M/S SANKALP INTERNATIONAL, Jaipur V. ITO, Jaipur

ITA 49/JPR/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6502 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 17-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL; D C SHARMA
• Section: 194C; 201(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NO. 49, 50 & 51/JP/2012 ASSESSMENT YEARS : 2006-07, 2008-09 & 2010-11 PAN : JPRS 02198A M/S. SANKALP INTERNATIONAL VS. THE ITO F-944, ROAD NO. 14, VKI AREA TDS-2 JAIPUR JAIPUR (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL DEPARTMENT BY: SHRI A.K. KHANDELWAL & SHRI D.C. SHARMA DATE OF HEARING: 10-07-2014 DATE OF PRONOUNCEMENT: 18-07-2014 ORDER PER R.P. TOLANI, JM THESE ARE THREE APPEALS FILED BY THE ASSESSEE AGA INST THREE DIFFERENT ORDERS OF THE LD. CIT(A)-III, JAIPUR DATED 17-10- 2011 FOR THE ASSESSMENT YEARS 2006-07, 2008-09 AND 2010-11 RESPECTIVELY WHE REIN THE ASSESSEE HAS RAISED COMMON GROUNDS REGARDING NON-DEDUCTION OF T DS AS UNDER:- GROUND NO. 1, 1.1, 1.2 & 2 CONFIRMING THE ACTION OF AO IN HOLDING THAT ASSES SEES INDEPENDENT AND SEPARATE CONTRACT WITH ENERCON (IND IA) LTD. [IN A.Y. 06-07 & 10-11] & SULZON GROUP [IN A.Y. 08-09 & 10-1 1] FOR SUPPLY OF PLANT & MACHINERY OF WINDMILL, FOR CIVIL/ELECTRI CAL WORKS AND ERECTION AND COMMISSION OF WINDMILL, IS A COMPOSITE WORK CONTRACT LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 194C ON E NTIRE VALUE INCLUDING THE PAYMENT MADE FOR SUPPLY OF PLANT & MACHINERY. 2 & CONFIRMING THE ACTION OF AO IN HOLDING THAT THE ADV ANCE PAYMENT TO SUZLON ENERGY LTD. AND ENERCON INDIA LTD . TOWARDS SUPPLY OF PLANT & MACHINERY OF WINDMILL IS LIABLE T O DEDUCTION U/S 194C (A.Y. 10-11) & CONFIRMING THE ACTION OF AO IN HOLDING THAT ASSESSE E IS IN DEFAULT U/S 201(1) FOR NOT DEDUCTING TAX AT SOURCE U/S 194C ON PAYMENT MADE FOR SUPPLY OF PLANT & MACHINERY. RAISI NG DEMAND OF RS. 8,26,060/- U/S 201(1) [A.Y. 10-11] & CONFIRMING THE ACTION OF AO IN RAISING DEMAND OF RS . 60,857/-, RS. 42,977/- & RS. 55,561/- FOR A.Y. 06-07, 08-09 & 10-11 RESPECTIVELY U/S 201(1A) ON ALLEGED NON DEDUCTION O F TAX AT SOURCE ON SUPPLY VALUE OF PLANT & MACHINERY 2.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ALLEGED TO HAVE ENTERED INTO TURNKEY PROJECT WITH M/S. SUZLON, A WI NDMILL SUPPLIER GROUP OF COMPANIES. THE REVENUE CLAIMS IT TO BE A COMPOSITE CONTRACT AS AGAINST WHICH THE ASSESSEE CLAIMS THAT THE WINDMILLS WERE P URCHASED AND ENTIRE DEAL OF PURCHASE OF WINDMILLS CONSISTED OF PURCHASING OF WINDMILL BY WAY OF SALE OF GOODS FROM ONE ENTITY OF