TMI Blog2015 (11) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the transaction not genuine in the absence of the complete address of the distributors. But the AO did not issue even a single notice to any of the party out of the list provided at the time of assessment under section 133(6) of the Act. So it was not appropriate on the part of the AO to conclude the parties not genuine. Besides the AO has also not appreciated the volume of the business viz a viz the PAN India dealer network. With regard to the violation of the provisions of section 194H read with section 40(a)(ia), the AO held such transaction as of principal and agent. From the aforesaid submission of the assessee, it is clear that the transaction was of a purchase and sale. There was no monetary transaction between the parties for the target incentive. Only the credit notes were provided only to the distributors who have achieved the target which they can redeem at the time of subsequent purchases. So we are of the opinion that the transaction is out of the purview of the TDS provision. At the end, we find no infirmity in the order of the CIT(A) - Decided in favour of assessee. - ITA No.892/Kol /2011 - - - Dated:- 28-9-2015 - Shri Mahavir Singh, Judicial Member and Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and designed at the instruction of the assessee by the party. The assessee placed the order for the supply of printed materials as per specification like size, labels, colour, design, particular type of paper, specific content etc.with the exclusive right of ownership on such materials. From the available records and information the AO held that this transaction of printing the packaging material is a work within the meaning of the explanation III to section 194C of the Act and there exist a work contract between the parties for the supply of the requisite materials and it is not a case of simple purchase of material because a particular type of work is involved. In support of his claim, the AO has referred the Circular issued by CBDT No. 715 dated 08.08.1995 wherein the question No-15 clearly states that Sec. 194C of the Act would apply in respect of supply of printed material as per prescribed specification. The AO also contended the several case laws in support of his claim. Accordingly, AO has disallowed the expenses for the violation of Sec. 194C of the Act and added to the income of assessee. Aggrieved, assessee preferred appeal before Ld. CIT(A). Before Ld. CIT(A) assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Job work. However the assessee claims that there is contract for sale hence the question of TDS does not arise. In the case the assessee has submitted sample bills to AO at the time of assessment proceedings and the AO, on careful scrutiny of the bills, finds that there exist a work contract so held the transactions a work as described in explanation III to section 194C of the Act. accordingly. However the sub-clause (iv)of the Explanation to Section 194C of the Act reads as under:- (iv) work shall include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using materials purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.] So the definition as defined by the Act clearly shows that the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mark on the goods supplied to the outsider, and the supplier was also liable to Assessment Year sales tax and other taxes on the goods supplied by it to the assessee purchaser. The combined effect of these conditions would go to show that it is a case of simple purchase of goods and not a contract for works. Supply of outsourced manufactured goods by the contract manufactured constitutes an outright sale and cannot be treated as contract of works within the scope of section 194C and, therefore, consequently the assessee was not liable to deduct tax at source from the purchase price of gods paid by the assessee to the contract manufacturers or the suppliers. Second in the case of ITO Vs. Ambica Agencies ITA No. 2055/Kol/2008 dated 12.06.2009 where it was held by the Hon'ble ITAT B Bench which reads as under:- that provisions of section 194C would apply only in relation to work contacts and labour contracts and would not cover contracts for sale of goods. If a manufacturer purchases material on his own and manufacturer a product as per the requirement of a specific customer, it is a case of sale and not a contract for carrying out any work. The fact that the goods ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of the business. . 2) Rendering of services by the distributors. 3) Business expediency 4) The expenditure incurred wholly and exclusively for the business purpose. 5) The nexus between the expenditure and sales has not been established. Now we take up the other reason for the disallowing of the expenses under section 40(a)(ia) read with section 194C of the Act. 7. During the course of assessment proceedings, the AO found that the assessee gets the products sold through a network of dealers on PAN India basis. The transactions of sale and purchase between the dealers/ distributors and the assessee were carried out not independently with their exist relationship of principal and of agent. The assessee is a principal and the dealers are the agents. The Ld. AO has regarded the assessee and dealer/distributor relationship more of a principal and agent on the basis of his study about the transaction between the parties as mentioned below:- 1) The dealer has to sell the goods as per the instruction of the assessee. 2) The dealers do not enjoy the full independence and there is a restriction by the assessee such as price, distribution of goods etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not provided the complete address. In the absence of the address, the AO could not send the notices to any of the parties under section 133(6). The Ld DR also submitted that the transaction between the parties in relation to target incentives was subject to TDS under section 194H of the Act and the assessee has violated the same, so it should be brought to tax as per the provision of section 40(a)(ia) of the Act. Finally the Ld. DR vehemently supported the view of the AO. On the contrary, Ld. AR supported the view of the CIT(A). 9. After the careful examination we find that the AO has disallowed the expenses on the ground of genuineness and violation of the provisions of section 40(a)(ia). It has been noted that the Ld. AO recorded the transaction not genuine in the absence of the complete address of the distributors. But the AO did not issue even a single notice to any of the party out of the list provided at the time of assessment under section 133(6) of the Act. So it was not appropriate on the part of the AO to conclude the parties not genuine. Besides the AO has also not appreciated the volume of the business viz a viz the PAN India dealer network. With regard to the viol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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