M/s. Dharashiv Sakhar Karkhana Ltd., Osmanabad V. Deputy Commissioner of Income-tax,

ITA 1683/PUN/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4820 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 23-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KESANG Y SHERPA
• Keywords: Principle of natural justice; TDS
• Section: 40(a)(ia); 194C; 201; 194J; 13

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE ( THROUGH VIRTUAL COURT ) BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT (KZ) AND SHRI PARTHA SARATHI CHAUDHURY , JUDICIAL MEMBER . / ITA NO. 1 683 /PUN/201 5 / ASSESSMENT YEAR : 201 1 - 12 M/S. DHARASHIV SAKHAR KARKHANA LIMITED, AT POST CHORAKHALI, TAL. KALLAM, DIST. OSMANABAD, MAHARASHTRA 413 405. PAN : AACCD5704D. . / APPELLANT . V/S THE DY.C OMMISSIONER OF INCOME TAX , CENTRAL CIRCLE 2(1), PUNE. . / RESPONDENT ASSESSEE BY : SHRI KISHORE PHADKE. REVENUE BY : S MT. KESANG Y. SHERPA. / ORDER PER SHRI PARTHA SARATHI CHAUDHURY , JM: TH IS APPEAL PREFERRED BY THE ASSESSEE EMANATE S FROM THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 1 2, PUNE DATED 03.09.2015 AS PER THE FOLLOWING GROUND S OF APPEAL ON RECORD : 1. THE LEARNED CIT(A) - 12, PUNE ERRED IN LAW AND ON FACTS IN AFFIRMING DISALLOWANCES U/S 40(A)(IA) OF THE ITA, 1961 MADE BY LEARNED DC I T, CENTRAL CIRCLE 2(1), PUNE (HEREINAFTER REFERRED TO AS LEARNED AO) AMOUNTING TO RS. 8,20,70,865/ - . 2. THE LEARNED CIT(A) - 12, PUNE ERRED IN LAW AND ON FACTS IN AFFIRMING DISALLOWANCES U/S 40(A)(IA) OF THE ITA, 1961 MADE BY LEARNED AO FOR FOLLOWING EXPENSES: / DATE OF HEARING : 21 .09. 2020 / DATE OF PRONOUNCEMENT : 24 .0 9 .2020 2 A ) C ANE HARVESTING EXPENSES - RS.3,74,23,326/ - B ) CANE TRANSPORTATION EXPENSES - RS.3,29,22,026/ - C ) CANE INCENTIVE EXPENSES - RS.1,17,25,513/ - PAYMENT TO H&T CONTRACTORS - RS.8,20,70,865/ - 3. THE LEARNED CIT(A) - 12 AND LEARNED AO OUGHT TO HAVE APPRECIAT ED THAT THE PAYMENT MADE TO H& T CONTRACTOR AMOUNTING TO RS. 8,20,70,865/ - IS PART OF PURCHASE PRICE OF SUGARCANE, HENCE NOT LIABLE FOR DEDUCTION OF TAX U/S 194C OF THE ITA, 1961 . 4. THE LEARNED CIT(A) - 12 AND LEARNED AO ERRED IN LAW AND ON FACTS IN HOLDING THAT THE PROVISIONS OF SECTION 194C(4) OF THE ITA, 1961 ARE NOT APPL ICABLE FOR PAYMENTS MADE TO H& T CONTRACTOR AMOUNTING TO RS. 8,20,70,865/ - . LEARNED IT - AUTHORITIES OUGHT TO HAVE APPRECIATED THAT APPELLANT MERELY ACTED AS A FACILITAT OR BETWEEN H&T CONTRACTOR AND FARMERS AND HENCE PROVISIONS OF SECTION 194C(4) OF THE ITA, 1961 SQUARELY APPLIES TO THE FACTS OF THE CASE. 5. THE LEARNED CIT(A) - 12 AND LEARNED AO ERRED IN LAW AND ON FACTS IN HOLDING THAT THE PROVISIONS OF SECTION 194C( 6) OF THE ITA, 1961 ARE APPLICABLE ONLY TO PERSONS ENGAGED IN THE BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAGES. 6. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE GROUNDS, LEARNED CIT(A) - 12, PUNE AND LEARNED AO ERRED IN LAW AND ON FACTS IN DISALLOWING AMOUNT PAID TO H&T CONTRACTORS NOT EXCEEDING RS. 30,000/ - ON INDIVIDUAL TRANSACTION BASIS OR AMOUNT NOT EXCEEDING RS. 75,000/ - ON AGGREGATE BASIS. 2. THE ASSESSEE ALSO FILED ADDITIONAL GROUNDS OF APPEAL WHICH ARE AS FOLLOWS : 8. A LTE RNATIVELY AND WITHOUT PREJUDICE TO GROUND NO.5, APPELLANT CONTENDS THAT PROVISION OF SECTION 40(A)(IA ) OF THE ITA, 1961 ARE NOT ATTRACTED ON PAYMENTS MADE TO CANE TRANSPORTATION EXPENSES; CONSIDERING THE PROVISIONS OF SECTION 194C(6) OF THE ITA,1961. 