SUZULON GROUP. THE EREC TION AND MAINTENANCE CONTRACT WAS FROM DIFFERENT ENTITY OF SUZULON GROUP . THE ASSESSEE CLAIMS THAT THE SALE / SUPPLY OF THE PART OF THE WINDMILL WAS CLEAR CUT CASE OF SALE OF GOODS TO ASSESSEE. THERE IS NO LIABILITY OF DEDUCTI ON U/S 194C OF THE ACT ON THE SALE OF GOODS. THE ENTITY WHICH ASSESSEE ENTERE D INTO AGREEMENT FOR ERECTION AND MAINTENANCE, THE TDS HAS BEEN DEDUCTED U/S 194C OF THE ACT. 3 2.2 THE DEPARTMENT HOWEVER, HELD THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS FROM ENTIRE AMOUNT AND CONSEQUENTLY ON THE DIFFERENCE THE ASSESSEE WAS HELD TO BE HAVING NOT COMPLIED WITH TD S PROVISIONS AND WAS DEEMED IN DEFAULT. THUS THE INTEREST DEMAND FOR DIF FERENTIAL TDS WAS RAISED U/S 201 & 201(1A) OF THE ACT. THE AO ACCORDINGLY RA ISED THE DEMAND IN ALL THESE YEARS. 2.3 THE LD. CIT(A) UPHELD THE ORDER OF THE AO IN AL L THESE YEARS BY FOLLOWING COMMON OBSERVATIONS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCE AND DE TAILED DELIBERATION, IT IS HELD THAT INFACT THE APPELLANT WAS HAVING THE SOLE INTENTION OF INSTALLING A TURNKEY PROJECT OF WINDM ILL, WHICH WAS INCLUSIVE OF SUPPLY OF PLANTS & EQUIPMENTS AND ALSO ERECTION AND INSTALLATION OF SUCH PROJECT ONLY. IN VIEW OF THE S AME ALL THE SEPARATE ORDERS OF SUPPLY OF EQUIPMENTS AND SERVICE RELATED ASPECTS, ARE INFACT AMOUNTS TO A SINGLE WORK CONTR ACT ONLY. ACCORDINGLY, PAYMENTS MADE TOWARDS SUCH WORK CONTR ACT DO FALL UNDER THE AMBIT OF SEC. 194C OF THE ACT. ACCORDINGL Y, THE SEPARATE WORK ORDERS, PLACED FOR THE SUPPLY OF THE EQUIPMENT S AND ERECTION OF THE PLANT ETC., WERE FOUND NOTHING BUT AS A DELI BERATE ACT OF THE PART OF THE APPELLANT TO REDUCE ITS TDS LIABILITY B Y CIRCUMVENTING THE RELEVANT PROVISIONS OF THE LAW, THROUGH ARTIFIC IALLY DIVIDING SUCH WORK CONTRACT IN PIECEMEAL ORDERS. THUS, IT IS CONCLUDED THAT THE ERECTION, INSTALLATION AND COMMISSIONING ASPECT S OF THE WINDMILL PROJECT ARE INTEGRAL PART OF COMPOSITE C ONTRACT OF SUCH PROJECT, THUS, THE SEPARATE WORK ORDERS PLACED IN T HIS REGARD ARE FAR ALL PRACTICAL AND TECHNICAL PURPOSES, FORMS THE PART OF THE SINGLE WORK CONTACT ONLY. ACCORDINGLY, I FIND THE AO IS JUSTIFIED IN 4 HOLDING THAT THE APPELLANT WAS AT FAULT U/S 201, WH ILE NOT DEDUCTING TDS U/S 194C OF THE ACT, TOWARDS THE PAYMENT MADE F AR MACHINERY, PARTS AND OTHER MATERIALS, AS OTHERWISE DEDUCTED ON THE PAYMENT MADE TOWARDS SERVICE CHARGES RELATED TO SUCH COMPOSITE WORK CONTRACT OF THE APPELLANT. HOWEVER , IN VIEW OF THE RATIO OF HONBLE SUPREME COURT GIVEN IN THE CAS E OF M/S