The DCIT, Circle-1, Kakinada V. M/s RR Services, Kakinada

ITA 396/VIZ/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2582 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-10-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 27-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T L PETER
• Keywords: Additional evidence
• Section: 194C

Judgement Text

ITA 396/V/09 RR SERVICES, ANAPARTHI IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 396 /VIZAG/ 20 09 ASSESSMENT YEAR : 2006 - 07 DCIT CIRCLE - 1 KAKI NADA R.R. SERVICES ANAPARTHY (APPELLANT) VS. (RESPONDENT) PAN NO.AACFR 6164J APPELLANT BY: SHRI T.L. PETER, DR RESPONDENT BY: SHRI G.V.N. HARI, CA ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER : - THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) ON A SOLITARY GROUND WHICH IS AS UNDER: - THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE U/S 40A(IA), OF RS.82,00,000/ - BEING PAYMENT BY THE ASSESSEE TOWARDS CONCRETE LAYING FOR RESERVOIR LINING AT GOWTHAMI POWER PLANT AT SAMAL KOT, TO SRI M. SARVESWARA RAO, HOLDING THE PAYMENT OF RS.82,00,000/ - AS NOT A SERVICE CONTRACT, AND DOES NOT ATTRACT PROVISIONS U/S 194C, SINCE THE RECIPIENT, SRI M. SARVESWARA RAO, PROP: RAMAKRISHNA FABRICATION WORKS, KAKINADA HAS ADMITTED THE ENTIRE RECE IPT OF RS.1,05,00,000/ - INCLUDING RS.82 LAKHS AS THE SUB - CONTRACT RECEIPT IN THE PROFIT & LOSS ACCOUNT IN HIS INDIVIDUAL RETURN OF INCOME FOR THE SAME ASSESSMENT YEAR 2006 - 07. 2. THE FACTS IN BRIEF BORNE OUT FROM THE ORDER OF THE LOWER AUTHORITIES ON THE IMPUGNED ISSUE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT ASSESSEE FIRM HAD PAID AN AGGREGATE AMOUNT OF RS.1,05,00,000/ - WITHOUT DEDUCTION OF TAX AT SOURCE , TO ONE SHRI M. SARVESWARA RAO, PROPRIETOR OF M/S. RAMAKRISHNA FABRICATION WO RKS, KAKINADA FOR UNDERTAKING BY THE LATTER THE RESERVOIR LINING WORK AT GOWTHAMI POWER PLANT, SAMALKOT. THE A.O. SOUGHT TO DISALLOW THE ENTIRE EXPENDITURE OF RS.1,05,00,000/ - U/S 40A(IA) OF THE ACT. AFTER HAVING EXAMINED THE RECIPIENT AS WELL AS THE PAR TNER OF THE ASSESSEE FIRM, THE A.O. CONCLUDED THAT PAYMENT HAD BEEN MADE IN CONNECTION WITH THE SUB - CONTRACT FOR RESERVOIR LINING WORK AWARDED TO ITA 396/V/09 RR SERVICES, ANAPARTHI 2 SHRI M. SARVESWARA RAO , WHICH OUGHT TO HAVE BEEN SUBJECTED TO TAX IN TERMS OF PROVISIONS OF SECT ION 194C OF THE ACT , BUT WHICH HAVING NOT BEEN SUBJECTED FOR TDS PURPOSE , THE ENTIRE AMOUNT WAS LIABLE TO BE DISALLOWED U/S 40A(IA) OF THE ACT. ACCORDINGLY, THE A.O. EFFECTED THE DISALLOWANCE OF RS.1,05,00,000/ - AND , THERE AFTER , ASSESSED THE TOTAL INCOME AT RS.1,13,90,000/ - . 