TMI Blog2010 (5) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... houses to produce "0" generation seed (mini-tubers). Mini-tubers are multiplied first generation seed in open fields and in buy-back agreement with farmers. The first-generation seed is multiplied into the fourth generation seeds. After production of seeds into respective generations, seeds are sold to farmers and traders. Over-sized seeds and poor quality seeds are sold as potatoes in the market and to the processing industry. During the course of assessment proceedings, it was noticed by the Assessing Officer that the expenditure of Rs. 23,86,522 had been claimed as buy-back production cost. The nature of expenses was examined and it was found that the expenses were in the nature of contract payments on which tax should have been deducted at source under section 194C of the Act. Since there was no deduction of tax at source the expenses claimed as buyback production were not liable to be allowed as deduction under section 40(a)(ia) of the Act. The Assessing Officer, therefore, required the assessee to explain as to why the buy-back production expenses should not be disallowed. It was submitted by the assessee that the assessee sold seeds to farmers by raising invoices and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y common practice in the assessee's line of business. It was also argued that the purpose of executing agreements was two-fold : (i) to safeguard the credit given to the farmers ; and (ii) the seeds of potatoes which had been invented by it do not go to other competing business concerns in the market. The learned Commissioner of Income-tax (Appeals) after considering the written submissions and the provisions of section 194C of the Act was in agreement with the arguments advanced by the assessee. He was of the opinion that the Assessing Officer had not made out a case that farmers were actually working for and on behalf of the assessee-company and the assessee-company was only responsible for the losses and gains of such agricultural operations. On the contrary, it was clearly brought out by the assesseecompany that giving advances at the time of sowing of crop and financial assistance was merely with a view to ensure procurement of agricultural produce at the time of harvest. The profits and losses were entirely borne by the farmers. He was of the view that the provisions of section 194C of the Act were not applicable to the facts of the assessee's case. He accordingly deleted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 40(a)(ia) of the Act. The next issue for consideration relates to deleting the addition of Rs.4,28,805 under section 40(a)(ia) of the Act on account of expenditure claimed by the assessee on labour charges. The facts of the case are that the assessee claimed payment of labour charges of Rs. 10,14,265. In the course of assessment proceedings it was noticed by the Assessing Officer that certain payments were made by the assessee to labour contractors against the supply of labour for harvesting, grading and packing, etc. The assesseecompany could not furnish confirmations of labour charges. The Assessing Officer also noted that the payments to various persons were made in such a way that none of the payment exceeded Rs. 20,000. He, therefore, concluded that payments made to the labour contractors were kept deliberately below Rs. 20,000 in order to circumvent the provisions of section 194C of the Act. In the absence of any such confirmations the Assessing Officer concluded that the entire payment was subject to deduction of tax at source under section 194C and since no deduction of tax at source was made, he disallowed the amount of Rs. 4,28,805 under section 40(a)(ia) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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