HINDUSTAN COCA COLA BEVERAGE P. LTD., THE APPELLANT S LIABILITY, I.R.O., NON DEDUCTION OF TDS U/S 201(1) WAS RIGHTLY HELD BY THE AO, AS NOT ENFORCEABLE AS SUCH. ACCORDINGLY, DEMAND OF RS. 60,857/-, RS. 42,977/- & RS. 55,561/- FOR A.Y. 06-07, 08-09 & 10-11 RESPECTIVELY RAISED U/S 201(1A), TOWARDS INTEREST A SPECT ON SUCH TDS DEFAULT & DEMAND OF RS. 8,26,060/- FOR A.Y. 10- 11 RAISED U/S 201(1) IS HEREBY CONFIRMED. 2.4 AGGRIEVED, THE ASSESSEE IS BEFORE US. 2.5 THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARG UED THAT THE DEPARTMENT HAS ASSUMED THAT THERE IS A TURNKEY PROJ ECT OF WINDMILL WHEREAS THE FACT OF THE MATTER IS THAT THE SUZULON GROUP HA S UMBRELLA OF DIFFERENT ENTITIES WHICH DEAL IN DIFFERENT TYPE OF ACTIVITIES . THERE ARE UNITS WHICH ONLY DEAL IN SALE OF WINDMILL PLANTS. THERE ARE ENTITIES WHICH TAKE THE CONTRACT OF INSTALLATION OF WINDMILL. LIKEWISE, THERE ARE ENTIT IES WHICH TAKE CONTRACT FOR MAINTENANCE OF THE PLANTS SO THAT OPTIMUM ELECTRICA L ENERGY IS PRODUCED. THE ASSESSEE SUBMITTED SUFFICIENT EVIDENCE IN THE FORM OF SALE BILLS OR PURCHASE OF WINDMILL PLANTS ON WHICH VAT WAS COLLECTED WHICH CLEARLY INDICATES THE TRANSACTIONS DEPICTED IN THESE BILLS RELATING TO S ALES AND PURCHASES AS PER THE 5 PROVISION OF SECTION 194C OF THE ACT DO NOT APPLY. THE RELEVANT CHART OF COST FOR SUPPLY OF PLANT AND MACHINERY AND THE CONTRACTU AL AMOUNT FOR ERECTION AND COMMISSIONING OF THE WINDMILL IS AS UNDER 1 2 3 4 5 6 NO. A.Y. NAME OF SUPPLIER TOTAL COST COST FOR SUPPLY OF P&M OF WINDMILL COST FOR CIVIL/ELECTRICAL WORKS AND FOR ERECTION/COMMISSION OF WINDMILL 1. 06-07 ENERCON (INDIA) LTD. 3,85,00,000/- 3,39,00 ,000/- 46,00,000/- 2. 08-09 SUZLON GROUP 3,65,48,480/- 3,16,10,100/- 4 9,38,380/- 3,47,02,143/- 2,66,48,000/- 80,54,143/- 3. 10-11 SUZLON GROUP 17,55,000/- (ADVANCE PAYMENT) 17,55,000/- (ADVANCE PAYMENT) - ENERCON (INDIA) LTD. 1,29,00,000/- (ADVANCE PAYMENT) 1,29,00,000/- (ADVANCE PAYMENT) - THUS THE AMOUNT REFLECTED IN COLUMN 5 OF THE ABOVE CHART ARE PURCHASES MADE BY THE ASSESSEE ON WHICH NO TDS WAS DEDUCTED A S IT WAS NOT APPLICABLE. LIKEWISE THE AMOUNT IN COLUMN NO. 6 REP RESENTS THE VALUE OF CONTRACT FOR ERECTION/ COMMISSIONING OF WINDMILL AN D ELECTRICAL WORK THEREON ON WHICH TDS IS LIABLE AND THE SAME HAS BEEN PAID B Y THE ASSESSEE. THE DEPARTMENT HAS HELD THAT BECAUSE THERE WAS UNDERS TANDING WITH M/S. SUZULON GROUP ON THE BASIS OF WHICH TURN KEY PROJEC T WAS SET UP. THEREFORE, THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS ON THE ENTI RE AMOUNT WHICH IS NOT