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT THE PURPORTED CONTRACT WORK AWARDED TO M. SARVESWARA RAO, PROPRIETOR OF RAMAKRISHNA FABRICATION WORKS, KAKINADA , FOR RESERVOIR LINING WORK FOR AN AMOUNT OF RS.1,05,00,000/ - IS ACTUALLY A SUB - CONTRACT WORK ONLY TO THE EXTENT OF RS.23 LAKHS FOR PROVIDING LABOUR SERVICES , AND THE BALANCE AMOUNT OF RS.82 LAKHS REPRESENT S THE COST OF MATERIAL SUCH AS CEMENT, IRON, METAL CHIPS, SAND, ETC. , WHICH HAD BEEN PURCHA SED BY THE APPELLANT BY AUTHORIZING THE SAID SUB - CONTRACTOR TO RECEIVE THE MATERIAL S AND MA K E PAYMENTS THERE OF ON BEHALF OF THE ASSESSEE. IT WAS FURTHER CONTENDED THAT SINCE THE BILLS AND INVOICES FOR PURCHASE OF RAW MATERIALS HAVE BEEN ISSUED IN THE NAM E OF THE ASSESSEE FIRM , IT BECAME THE SOLE RESPONSIBILITY OF THE ASSESSEE AND NOT THAT OF THE SUB - CONTRACTOR , TO DISCHARGE THE PAYMENT S THERE OF IN CONNECTION WITH VARIOUS SALES CONTRACT S BETWEEN THE ASSESSEE AND THE DIFFERENT SUPPLIER PARTIES OF RAW MATER IAL S . IT WAS FURTHER CONTENDED THAT ONLY THE DIFFERENCE WAS THAT THE SUB - CONTRACTOR WAS INSTRUCTED TO MAKE THE PAYMENT S ON BEHALF OF THE ASSESSEE TO THE SUPPLIER PARTIES AND , SUBSEQUENTLY , LIABILITY OF THE ASSESEE WAS ADJUSTED BY CREDITING THE SUB - CONTRAC TORS ACCOUNT , AND , IN THIS SENSE , THE RE EXISTED NO CIVIL OR SERVICE CONTRACT BETWEEN THE ASSESSEE AND THE SAID SUB - CONTRACTOR IN SO FAR AS THE EXPENDITURE INCURRED FOR PURCHASE OF RAW MATERIALS TO THE TUNE OF RS.82 LAKHS IS CONCERNED. IT WAS FURTHER CONT ENDED THAT ONLY IN RESPEC T OF PAYMENT OF RS.23 LAKHS, TOWARDS SUPPLY OF LABOUR SERVICES BY THE SUB - CONTRACTOR IT COULD BE SAID THAT A SERVICE CONTRACT CAME INTO EXISTENCE IN TERMS OF 194C OF THE ACT. THE ASSESSEE HAS PLACED THE COPIES OF BILLS FOR PURCHAS E OF MAJOR ITEMS OF RAW MATERIAL IN CONNECTION WITH THE RESERVOIR LINING WORKS UNDERTAKEN BY THE SUB - CONTRACTOR WHICH INDICATED THAT SUCH BILLS WERE ISSUED IN THE NAME OF THE ASSESSEE FIRM ITSELF. ITA 396/V/09 RR SERVICES, ANAPARTHI 3 3. THE CIT(A) CALLED A REMAND REPORT ON TH IS NEW EVIDENCE FILED BEFORE HIM FOR THE ASSESSING OFFICER BUT THE ASSESSING OFFICER HAS NOT OBJECTED THE ADMISSION OF THE ADDITIONAL EVIDENCE. THE CIT(A) RE - EXAMINED THE ENTIRE ISSUE IN THE LIGHT OF EVIDENCE FILED BEFORE HIM AND HAVING CONVINCED WITH THE EXPLANATIONS O F THE ASSESSEE , HE RESTRICTED THE DISALLOWANCE U/S 40A(IA) OF THE ACT TO THE EXTENT OF E XPENDITURE OF RS.23 LAKHS WHICH WAS PAID TO THE SUB - CONTRACTOR AGAINST SERVICE CHARGES. THE RELEVANT OBSERVATION OF THE CIT(A) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIVE AND ON PERUSAL OF THE COPIES OF THE BILLS AND INVOICES IN RESPECT OF MATERIALS CLAIMED TO HAVE BEEN PURCHASED ON BEHALF OF THE APPELLANT, IT WAS FOUND THAT SUCH BILLS AND INVOICES HAVE BEEN ISSUED IN THE NAME OF THE APPELLANT - FIRM, AND NOT IN THE NAME OF THE SUBCONTRACTOR, THEREBY, CASTING A SALES CONTRACTUAL OBLIGATION UPON IT TO MAKE PAYMENTS TO VARIOUS PARTIES, WHO HAVE SUPPLIED MATERIALS, EVEN THOUGH THE SUBCONTRACTOR MIGHT HAVE TAKEN DE LIVERY OF THE MATERIALS AND MADE PAYMENT THEREOF ON BEHALF OF THE APPELLANT. SINCE IN THE EYES OF THE LAW, IT WAS AN OBLIGATION