9. ALTERNATIVELY AND WITHOUT PREJUDICE TO GROUND NO. 1 TO 6, APPELLANT CONTENDS THAT DISALLOWANCES U/S 40(A)(IA) OF THE ITA, 1961; SHOULD BE RESTRICTED TO 30% OF THE EXPENDITURE, CONSIDERING THE AMENDMENT BY THE FINANCE ACT, 2014; WHICH HAS BEEN HELD AS RETRO SPECTIVE IN NATURE BY VARIOUS COURTS. 3. AT THE OUTSET, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT HE IS NOT PRESSING GROUND NO.8 IN THE ADDITIONAL GROUND S OF APPEAL FILED BEFORE US. THEREFORE, GROUND NO.8 OF THE ADDITIONAL GROUNDS OF APPEAL OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. 3 4. THE GROUND NOS.1 TO 4 RELATE TO THE CHALLENGING OF DISALLOWANCE S MADE BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY T HE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) REGARDING THE EXPENSES UNDER SEC.40(A)(IA) OF THE ACT AND L EARNED ASSESSING OFFICER S TREATMENT OF CANE INCENTIVE AS COMMISSION EXPENSES LIABLE FOR TDS UNDER SEC.1 94J OF THE ACT. L EARNED ASSESSING OFFICERS INTERPRETATION OF SEC.194C(6) OF DISALLOWANCE MADE AS UNDER : A ) CANE - HARVESTING EXPENSES RS.3,74,23,326/ - . B ) CANE - TRANSPORTATION EXPENSES RS.3,29,22,026/ - . C ) CANE INCENTIVE EXPENSES RS.1,17,25,513/ - . 5. THE BRIEF FACTS PERTAINING TO THESE DISALLOWANCE S ARE THAT THE LEARNED ASSESSING OFFICER NOTED THAT ASSESSEE DEBITED EXPENSES OF RS.7,03,45,352/ - IN PROFIT AND LOSS ACCOUNT INCURRED IN HARVESTING AND TRANSPORTING DURING THE YEAR. 1 ) CANE HARVESTING RS. 3,74,23,326/ - 2 ) CANE TRANSPORTING RS.3,29,22,026/ - RS .7,03,45,352/ - IT WAS ALSO NOTED THAT CANE INCENTIVE OF RS. 1,17,25,513/ - WAS NOTHING BUT THE COMMISSION GIVEN TO T HE HARVESTING AND TRANSPORT CONTRACTORS DURING THE ASSESSMENT YEAR 2010 - 11. AS PER LEARNED ASSESSING OFFICER, ASSESSEE WAS LIABLE TO DEDUCT TDS ON THE ABOVE EXPENSES OF RS. 7,03,45,352/ - AND RS. 1,17,25,573/ - UNDER SEC.194C AND SEC. 194J OF THE ACT, RESPECTIVELY. FOR FAILURE TO DEDUCT THE TAX AT SOURCE, THE LEARNED ASSESSING OFFICER ASKED TO SHOW CAUSE AS TO WHY THE STATED SUM SHOULD NOT BE DISALLOWED UNDER SEC.40(A)(IA) OF THE ACT. IN ITS REPLY DATED 08.01.2014, THE ASSESSEE STATED THAT IT GOT LOWER DEDUCTION CERTIFICATE S U/S 197 O F THE ACT IN RESPECT OF ITS 120 CANE TRANSPORT AND HARVESTING CONTRACTORS AND THEREFORE IN VIEW OF THE 4 CERTIFICATES, NO TDS WAS REQUIRED TO BE DEDUCTED. THE LEARNED ASSESSING OFFICER FOUND THAT TDS CERTIFICATE U/S 197 OF THE ACT WERE ONLY WITH RESPECT TO CONTRACTUAL PAYMENTS I.E., 194C PAYMENT AND NOT IN RESPECT OF THE PAYMENT S TO BE MADE UNDER SEC.194J OF THE ACT. MOREOVER, AS PER CERTIFICATES U/S 197 OF THE ACT, THE ASSESSEE WAS DIRECTED TO DEDUCT TDS @ 0.01% ON THE PAYMENT S MADE TO THE SAID CONTRACTOR S BETWEEN 28 .03.2011 TO 31.03.2011 , WHEREAS THE ASSESSEE HAD NOT DEDUCTED EVEN A SINGLE RUPEE O N ACCOUNT OF TDS. 6. THE ASSESSEE FILED WRITTEN SUBMISSION S BEFORE THE LEARNED ASSESSING OFFICER WHICH WERE REPRODUCED AT PARA 3.6 OF LEARNED ASSESSING OFFICERS ORDER. T HE CONTENTIONS OF THE ASSESSEE ARE THAT : ( 1 ) TDS WAS NOT DEDUCTIBLE ON THE ABOVE THREE PAYMENTS SINCE IT WAS THE DUTY OF THE MEMBERS (SUGAR CANE GROWERS