535/MDS/2011 :- 4 -: THE ACT ON 31.12.2007 IN WHICH THE AO DISALLOWED A SUM OF ` 1,07,69,581/- U/S.40(A)(IA) OF THE ACT ON THE GROUN D THAT TAX WAS NOT DEDUCTED IN RESPECT OF PAYMENT OF JOB WORK CHARGES FOR PRODUCTION OF APPALAM. AGGRIEVED BY THE ORDER OF LD. ASSESSING OF FICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) OBSERVED THAT THE PAYMENTS MADE TO THE SUB CONTRACT ORS WERE IN SUBSTANCE, NOT PAYMENTS FOR PURCHASE OF GOODS, BUT PAYMENTS IN PURSUANCE OF A WORKS CONTRACT. THE PROVISIONS OF TH E SECTION 37 ARE WIDE ENOUGH IN SCOPE TO ACCOMMODATE THE ASSESSEES PAYMENTS. ACCORDING TO LD.CIT(A), THE ASSESSEES PAYMENTS WER E REQUIRED TO BE MADE AFTER DEDUCTION OF TAX AND AS THE ASSESSEE HAD NOT DONE SO, SUCH PAYMENTS WOULD NOT BE AN ALLOWABLE EXPENDITURE IN TERMS OF THE DISQUALIFICATION CONTAINED IN THE PROVISIONS OF THE SECTION 40(A)(IA) OF THE ACT. AGAINST THIS, THE ASSESSEE PREFERRED AN AP PEAL BEFORE THE TRIBUNAL IN ITA NO.0640/MDS./2009. 3.1 THE TRIBUNAL VIDE ITS ORDER DATED 04.02.2010 R EMITTED THE MATTER BACK TO THE FILE OF LD.CIT(A) FOR CONSIDERATION AFR ESH WHILE SETTING ASIDE THE ORDER OF LD.CIT(A), FOR THE REASON THAT W HEN MATTER REMAINED PART HEARD, LD.CIT(A) PASSED THE ORDER ON 24.02.2009 WITHOUT CONSIDERING THE ASSESSEES SUBMISSION DATE D 02.03.2009. ITA NOS.1494,1535/MDS/2011 :- 5 -: 3.2 IN THE NEXT ROUND, BEFORE LD.CIT(A), THE ASSES SEE REITERATED THE SAME ADDITIONAL GROUNDS RAISING IN THE PRESENT APPE AL IN ITA NO.1494/MDS./2011 FOR OUR ADJUDICATION. 3.3. ON APPEAL, THE LD.CIT(A) OBSERVED THAT ASSESSE E RECEIVED A SUM OF ` 1,22,34,656/- AS JOB WORK COOLLY FROM M/S.SAKTHI M ASALA (P) LTD, ERODE DURING THE PREVIOUS YEAR 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06, WHICH WAS REFLECTED IN P&L A/C. A SUM OF ` 2,65,595/- WAS DEDUCTED AS TDS FOR THIS JOB WORK BY M/S.SAKTHI MAS ALA (P) LTD, ERODE (NATURE OF PAYMENT BEING: CONTRACT) THE ASSESSEE , IN TURN, SUPPLIED THE RAW MATERIALS RECEIVED FROM M/S.SAKTHI MASALA ( P) LTD, TO MORE THAN 20 SUB CONTRACTORS (INTERMEDIARIES), WHO, IN T URN, EMPLOYED SEVERAL PEOPLE THROUGH WHOM THE APPALAMS WERE PRODU CED. A SUM OF ` 1,07,69,581/- WAS SHOWN AS JOB WORK COOLY EXPENSES IN THE P&L A/C. ACCORDING TO LD.CIT(A), NO TDS WAS DONE IN RESPECT OF THESE PAYMENTS MADE THROUGH SUB CONTACTORS. FOR NON-DEDUC TION OF TDS IN RESPECT OF COOLY PAYMENTS, THE ASSESSEE VIDE LETTER DATE 10.12.2007 PUT FORTH THE FOLLOWING POINTS BEFORE LD.CIT(A). I) INDIVIDUAL PAYMENTS WILL NOT EXCEED ` 50,000/-, ALL THE LABOURERS ARE NATIVE OF VILLAGES AND ARE ILLITERATE II) THEY ARE NOT EMPLOYEES OF THE ASSESSEE. THEIR W ORK IS SEASONAL. ITA NOS.1494,1535/MDS/2011 :- 6 -: III) THE BASIS NATURE OF APPALAM MAKING IS THAT OF A COTTAGE INDUSTRIES, IN WHICH THERE IS CONSTANT MOBILITY OF LABOUR. IV) IN A COTTAGE INDUSTRY, THAT TOO IN A VILLAGE, I T IS IMPRACTICAL AND IMPOSSIBLE TO INSIST ON STRICT COMPLIANCE WITH THE RIGOROUS PROVISIONS OF THE SECTION 40(A)(IA) AND SEC.40A(3) OF THE ACT. 3.3. THE LD.CIT(A) OBSERVED THAT ASSESSEES BUSINE SS AS PER FORM 3CD REPORT IS MANUFACTURE & TRADING IN APPALAM AN D IN COLUMN NO.17(F) OF 44AB REPORT THE CHARTERED ACCOUNTNAT OF THE ASSESSEE ADMITTED AS FOLLOWS:- 17. AMOUNTS DEBITED TO THE P&L A/C, BEING (F) AMOUNTS INADMISSIBLE U/S.40(A) - NIL (H) AMOUNT INADMISSIBLE U/S.40A(3) R.W.R.8D AND COMPUTATION THEREOF - NIL DURING THE PROCEEDINGS BEFORE LD.CIT(A), THE LD.A.R ADMITTED THAT A SUM OF 18,10,611.50 IS THE AMOUNT OUTSTANDING PAYAB LE TOWARDS WAGES. ACCORDING TO LD.CIT(A), THE MAIN CONTENTION OF ASSESSEE WAS THAT THERE WAS NO CONTRACT, WRITTEN OR ORAL, BETWEE N HER AND THE WORKERS, WHO ATTENDED TO MAKING OF APPALAMS PURSUAN T TO WHICH THE PAYMENT OF JOB WORK COOLY WAS MADE AND THE RECIPI ENTS OF THE JOB WORK COOLY WERE FACILITATORS AND NOT SUB CONTRACTO RS TO ATTRACT THE PROVISO TO SEC.194C(2) OF THE ACT. FURTHER, LD.CIT (A) ARRIVED AT A ITA NOS.1494,1535/MDS/2011 :- 7 -: CONCLUSION THAT THE CLAIM OF ASSESSEE IS NOT CORREC T. PAYMENTS WERE NOT MADE TO INDIVIDUAL JOB WORK COOLLY WORKER DI RECTLY. THE PAYMENTS WERE MADE TO INTERMEDIARIES (SUB-CONTRACTO RS) NUMBERING MORE THAN 20, WHO IN TURN, GOT THE WORK DONE THROUG H MANY PRSONS. OUTSTANDING WAGES PAYABLE IN THE LIABILITY SIDE OF BALANCE SHEET AS ON 31.03.2005 INCLUDED THE NAMES OF THESE INTERMEDIARI ES (SUB- CONTRACTORS.) 3.4 THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS . I) BDA LTD. VS. ITO (TDS) IN 281 ITR 99 (BOM.) II) TEJA CONSTRUCTIONS VS. ACIT (2010) 129 TTJ 57 ( HYD.)(UO) LD.CIT(A) OBSERVED THAT ASSESSEES CASE CAN BE DIST INGUISHED ON FACTS FROM THAT OF THE CASE CITED SUPRA. FURTHER, LD.CIT (A), IN HIS ORDER EXTRACTING THE PROVISIONS OF THE SECTION 40(A)(IA) AT THE TIME OF BILL STAGE/FINANCE ACT IN FINANCE (NO.2) BILL 2004 [268 ITR(ST.)P.121, AMENDMENT TO SEC.40(A)(IA) AND FINANCE (NO.2) ACT, 2004 [269 ITR(ST.)P.110 AT PAGE NO.8 & 9, OBSERVED THAT IN VI EW OF AMENDED PROVISIONS OF THE ACT, THE AMOUNT PAYABLE WOULD ONL Y ATTRACT THE DISALLOWANCE U/S.40(A)(IA) OF THE ACT. 3.5. ACCORDING TO LD.CIT(A), IN ASSESSEES CASE, A SUM OF 18,10,611/- WAS OUTSTANDING PAYABLE TO SUB CONTRACT ORS AS ON 31.03.2005. SINCE THIS OUTSTANDING AMOUNT WAS PAYA BLE ON WHICH TDS WAS NOT EFFECTED AND PAID, PROVISIONS OF THE SECTIO N 40(A)(IA) OF THE ITA NOS.1494,1535/MDS/2011 :- 8 -: ACT ARE CLEARLY ATTRACTED TO THAT EXTENT IN ASSESSE ES CASE. FURTHER, LD.CIT(A) OBSERVED THAT THE SUB-CONTRACTORS (DEDUCT EES) ARE NOT ASSESSED TO TAX. HENCE, THE QUESTION OF DEDUCTEES A CCOUNTING FOR SUCH RECEIPTS WILL NOT ARISE. THE AO NOTICED VIOLATIONS OF ASSESSEE U/S.40A(3) OF THE ACT. AS PER ASSESSEES LETTER DAT ED 30.09.2007, NONE OF THE SUB-CONTRACTORS WERE HAVING BANK ACCOUNTS. FROM THE ABOVE, IT IS CLEAR THAT THE RECEIPTS IN THE HANDS OF THE SUB- CONTRACTORS WERE NOT ACCOUNTED FOR IT PURPOSE. LD.CIT(A) OBSERVED THAT T HERE SHOULD BE DISALLOWANCE FOR NON-DEDUCTION, SINCE THE DEDUCTOR IS NOT ABLE TO SHOW ACCOUNTING BY THE DEDUCTEES. THEREFORE, THE LD.CIT( A) DIRECTED THE AO TO ADOPT DISALLOWANCE U/S.40(A)(IA) OF THE ACT TO T HE TUNE OF 18,10,611/- INSTEAD OF 1,07,69,581/- ADOPTED BY AO AND ALSO TO LEVY OF INTEREST U/S.234A, 234B & 234D BEING CONSEQUENTIAL IN NATURE. AGAINST THIS ORDER OF LD.CIT(A), BOTH ARE IN APPEA L BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE MAIN CONTENTION OF LD.A.R IS THAT THE ASSESSEE IS NOT A CONTRACTOR AS PRESCRIBED U/S.194C(2) OF TH E ACT. FURTHER, IT WAS SUBMITTED THAT THE PREVIOUS YEAR INVOLVED IS 20 04-05 RELEVANT TO ASSESSMENT YEAR 2005-06 AND THE PROVISIONS OF THE S ECTION 40(A)(IA) OF THE ACT BROUGHT INTO STATUTE BOOK ON 10.09.2004. B EING SO, IT CANNOT ITA NOS.1494,1535/MDS/2011 :- 9 -: BE APPLIED TO THE ENTIRE ASSESSMENT YEAR. FURTHER, IT WAS SUBMITTED THAT EACH PAYMENT IS LESS THAN ` 20,000/- AND AGGREGATE PAYMENT IS LESS THAN ` 50,000/- TO EACH PARTY IN THE ASSESSMENT YEAR UNDER CONSIDERATION. BEING SO, SEC.194C(2) OF THE ACT CAN NOT BE APPLIED. ACCORDING TO HIM, THESE FACTS WERE NOT EXAMINED BY THE LD.CIT(A), THOUGH RAISED BEFORE HIM AND PRAYED THE ISSUE MAY B E REMITTED TO THE FILE OF AO FOR CONSIDERING ALL THE FACTS. 7. IN OUR OPINION, IT IS FAIR AND APPROPRIATE TO R EMIT THE ISSUE IN DISPUTE TO THE FILE OF AO TO CONSIDER ALL THE ABOVE ARGUMENTS AND DECIDE THE ISSUE AFRESH. ACCORDINGLY, THE ENTIRE I SSUE IN DISPUTE IS REMITTED TO THE FILE OF LD. ASSESSING OFFICER FOR F RESH CONSIDERATION. 8. SINCE WE HAVE REMITTED THE ISSUE RAISED BY THE ASSESSEE TO THE FILE OF AO FOR FRESH CONSIDERATION, THE ISSUE R AISED BY THE REVENUE IS INTER-LINKED, WHICH IS ON THE SAME ISSUE. HENCE, REVENUES APPEAL ALSO GOES BACK TO THE FILE OF AO FOR FRESH CONSIDER ATION. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON 02 ND JUNE, 2017, AT CHENNAI. SD/- SD/- ( . ! ) ( DUVVURU RL REDDY ) ) & / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 02 ND JUNE, 2017. K S SUNDARAM &' ) *+ ,+ / COPY TO: 1 . -. / APPELLANT 3. / () / CIT(A) 5. +01 ) 2 / DR 2. )3-. / RESPONDENT 4. / / CIT 6. 1! 4 / GF