LEGALLY TENABLE. RELIANCE IS PLACED AS UNDER:- (1) M/S VIVEK PHARMACHEM VS. ITO IN ITA NO. 66 TO 69/JP /12 DT. 25.05.2012 FOR A.Y. 05-06, 06-07, 08-09 & 10-11. TH IS WAS FOLLOWED IN CASE OF M/S GEM CRAFT ENTERPRISES PVT. LTD. VS. ITO IN ITA NO. 70 & 6 71/JP/12 DT. 25.05.2012 FOR A.Y. 05-06 & 06-07 (COP Y OF ORDER ENCLOSED). IN THESE CASES ALSO, AO HELD THAT ASSESSEE IS LIABL E TO DEDUCT TAX AT SOURCE ON THE TOTAL VALUE OF THE COMPOSITE CONTRACT FOR SU PPLY & ERECTION OF POWER PLANT. HOWEVER, HONBLE TRIBUNAL HELD THAT THOUGH I T IS A SINGLE ORDER BUT IT HAS TO BE TAKEN SEPARATE I.E. ON ACCOUNT OF SUPP LY OF MACHINERY & ON ACCOUNT OF COST OF CIVIL WORK/ELECTRICAL WORK & ERE CTION WORK. THE SUPPLIER HAS RAISED A SEPARATE BILL IN RESPECT OF S UPPLY OF MACHINES. THE ASSESSEE HAS GIVEN C FORM TO THE SUPPLIER ON ACCO UNT OF PURCHASE OF MACHINERY & ON REMAINING AMOUNT ASSESSEE HAS DEDUCT ED TDS I.E. ON ACCOUNT OF ERECTION WORK & CIVIL WORK CONTRACT. ASS ESSEE PURCHASED THE MACHINERY & THE SUPPLIER WAS SUPPOSED TO ERECT THE SAME AT THE FACTORY PREMISES OF ASSESSEE AFTER COMPLETING THE CIVIL & E LECTRICAL WORK. THEREFORE, PROVISIONS OF SECTION 194C ARE NOT APPLI CABLE ON ACCOUNT OF PURCHASE OF MACHINERY. (2) RAJASTHAN RAJYA VIDHYUT UTPADAN NIGAM LTD., CHA BARA IN ITA NO. 474 & 525/JP/2009 DT. 23.10.2009 FOR A.Y. 07-08 . THIS WAS FOLLOWED IN ITA NO. 772/JP/10 DT. 25.02.2011 FOR A.Y. 05-06 TO A.Y. 08-09. IN THESE CASES AGAIN, AO HELD THAT ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON THE TOTAL VALUE OF THE COMPOSITE CONTRACT FOR SUPPL Y & ERECTION OF POWER PLANT. HOWEVER, HONBLE TRIBUNAL HELD THAT THE PRIM ARY OBJECT WAS TO PURCHASE THE PLANT & THE CIVIL WORK/ERECTION/COMMIS SIONING WAS ONLY INCIDENTAL TO THE PURCHASE OF MATERIAL BY THE APPEL LANT. THE CONTRACT FOR SUPPLY OF MATERIAL IS SEPARABLE FROM THE OTHER PART OF THE CONTRACT RELATING TO CARRYING OUT CIVIL WORK/ERECTION/COMMISSIONING & THEREFORE AO IS DIRECTED TO WORK OUT THE SHORT DEDUCTION OF TAX AT SOURCE, IF ANY BY EXCLUDING THE PAYMENT TOWARDS SUPPLY OF MACHINERY. FURTHER RELIANCE IS PLACED BY THE ASSESSEE AS UNDER :- (I) KARNATAKA POWER TRANSMISION CORP. LTD. VS. ITO 2011- TIOL-772-ITAT-BANG. (II) HARYANA POWER CORPORATON LTD. VS. ITO 103 TTJ 584 (DEL.) (III) POWER GRID CORPORATION OF INDIA LTD. VS. CIT, 108 ITD 340 (HYD) IN ALL THESE CASES, IT HAS BEEN HELD THAT SECTION 1 94C OF THE ACT IS APPLICABLE FOR CONTRACT WORK AND NOT FOR SALE OF GOODS. EVEN I F THE CONTRACT IS A COMPOSITE CONTRACT WHICH PRESCRIBES VARIOUS STAGES INCLUDING SALE PART, 7 COMMISSIONING PART AND ELECTRIFICATION PART AND EAC H PART IS TREATED SEPARATELY BY THE PARTY. IN THESE CIRCUMSTANCES, EA CH TRANSACTION IS TO BE EXAMINED FOR THE APPLICABILITY OF SECTION 194C OF T HE ACT. MERELY BECAUSE THE WORD TURNKEY PROJECT IS REFERRED TO DOES NOT MEAN THAT INTRINSIC NATURE OF THE CONTRACT WILL BE GIVEN GO BY. IT IS THEREFOR E, PLEADED THAT THE ASSESSEE HAS NO LIABILITY QUA THE PURCHASE AND SALE OF MACHI NERY. THEREFORE, THE DEMAND RAISED IS UNJUSTIFIED AND DESERVES TO BE DEL ETED. 2.6 THE LD. DR ON THE OTHER HAND CONTENDS THAT THE LD. CIT(A) HAS BEEN REASONABLE IN HOLDING THAT THE ASSESSEE WAS NOT LIA BLE FOR TAX DEMAND IN VIEW OF HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF H INDUSTAN COCA COLA BEVERAGE (P) LTD.. HOWEVER, THE LIABILITY OF INTERE ST U/S 201(1A) WAS RIGHTLY RAISED. THE ORDER OF THE LD. CIT(A) IS RELI ED ON. 2.7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT HAS NOT BEEN DISPUTED THAT THE ASSESSEE ACQUIRED THE WINDMILL PLANT BY WAY OF DIFFERENT INVOICES. THE AM OUNT REFERRED TO IN COLUMN NO. 5 OF THE ABOVE TABLE REPRESENTS THE AMOU NT OF THE PURCHASES OF THE MACHINERY AND COLUMN NO. 6 REPRESENTS THE CONTR ACT VALUE LIABLE FOR SECTION 194C. THE ASSESSEE HAS NOT DEDUCTED TDS ON THE AMOUNTS MENTIONED AT COLUMN NO. 5 WHICH IS NOT A CONTRACT A MOUNT BUT IT IS THE AMOUNT OF PURCHASES. WE ARE UNABLE TO AGREE WITH TH E LD. DR THAT BECAUSE 8 THERE WAS TURNKEY PROJECT, THEREFORE, EACH AND EVER Y PART OF THE TRANSACTIONS COMPRISED THEREIN IS LIABLE FOR TDS U/S 194C OF THE ACT. VARIOUS BENCHES OF ITAT AS REFERRED TO ABOVE HAVE HELD THAT IN CASE OF COMPOSITE CONTRACT ALSO, THE PORTION OF PURCHASE OF MACHINERY IS TO BE EXCLU DED WHILE DETERMINING THE LIABILITY U/S 194C OF THE ACT. IN VIEW OF THESE FAC TS, MATERIAL ON RECORD , ARGUMENTS RAISED BEFORE US AND THE CASE LAWS CITED, WE HOLD THAT THE ASSESSEE IS NOT LIABLE FOR DEDUCTION OF TAX U/S 194C ON THE AMOUNTS OF PURCHASE OF WINDMILL MACHINERY. THE CONSEQUENT DEMAND RAISED I N THIS BEHALF IS DELETED. THUS THE APPEALS OF THE ASSESSEE IN ALL TH ESE YEARS ARE ALLOWED. 3.0 IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED. THE ORDER PRONOUNCED IN OPEN COURT ON 18 TH JULY, 2014. SD/- SD/- (T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR DATED: 18 TH JULY, 2014 *MISHRA COPY FORWARDED TO:- 1. M/S. SANKALP INTERNATIONAL, JAIPUR 2. THE ITO , TDS-2, JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A), JAIPUR 5..THE LD. DR 6.THE GUARD FILE (ITA NO. 49/JP/2012) AR ITAT, JAIPUR 9