SELLING SUG AR CANE TO THE ASSESSEE ) TO SUPPLY CANE AT THE GATE OF THE FACTORY . ( 2 ) H ARVESTING AND TRANSPOR TATION , THOUGH DONE BY THE ASSESSEE WAS ON BEHALF OF THE MEMBERS I.E., SUGAR CANE GROWERS AND THESE EXPENSES WERE DEDUCTED FROM THE CANE PRICES PAYABLE TO THEM. ( 3 ) CONTRACTORS WHO UNDERTAKE THESE ACTIVITIES FURNISHED THEIR PAN NUMBERS AND HENCE, TDS WAS NOT REQUIRED U/S 194C(6) OF THE ACT. ( 4 ) TDS WAS REQUIRED ONLY BY ASSESSEE WHICH WAS OUTSTANDING AT THE END OF THE YEAR OUT OF THE ABOVE THREE PAYMENTS AND HENCE, NO TDS WAS REQUIRED TO BE MADE TO THAT EXTENT. 7. THE LEARNED ASSESSING OFFICER HAS NOT ACCEPTED THESE EXPLANATIONS OF THE ASSESSEE. AS REGARD S THE FIRST AND SECOND ISSUES THAT PAYMENT TO HARVESTING AND TRANSPORT CONTRACTORS WAS THE RESPONSIBILITY OF MEMBERS AND FOR THE ASSESSEE , IT WAS COST OF PURCHASE O F THE SUGARCANE. THE LEARNED 5 ASSESSING OFFICER VIDE PARA 3.7(1) HAD OBSERVED THAT THE ASSESSEE HA S ACCEPTED ITS LIABILITY FOR MAKING TDS ON THESE ACTIVITIES AS IT HAD APPLIED FOR LOWER DEDUCTION CERTIFICATES U/S 197 OF THE ACT. THE ASSESSEE HAS CHALLENG ED THE STAND DURING THE ASSESSMENT PROCEEDINGS TO AVOID DISALLOWANCE UNDER SEC.40(A)(IA) OF THE ACT. AS REGARDS THE THIRD ISSUE, THE LEARNED ASSESSING OFFICER VIDE PARA 3.7(2) OBSERVED THE BENEFIT OF SEC . 194 C(6) WAS AVAILABLE ONLY TO SUCH ASSESSEE S WHO W ERE IN BUSINESS OF PLYING, HIRING AND LEASING AND AS THE ASSESSEE WAS NOT ENGAGED IN THE SAID ACTIVITIES, BENEFIT OF SEC. 194C(6) WAS NOT AVAILABLE . A S REGARD S THE FOURTH ISSUE, PAID OR PAYABLE AMOUNT S , LEARNED ASSESSING OFFICER VIDE 3.7(4) HAS RELIED UPON THE CBDT CIRCULAR AND DISMISSED THE CONDITION THERETO. IN RESPECT OF THE COMMISSION AMOUNT OF RS.1,17,25,513/ - , IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAS NOT STATED ANYTHING IN ANY OF ITS SUBMISSIONS WHICH PROVED THAT IT HAD ACCEPTED THE VIOLATION OF SEC.40(A)(IA) OF THE ACT ATLEAST ON THAT COUNT. THEREAFTER, LEARNED ASSESSING OFFICER DISALLOWED HARVESTING CONTRACTUAL EXPENSES OF RS.3 ,74,23,326/ - , T RANSPORTATION CONTRACTUAL EXPENSES OF R S .3 ,29,22,026/ - AND COMMISSION EXPENSES OF RS.1 , 17 , 25 ,5 13 / - AND MADE ADDITIONS UNDER SEC.40(A)(IA) OF THE ACT. 8. AT THE TIME OF APPELLATE PROCEEDINGS BEFORE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS), THE ASSESSEE HAD FILED DETAILED WRITTEN SUBMISSIONS WHICH ARE ON RECORD. THE LEA RNED COMMISSIONER OF INCOME - TAX (APPEALS) AFTER CONSIDERING THE FACTS OF THE CASE, SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER GAVE A CATEGORICAL FINDING ON THE DISALLOWANCE UNDER SEC.40(A)(IA) OF THE ACT. IT WAS SUBMITTED BEFORE THE LEARNED COMM ISSIONER OF INCOME - TAX (APPEALS) THAT THE ASSESSEE PURCHASED SUGARCANE FROM THE 6 FARMERS ON EX - GATE BASIS. IN OTHER WORDS, THE RESPONSIBILITY AND LIABILITY OF BRINGING THE SUGARCANE TILL THE FACTORY GATE OF THE ASSESSEE WAS THAT OF THE FARMERS SUPPLYING TH E CANE. MANY FARMERS PREFERRED TO SUPPLY THE CANE DIRECTLY AT THE FACTORY AND IN SUCH CASES, THESE FARMERS INCURRED THE COST OF TRANSPORTATION ON THEIR OWN. HOWEVER, SOME FARMERS WERE UNABLE TO DELIVER THE CANE TO THE FACTORY GATE OF THE ASSESSEE AND IN SUCH CASE ON BEHALF OF THESE FARMERS , THE ASSESSEE APPOINTED THE TRANSPORTERS FOR ENSURING