OF THE APPELLANT, AND NOT THAT OF THE SUBCONTRACTOR, TO DISCHARGE THE PAYMENT RELATING TO THE SALE VALUE OF THE MATERIALS SUPPL IED, PRIMA FACIE, IT COULD NOT BE HELD THAT THERE EXISTED ANY CONTRACTUAL OBLIGATION IN THE NATURE OF CIVIL OR SERVICE CONTRACT BETWEEN THE APPELLANT AND THE SUBCONTRACTOR IN SO FAR AS THE PAYMENT RELATING TO THE PURCHASE OF RAW - MATERIALS ON BEHALF OF THE APPELLANT IS CONCERNED. IN VIEW OF SUCH ANALYSIS AND ALSO ON TAKING INTO ACCOUNT THE FACT THAT THE ASSESSING OFFICER RUSHED TO A HASTY DECISION WITHOUT AFFORDING FURTHER OPPORTUNITY TO THE APPELLANT FOR PROVING NON - EXISTENCE OF ANY SERVICE CONTRACTUAL OBL IGATION BETWEEN IT AND THE SUBCONTRACTOR IN RESPECT OF THE PAYMENTS TOWARDS PURCHASE OF RAW - MATERIALS IN THE NAME OF THE APPELLANT, THE ADDITIONAL EVIDENCE BY WAY OF PHOTO COPIES OF THE BILLS/INVOICES FOR PURCHASE OF MAJOR ITEMS OF RAW - MATERIALS, MERITED T O BE ADMITTED IN TERMS OF RULE 46A(1)(D) OF THE I.T. RULES, 1962. ACCORDINGLY, THE ASSESSING OFFICER WAS AFFORDED AN OPPORTUNITY VIDE THIS OFFICE LETTER DATED 29.4.2009 ENCLOSING COPIES OF SUCH BILLS TO OFFER HIS OBJECTIONS, IF ANY, TO THE ADMISSION OF AD DITIONAL EVIDENCE IN TERMS OF RULE 46A(3) OF THE I.T. RULES, 1962 FOR ADJUDICATION ON THE MERITS OF THE ISSUE, AND ALSO RENDER A DEFINITE OPINION AS TO WHETHER ON THE BASIS OF SUCH ADDITIONAL EVIDENCE THE PAYMENTS TO THE SUBCONTRACTOR TO PURCHASE RAW - MATER IALS ON BEHALF OF THE APPELLANT COULD BE KEPT OUT OF THE AMBIT OF SECTION 194C OF THE ACT OR NOT. HOWEVER, TILL THE DATE OF PASSING OF THE APPELLATE ORDER, THE ASSESSING OFFICER HAS NOT OBJECTED TO THE ADMISSION OF THE SAID ADDITIONAL EVIDENCES NOR RESPO NDED IN ANY MANNER TO THIS OFFICE ITA 396/V/09 RR SERVICES, ANAPARTHI 4 LETTER DATED 29.4.2009. ACCORDINGLY, IT HAS TO BE PRESUMED THAT THE ASSESSING OFFICER HAS NO OBJECTION, WHATSOEVER, TO THE ADMISSION OF THE SAID ADDITIONAL EVIDENCES AND, AS SUCH, THE ISSUE ON HAND DESERVES TO BE EVALUATE D ON MERITS ON THE BASIS OF SUCH ADDITIONAL EVIDENCES FILED. THE APPELLANT HAS FILED TWO SETS OF BILLS FOR PURCHASE OF RAW - MATERIALS ONE SET IN RESPECT OF WHICH THE SUBCONTRACTOR HAD BEEN AUTHORIZED TO TAKE DELIVERY OF MATERIALS AND MAKE PAYMENTS THERE OF, AND THE SECOND SET IN RESPECT OF THE PORTION OF THE RESERVOIR LINING WORK UNDERTAKEN BY THE APPELLANT - FIRM BY ITSELF. THE FIRST SET OF BILLS INDICATE THAT THE RAW - MATERIALS PURCHASED ON BEHALF OF THE APPELLANT HAVE BEEN DONE SO IN THE NAME OF THE APPE LLANT ITSELF, AND NOT IN THE NAME OF THE SUBCONTRACTOR. A CONTRACT FOR PURCHASE OF GOODS COMES INTO EXISTENCE BETWEEN THE SELLER OF GOODS AND THE PURCHASER OF GOODS UPON ISSUE BY THE SELLER OF INVOICE IN THE NAME OF THE PURCHASER. CONSEQUENTIALLY, IT IS THE PURCHASER IN WHOSE NAME THE SALE INVOICE HAS BEEN ISSUED IS CONTRACTUALLY OBLIGED TO DISCHARGE THE PAYMENT TO THE SELLER OF THE GOODS. IN THE INSTANT CASE, ALTHOUGH