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2010 (5) TMI 704 - AT - Income TaxTDS u/s 194C - payment made by the assessee is under a contract to the contract workers - additions in the remand proceedings - as submitted by the assessee that the assessee sold seeds to farmers by raising invoices and, thereafter purchased the multiplied potatoes against invoice. The agreement was entered into to prevent the farmers from selling the multiplied seeds to other parties. The company was not making any payment in the nature of job work - HELD THAT:- The assessee in order to facilitate the proper production had advanced the amount to the farmers by way of seeds and cash in advance. The cost of seed and the amount so advanced have been adjusted against the sale proceeds. The conclusion of the AO that the farmer has to produce the potatoes seeds of desired size, in our considered opinion, is not correct. The growing of potatoes is a natural process. The size of potatoes depends upon the nature of land, the quantity of manures and fertilizers added, the quantity of water and the nature of the beds raised whether they were compact or porous enough to allow the size of potatoes to grow freely. The operations carried out by the farmers are purely agricultural operations. They cannot be by any stretch of imagination be said that they were in the nature of work contract. The assessee had entered into agreement with the farmers to prevent them from selling the seeds so grown in the open market. Therefore, in our considered opinion, the provisions of section 194C are not applicable in the case of the assessee. Accordingly, the CIT (A) was justified in deleting the addition made by the AO u/s 40(a)(ia). Expenditure claimed on labour charges - addition u/s 40(a)(ia) - certain payments were made by the assessee to labour contractors against the supply of labour for harvesting, grading and packing, etc. The assessee-company could not furnish confirmations of labour charges - HELD THAT:- AO disallowed the payment on the presumption that the payment was made to the contractors and the assessee had kept the payments below Rs.20,000 deliberately in order to circumvent the provisions of section 194C. If the payment has been made to a contractor, the payer has to deduct tax at source on even amounts less than Rs. 20,000. There is nothing on record to suggest that the payments on account of labour charges were made to contractors. On the contrary the assessee had made payment to labourers directly. Therefore, the provisions of section 194C are not applicable. The AO had made disallowance on ad hoc basis out of total labour charges - Since no material has been brought on record, in our considered opinion the AO was not justified in invoking the provisions of section 40(a)(ia). Accordingly, the CIT (A) was justified in deleting the addition. Appeal filed by the Revenue is dismissed.
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