THE TRANSPORT OF SUGARCANE TO THE FACTORY GATE. IT WAS FURTHER OBSERVED THAT THERE WAS AN AGREEMENT BETWEEN CANE GROWERS I.E., FARMERS / SUPPLIERS AND THE COMPAN Y. IT WAS SUBMITTED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT T HE ASSESSEE WAS NOT INCURRING HARVESTING AND TRANSPORT EXPENSES ON HIS OWN ACCOUNT AND MERELY ACTING ON BEHALF OF THE FARMERS. HENCE, IT WAS NOT RESPONSIBLE FOR DEDUCTING T DS ON SUCH PAYMENT S MADE ON BEHALF OF SUCH FARMERS. THAT AT THE ASSESSMENT PROCEEDINGS, TH E LEARNED ASSESSING OFFICER DID NOT ACCEPT THE ARGUMENT PUT - FORTH BY THE ASSESSEE AND HAD NOTICED THAT ASSESSEE HAD APPLIED FOR LOWER DEDUCTION CERTIFICATE U/S 19 7 OF THE ACT IN 120 CASES OF TRANSPORT AND HARVESTING CONTRACTOR. THE CONTENTION OF THE ASSESSEE THAT THE PAYMENTS WERE MADE TO THE CONTRACTORS ON BEHALF OF THE FARMERS , T HIS WAS EXAMINED BY LEARNED COMMISSIONER OF INCOME - TAX (APPEALS). IT WAS NOTED THAT T HE SUGAR CANE GROWERS / FARMERS HAD TO REGISTER THEMSELVES WITH THE ASSESSEE COMPANY BEFORE THE START OF THE HARVESTING SEASON BY FI LING S UGARCANE P LANTATION R EGISTRATION F ORM AND THE ENGLISH TRANSLATION OF THE TERMS AND CONDITIONS OF THIS CONTRACT ARE MADE PART OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS)S ORDER WHICH IS ON RECORD. ON CLOSE EXAMINATION OF THE CLAUSES 2, 3 AND 11 OF THE SAID F ORM, IT WAS CRYSTAL CLEAR THAT RESPONSIBILITY OF HARVESTING AND TRANSPORTATION WAS THAT OF 7 THE ASSESSEE AND IN CASE, ASSESSEE FAILED TO HARVEST AND TRANSPORT THE SUGAR CANE , THEN IT WOULD BE THE FARMERS RESPONSIBILITY TO DELIVER THE SUGARCANE ON FACTORY GATE BUT IN THAT CASE TOO , THE ENTIRE EXPENDITURE HAS TO BE BORNE BY THE ASSESSEE. THEREFORE, THE CONTENT ION OF THE ASSESSEE THAT IT WAS FARMERS RESPONSIBILITY TO DELIVER SUGARCANE AT FACTORY GATE AND PAYMENT S TO THE CONTRACTOR S WERE MADE ON BEHALF OF THE FARMER S IS CONTRARY TO THE TERMS OF THE SUGARCANE PLANTATION REGISTRATION F ORM. IT WAS FURTHER OBSERVED ON FACTS THAT THE ASSESSEE HAD ENTERED INTO ANOTHER SEPARATE AGREEMENT WITH HARVESTING AND TRANSPORT CONTRACTORS AND THE RELEVANT TERMS OF THE CONTRACT AND ITS ENGLISH TRANSLATION HAS BEEN MADE PART OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS)S ORDER ON RECORD. 9. THAT ON ANALYSIS OF THE PROVISIONS OF BOTH THE ABOVE STATED CONTRACTS , THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GAVE A FINDING THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH THE TRANSPORT ERS AND HARVESTING CONTRACTORS AND THE SUGARCANE GROWERS / FARMERS IN ITS OWN CAPACITY AND NOT ON BEHALF OF THE FARMERS. THE ASSESSEE HAD THE DIRECT CONTROL ON THE TRANSPORTERS / CONTRACTORS AND NOT THROUGH THE MEMBERS / FARMERS. AS PER C LAUSE (1) , THE QUOTA OF HARVESTING WAS DECIDED BY THE ASSESSEE. AS PER CLAUSE (3), ANY MATERIAL SUPPLIED BY THE ASSESSEE WAS TO BE COMPENSATED TO T HE ASSESSEE DIRECTLY . A S PER CLAUSE (4) ANY DAMAGE IN THE PROCESS OF CUTTING AND TRANSPORT ING WERE MADE TO BE GOOD T O THE ASSESSEE B Y THE CONTRACTORS. A S PER CLAUSE (8) RATES FOR THE ENTIRE ACTIVITY OF HARVESTING AND TRANSPORT WERE DECIDED BY THE ASSESSEE DIRECTLY WITH THESE CONTRACTORS. AS PER CLAUSE (13) , TIME - TABLE OF THE ASSESSEE HAD TO BE ADHERED TO BY THE CO NTR ACTORS. A S PER CLAUSE ( 20 ) , IF ANY ADVANCE PAID BY THE ASSESSEE REMAINED PENDING , THE SAME WAS TO BE REFUNDED TO THE 8 ASSESSEE BY THESE CONTRACTORS AND A S PER CLAUSE (34), THE ASSESSEE HAD A RIGHT OF LEGAL PROCEEDINGS IN CASE OF FAILURE OF THE CONTRACTORS AS REGARDS THEIR PERFORMANCE . A GREEMENT SHOWS THAT SUGARCANE GROWER S WERE NOT A PARTY TO THE CONTRACT MADE WITH THE TRANSPORTERS / CONTRACT OR S AND THE CONTENTION THAT PAYMENTS WERE MADE ON BEHALF OF T HE FARMERS WAS WITHOUT ANY BASIS. THEREFORE, THERE IS A CATEGORICAL FINDING BY THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) THAT THERE WERE CON T RACTS ENTERED INTO BY THE ASSESSEE ONE WITH THE FARMERS I.E., SUGARCANE GROWERS AND ANOTHER WITH THAT OF WITH THE TRANSPORTERS. THERE IS A DIRECT CONTROL OF THE ASSESSEE AND ON PERUSAL OF THE ENTIRE CLAUSES OF THESE TWO CONTRACTS, IT IS ABSOLUTELY CLEAR THAT WHATEVER PAYMENTS WERE MADE , WERE DIRECTLY MADE BY THE ASSESSEE, THE ASSESSEE HAD ENTERED INTO THESE CONTRACTS IN ITS OWN RIGHT AND CAPACITY AND THAT IT IS NOT A CORRECT SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE PAYMENTS WERE MADE ON BEHALF OF THE FARMERS. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) THEREAFTER DISTINGUISHED THE CASE LAWS RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE VIS - - VIS THE FACTS INVOLVED IN ASSESSEES OWN CASE BY OBSERVING AS UNDER : 2.4.7 THE RELIANCE PLACED BY THE APPELLANT ON THE VARIOUS CASE LAWS IS MISPLACED. IN THE CASE OF DWARKASHISH SSK - 55 TAXMAN.COM 471 (PUNE), THE UNDERSTANDING BETWEEN FACTORY AND THE FARMERS WAS THAT, THE AMOUNTS PAID TO THE TRANSPORTERS AND CONTRACTORS WERE TO BE ADJUSTED TO THE ACCOUNT OF THE CANE GROWERS. THERE WAS NO CONTRACT BETWEEN FACTORY AND THE TRANSPORT / HARVESTING CONTRACTOR. AS PER AGREEMENT OF FACTORY AND FARMERS THE SUGARCANE PRICE WAS FIXED EX - GATE AND FROM THAT PRIC E CHARG ES OF HARVESTING AND TRANSPORTATION PAID TO THE CONTRACTORS WERE RECOVERED. IN CONTRAST, IN THE PRESENT CASE, THE APPELLANT - PAID TO THE CANE - GROWERS ON A NET BASIS AND INCURRED THE COSTS OF HARVESTING AND TRANSPORTING DIRECTLY. THIS DISTINCTION IS QUITE WIDE AND RELEVANT HEREIN. IN CASE OF SHRI KAMRAJ VIBHAG SAHAKARI KHAND UDYOG MANDALIS CASE PAYMENTS TO CONTRACTORS WERE MADE BY ''VIBHAG SAMITI' FORMED BY THE CANE GROWERS AND IN CASE OF APPELLANT PAYMENT MADE BY THE COMPANY ITSELF. APPELLANT'S RELIANCE ON THE KIRSHAK BHARATI - 349 ITR 68 (GUJ) IS ALSO MISPLACED SINCE, THEREIN, TWO SEPARATE UNDERSTANDINGS WERE REACHED BETWEEN THE SELLER OF THE GAS AND THE BUYER OF THE GAS, AND BOTH THE UNDERSTANDINGS WERE READ AS COMBINED UNDERSTANDING. THEREIN, BOTH THE UNDERSTANDINGS WERE REACHED WITH THE SAME PARTY. AS AGAINST, IN THE PRESENT CASE, NET CANE PRICE UNDERS TANDING WAS WITH THE FARMER AND THE UNDERSTANDING REGARDING HARVESTING AND TRANSPORTATION CHARGES WAS WITH COMPLETE STRANGERS TO THE FARMER, I.E. NUMBER OF CONTRACTORS WHO HAD NO CONNECTION 9 OF WHATSOEVER NATURE WITH THE FARMER / MEMBER. HENCE, APPELLANT CA NNOT BE BENEFITED FROM THESE DECISIONS. 10. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) FURTHER HELD THAT HARVESTING AND TRANSPORT CONTRACTORS WERE ENGAGED BY THE ASSESSEE IN ITS OWN RIGHT AND IN ALL THESE CASES, WHERE HARVESTING AND TRANSPORT CHARGES WERE PAID , THE SAME W ERE THE LIABILITY OF THE ASSESSEE. FARMERS WERE ONLY CONCERNED WITH THE RECEIPTS OF THE NET SUGARCANE PRICE BEFORE THE START OF THE SEASON A ND THEREFORE IT IS CLEAR THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE CONTRACTOR / TRANSPORTER THAT OF CONTRACTOR AND THE CONTRACTEE AND THE ASSESSEE WAS UNDER THE OBLIGATION TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT. IN FACT , THE FILING OF APPLICATION UNDER SEC.197 OF THE ACT AND SECURING LO WER DEDUCTION CERTIFICATE ALSO SUGGEST S THAT THE ASSESSEE WAS AWARE OF ITS RESPONSIBILITY AS TAX DEDUCTOR AND THEREFORE, THE LEAR N ED COMMISSIONER OF INCOME - TAX (APPEALS) UPH ELD THE ACTION OF THE ASSESSEE IN DISALLOWING THE EXPENSES OF RS.8 , 20 , 70 , 8 6 5 / - UNDER SEC.40(A)(IA) OF THE ACT FOR FAILURE OF THE ASSESSEE TO DEDUCT TDS UNDER SEC.40(A)(IA) OF THE ACT ON PAYMENTS MADE TO HARVESTING AND TRANSPORT CONTRACTORS. 11. AT THE TIME OF HEARING BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE TOOK US THROUGH THE ORDERS OF THE LEARNED ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) AND REITERATED THE SUBMISSIONS PLACED BEFORE THEM. THE LEARNED AUTHORISED REPRESENTATIVE ALSO TOOK US THROUGH THE WRITTEN SUBMISSIONS P LACED ON RECORD WHICH WE HAVE CONSIDERED . THE LEARNED AUTHORISED REPRESENTATIVE PLACED STRONG RELIANCE ON THE FOLLOWING DECISIONS : (1) ACIT VS. KHEDUT SAH. KHAND UDYOG MANDLI LTD., REPORTED AT 76 TAXMANN.COM 10 137 (SC), (2) CIT VS. K HEDUT SHAH. KHAND UDYO G MANDLI LTD REPORTED AT 76 TAXMANN.COM 117 (GUJ) AND (3) CIT VS. DWARKADHEESH SAKHAR KARKHANA LTD., REPORTED AT ITA NO.480 OF 2015 OF BOMBAY HIGH COURT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT IN ALL THESE CASES, A HOLISTIC APPROACH HAS BEE N TAKEN AND THE PROVISIONS OF A CONTRACT NEED NOT BE STRICTLY READ INTO, THE END RESULT SHOULD ONLY BE CONCENTRATED UPON. HOWEVER, THE LEARNED AUTHORISED REPRESENTATIVE COULD NOT REFUTE THE CATEGORICAL FINDING OF THE LEARNED ASSESSING OFFICER AND ALSO OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS). THE LEARNED AUTHORISED REPRESENTATIVE COULD NOT REFUTE THE FACTS THAT THERE WERE TWO SEPARATE AGREEMENTS ENTERED INTO ONE WITH SUGARCANE GROWERS / FARMERS AND ANOTHER SEPARATE AGREEMENT WITH THAT OF THE CO NTRACTORS / TRANSPORTERS . THE LEARNED AUTHORISED REPRESENTATIVE COULD NOT ALSO PLACE ON RECORD ANY EVIDENCE TO CONTRADICT THE FINDINGS OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) THAT THE ASSESSEE HAD ACTUALLY ENTERED INTO THESE CONTRACTS AND MADE PA YMENTS TO THE TRANSPORTERS IN ITS OWN CAPACITY AND THAT THE ENTIRE PAYMENT WAS MADE NOT ON BEHALF OF THE FARMERS BUT ACTUALLY IN ITS OWN RIGHT AND CAPACITY SINCE THE LIABILITY OF THE PAYMENT WAS OF THE ASSESSEE. 12. WE ALSO FIND THAT THE CASE LAWS RELI ED ON BY THE ASSESSEE ARE SUBSTANTIALLY DIFFERENT IN FACTS VIS - - VIS THE FACTS IN ASSESSEES CASE AS CORRECTLY OBSERVED BY THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS). IN FACT , IN THESES JUDGMENTS, AS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENT ATIVE, ESPECIALLY WITH REGARD TO THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF K HEDUT SHAH. KHAND UDYOG MANDLI LTD REPORTED AT 76 TAXMANN.COM 117 OF (GUJ) (SUPRA) WHERE THERE IS A CATEGORICAL FINDING THAT THE ASSESSEE CO - OPERATIVE SOCIETY USED TO PURCHASE 11 SUGARCANE FROM THE FARMERS ON CONDITION THAT THE FARMERS SHALL SUPPLY THE SAME AT THE GATE OF THE RESPECTIVE FACTORY. WHEREAS , IN THE PRESENT CASE OF THE ASSESSEE, THERE WERE SPECIFIC SEPARATE CONTRACTS ENTERED INTO BY THE ASSESSEE ONE WITH THE FARMERS AND ANOTHER WITH THE TRANSPORTERS AND THEREFORE, THE FARMERS WERE NOT REACHING THE SUGARCANE TO THE GATE OF THE ASSESSEE FACTORY. 1 3 . WE ARE OF THE CONSIDERED VIEW THAT WHEN T HE ASSESSEE IS ENTERING IN HIS OWN RIGHT AND CAPACITY IN CONTRACT AND THE PAYMENT TO HARVESTERS / TRANSPORTERS WERE THE LIABILITY OF THE ASSESSEE AND DIRECTLY DONE BY THE ASSESSEE TO THEM, WHEN THE FARMERS WERE ONLY CONCERNED WITH THE RECEIPT OF NET SUGARC ANE PRICE FIXED BEFORE THE START OF THE SEASON AND WHEN THE FACTS ARE CRYSTAL CLEAR THAT THE PAYMENTS MADE BY THE ASSESSEE WERE NOT MADE ON BEHALF OF THE FARMERS , IN SUCH SCENARIO, THERE IS A STRICT RELATIONSHIP BETWEEN THE ASSESSEE AND THE CONTRACTOR / TRANSPORTER AS THAT OF THE CONTRACTOR AND THE CONTRACTEE AND IN SUCH CIRCUMSTANCES, THE ASSESSEE WAS UNDER THE LEGAL OBLIGATION TO DEDUCT TDS UNDER SEC.194C OF THE ACT AND SINCE THIS LEGAL OBLIGATION WAS NOT FULFILLED BY THE ASSESSEE, THEREFORE, DISALLOWAN CE OF RS.8 , 20 , 70 , 865 / - U/S 40(A)(IA) OF THE ACT AS CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS HEREBY SUSTAINED. ACCORDINGLY, GROUND S 1 TO 4 OF THE ASSESSEES APPEAL ARE DISMISSED. 1 4 . WITH REGARD TO GROUND NO.5, THE ASSESSEE HAS AR GUED THAT IT NEED NOT DEDUCT TDS ON TRANSPORT EXPENSES IN VIEW OF THE PROVISIONS OF SEC.194C(6) OF THE ACT SINCE THESE TRANSPORTERS HAVE FURNISHED THEIR PAN NUMBERS TO THE A SSESSEE. IN THIS CONNECTION, R EVENUE A UTHORITIES NOTED THAT SEC.194C OF THE ACT IS APPLICABLE ONLY IN THE CASE OF ASSESSEE, WHO IS IN THE BUSINESS 12 OF PLYING, HIRING, OR LEASING OR GOODS CARRIERS ETC. HOWEVER, THE ASSESSEE IS NOT IN THE BUSINESS OF HIRING, PLYING, LEASING AND THEREFORE, THIS ARGUMENT WAS REJECTED AND THE DISALLOWANCE MADE UNDER SEC.40(A)(IA) OF THE ACT WAS UPHELD. 1 5 . BEFORE US, IN THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE WITH REGARD TO THE APPLICABILITY OF SEC.40(A)(IA) OF THE ACT , IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE SCOPE OF SEC.194C(6) IS WIDER AND IT COVERS NOT ONLY TRANSPORT PAYMENT BUT ALSO HARVESTING AND OTHER PAYMENTS. THE PERSON WHO HARVEST S THE CANE IS THE SAME PERSON WHO TRANSPORTS THE CANE AND THEREFORE, THE PAYMENTS MADE TO THESE T RANSPORTERS UNDER THE NAME OF HARVESTING ETC ., GETS COVERED UNDER THE EXEMPTION UNDER SEC.194C(6) OF THE ACT. 1 6 . IN OUR CONSIDERED VIEW THIS ARGUMENT IS NOT CORRECT S INCE THE PROVISION S OF SEC.194C R.W.S. 194C (6) OF THE ACT, IMPOSES A SPECIFIC LIABILITY OF DEDUCTING TDS WITH RESPECT TO PAYMENT MADE UNDER THE CONTRACT TO A CONTRACTOR / TRANSPORTER ONLY AND IT DOES NOT EXTEND TO HARVESTER BY ANY STATE OF IMAGINATION. THE ARGUMENT OF THE ASSESSEE THAT THE HARVESTER IS THE SAME PERSON , WHO IS TRANSPORTING TH E CANE IS ABSOLUTELY FOUND FALSE AND UNTRUE AS REGARDS THE FACTS OF THE ASSESSEES CASE SINCE WE HAVE ALREADY ANALYZED FROM THE FACTS THAT THERE EXIST TWO SEPARATE AGREEMENT S ONE WITH THE FARMERS AND ANOTHER WITH THE CONTRACTOR / TRANSPORTER. THAT FURTHE R, AS ALREADY EXAMINED , THERE EXISTED THE PRIMA FACIE LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT TDS BEFORE MAKING PAYMENT TO THESE CONTRACTORS / TRANSPORTERS. THERE IS A CLEAR CUT CONTRACTOR CONTRACTEE RELATIONSHIP AND THE ASSESSEE CANNOT ESCAPE IT S LEGAL OBLIGATIONS OF DEDUCTING TDS. 13 THEREFORE, THE RIGOURS OF SEC.40(A)(IA) OF THE ACT APPLIES TO THE ASSESSEE AND THE ADDITION IS SUSTAINED. ACCORDINGLY, GROUND NO.5 IS DISMISSED. 1 7 . WITH REGARD TO GROUND NO.6, IT IS THE CONTENTION OF THE ASSESS EE THAT AS PER SEC.194C(5) OF THE ACT, TAX IS NOT REQUIRED TO BE DEDUCTED IF SINGLE PAYMENT MADE TO H&T CONTRACTORS DOES NOT EXCEED RS.30,000/ - AND AGGREGATE AMOUNT IN A YEAR DOES NOT EXCEED RS.75,000/ - . THE ASSESSEE CONTENDS THAT IN THE PRESENT CASE , THERE ARE SOME INSTANCES WHEREIN THE PAYMENTS TO THE H&T CON T RACTORS DOES NOT EXCEED BOTH THE LIMIT S PRESCRIBED UNDER SEC.194C(5) OF THE ACT AND AS SUCH WITHIN THE LIMITS PAYMENTS TO H&T CONTRACTORS , ASSESSEE IS NOT REQUIRED TO DEDUCT TAX. THE ASSESSE E ADMITS THAT THIS GROUND COULD BE REMITTED BACK TO THE LEA RNED ASSESSING OFFICER TO REACH A SUITABLE FINDING . 18. T HAT ON PERUSAL OF THE ORDER OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS), WE FIND THAT WHETHER THERE WERE SOME CASES WHERE PAYMENT MAD E TO SOME CONTRACTOR DOES NOT EXCEED THE LIMITS PRESCRIBED UNDER SEC.194C(5) OF THE ACT OR NOT HAS NOT BEEN BROUGHT OUT AT ALL AND IT REQUIRES FACTUAL VERIFICATION. THEREFORE, THIS LIMIT ED ISSUE WITH REGARD TO SEC.194C(5) OF THE ACT IS RESTORED TO THE FI LE OF LEARNED ASSESSING OFFICER FOR FACTUAL VERIFICATION AND ADJUDICATING OF THE ISSUE WHILE COMPLYING WITH THE PRINCIPLES OF NATURAL JUSTICE. GROUND NO.6 IS ALLOWED FOR STATISTICAL PURPOSES. 1 9 . WITH REGARD TO THE ADDITIONAL G ROUND NO.9 , THE CONTENTION OF THE ASSESSEE IS THAT THERE IS AN AMENDMENT VIDE FINANCE ACT , 2014 IN RESPECT OF SEC.40(A)(IA) OF THE ACT TO RESTRICT THE DISALLOWANCE AT 30% INSTEAD OF 14 100% AND THE AMENDMENT IS W.E.F . FROM 01.04.2015 . H OWEVER , VARIOUS COURTS HAVE HELD THAT PRESCRIBED AMENDMENT IS RETROSPECTIVE IN NATURE I.E., IT WILL BE APPLICABLE TO THE PERIOD EVEN PRIOR TO 01.04.2015. ON THIS ASPECT, T HE ASSESSEE HAS RELIED ON THE FOLLOWING DECISIONS : 1 ) ECONOMIC MEDICAL STORES LTD., VS. JCIT IN ITA NO.118/KOL/2018. 2 ) HIPOLIN LTD., VS. ITO IN ITA NO.1079/AHD/2016 . 20. WE OBSERVE THAT G ROUND NO.6 WHICH WE HAVE REMITTED BACK TO THE FILE OF LEARNED ASSESSING OFFICER SHALL ALSO HAVE A BEARING ON THIS PRESENT GROUND. THEREFORE, GROUND NO.9 IS ALSO RESTORED TO THE FILE OF LEARNED ASSESSING OFFICER TO ADJUDICATE THE ISSUE CONSIDERING RELEVANT JUDICIAL PRONOUNCEMENTS WHILE COMPLYING WITH THE PRINCIPLES OF NATURAL JUSTICE. T HIS GROUND NO.9 IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 2 1 . IN THE COMBINED RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 24 TH DAY OF SEPTEMBER, 2020. SD/ - SD/ - - ( P.M. JAGTAP ) ( PARTHA SARATHI CHAUDHURY ) V ICE PRESIDENT JUDICIAL MEMBER PUNE ; DATED : 24 TH SEPTEMBER, 2020. YAMINI 15 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5. 6. CIT( APPEALS) - 12, PUNE. PR. CIT (CENTRAL), PUNE. , , / DR, ITAT, A PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY / / / SR. PRIVATE SECRETARY , / ITAT, PUNE .