THE SUBCONTRACTOR HAS TAKEN DELIVERY OF THE RAW - MATERIALS AND MADE PAYMENTS THEREOF TO THE VARIOUS RAW - MATERIAL SUPPLIERS ON BEHALF OF THE APPELLANT, HE IS UNDER NO LEGAL OBLIGATION TO DISCHARGE THE PAYMENT TO THE VARIOUS RAW - MATERIAL SUPPLIERS, AND SUCH SUPPLIERS CANNOT TAKE ANY LEGAL ACTION AGAINST THE SUBCONTRACTOR FOR RECOVERY OF OUTSTA NDING DUES. SINCE THE EYES OF LAW, IT IS THE APPELLANT - FIRM WHICH IS OBLIGED TO DISCHARGE THE PAYMENTS AND THE RAW - MATERIAL SUPPLIERS COULD ONLY SUE THE APPELLANT FOR RECOVERY OF SALE CONSIDERATION, THE PURCHASE OF RAW - MATERIALS ON BEHALF OF THE APPELLANT PARTOOK OF THE CHARACTER OF A SIMPLE CONTRACT FOR SALE OF THE GOODS BETWEEN THE APPELLANT AND THE VARIOUS SUPPLIERS OF THE RAW - MATERIALS. IF IT IS SO TREATED, THEN, THE PAYMENT MADE OF RS.82,00,000/ - TO THE SUBCONTRACTOR FOR PURCHASE OF RAW - MATERIALS ON BEHALF OF THE APPELLANT CANNOT BE SAID TO TAKE THE COLOUR OF ANY PAYMENT IN CONNECTION WITH ANY CONTRACT FOR SERVICE. ACCORDINGLY, SUCH PAYMENT OF RS.82,00,000/ - CLEARLY REMAINS OUTSIDE THE AMBIT OF SECTION 194C OF THE ACT, AND, CONSEQUENTLY, THERE IS NO SCOPE FOR DISALLOWANCE OF SUCH EXPENDITURE U/S 40(A)(IA) OF THE ACT. OF COURSE, IT IS AN ADMITTED POSITION ON BEHALF OF THE APPELLANT THAT A SUM OF RS.23,00,000/ - REPRESENTING PAYMENT TOWARDS SUPPLY OF THE LABOUR IS A SERVICE CONTRACT FOR WHICH TAX AT SOU RCE OUGHT TO HAVE BEEN DEDUCTED U/S 194C OF THE ACT, AND THE APPELLANT HAVING NOT DONE SO, THE SAME IS LIABLE FOR DISALLOWANCE U/S 40(A)(IA) OF THE ACT. HENCE, THE DISALLOWANCE TO THE EXTENT OF RS.23,00,000/ - IS, HEREBY, UPHELD AND THE BALANCE DISALLOWANC E OF RS.82,00,000/ - IS, HEREBY DELETED. ITA 396/V/09 RR SERVICES, ANAPARTHI 5 4. AGGRIEVED, T HE REVENUE HAS PREFERRED AN APPEAL BEFORE US AND PLACED A HEAVY RELIANCE UPON THE ORDER OF THE A.O. THE LD. D.R. COULD NOT PLACE ANY EVIDENCE ON RECORD IN SUPPORT OF HIS CONTENTION THAT THE RAW MAT ERIAL WAS PURCHASED BY THE SUBCONTRACTOR AND THE BILLS WERE FINALLY RAISED TO THE ASSESSEE FOR ITS PAYMENT. THE FACTS AVAILABLE ON RECORD RATHER CLEARLY SPEAKS THAT THE RAW MATERIALS WERE PURCHASED BY THE ASSESSEE AND NOT BY THE SUBCONTRACTOR. SUB CONTRA CTOR SIMPLY MADE THE PAYMENT TO THE SUPPLIER OF THE RAW MATERIAL ON BEHALF OF THE ASSESSEES WHICH WERE FINALLY ADJUSTED AGAINST THE OUTSTANDING BILLS. THEREFORE, WE ARE OF THE VIEW THAT CIT(A) HAS RIGHTLY ADJUDICATED THE ISSUE UNDER THE GIVEN SET OF FACTS AND WE FIND NO INFIRMITY THEREIN. ACCORDINGLY, WE CONFIRM HIS ORDER. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 27.12 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDIC IAL MEMBER VG/SPS VISAKHAPATNAM, DATED 27 TH DECEMBER , 20 10 COPY TO 1 THE DCIT, CIRCLE - 1, KAKINADA 2 M/S. R.R. SERVICESX, 2 - 206, SRINAGAR, ANAPARTHI, E.G. DISTRICT. 3 THE CI T, RAJAHMUNDRY 4 THE CIT (A) , RAJA HMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM