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2015 (11) TMI 63 - ITAT KOLKATA

2015 (11) TMI 63 - ITAT KOLKATA - TMI - Disallowance U/s 40(a)(ia) - packing material expenses in the form of job charges paid without deduction of tax u/s-194C - Held that:- A work does not include where supply of a product according to requirements or specification of a customer by using materials purchased from a person other than the customers. Hence, the provision of Sec. 194C does not attract to the present case. The case cited by the Ld. DR is not applicable as it was decided in the conte .....

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(a)(ia) viz a viz section 194C - CIT(A) deleted the addition - Held that:- 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 b .....

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he 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 Shri Waseem Ahmed, Accountant Member For The Appellant : ShriNiraj Kumar, CIT-DR For The Respondent : ShriSomnath Banerjee, Advocate ORDER PER Waseem Ahmed, AccountantMember:- This appeal by the Reve .....

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) of the I.T. Act, 1961 amounting to ₹ 4,04,12,991/- towards packing material expenses in the form of job charges paid without deduction of tax u/s-194C 2. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of sales promotion of ₹ 88,85,919/- & selling expenses of ₹ 4,19,23,214/- though the assessee failed to produce any details such as address, PAN etc., of the payee. 3. Whether Ld. CIT(A) is correct in deleting the disallo .....

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ed in deleting the disallowance of expenses for an amount of ₹ 4,04,12,991/- towards packing material expenses in the form of job charges paid without deduction of Tax under section 194C of the Act. 3 Briefly stated facts are that assessee is a Limited Company and is into the business of manufacturer of coconut oil, spices, mustered oil and grocery items. The assessee-company does its business through a network of distributorship throughout India. During the course of assessment proceeding .....

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at 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 a .....

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e packaging material were sold by the parties after realizing the excise duty, vat wherever applicable and there is no element of job work. The materials were also not supplied by the company and hence no TDS was deducted. The assessee also submitted the CIT(A) order where such transactions were regarded as contract for sale against the order of D.C.I.T. TDS in its own case of the assessee for the F.Y. 1996-97, 1997-98 and 1998-99. However, the CIT(A) has disregarded the order of the AO by obser .....

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l. 4. We have heard rival contentions and perused the materials available on record. Before us Ld. DR supported the order of AO and cited the case lawState of Maharashtra v. Sarvodya Printing Press Fine Art (1999) 9 SCC 65 wherein it was held that supply of printed material was a works contract. Whereas Ld. AR submitted that the circular No. 681 dated 08.03.1994 in the contest of Sec. 194C of the Act, wherein in terms of clause(b) of sub-clause (6) of clause (7) it is mentioned that where, howev .....

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tted two paper books running into pages from 1 to 415 and 1 to 355 respectively. We find that the as per the AO, the assessee has violated the provisions of section 40(a)(ia) viz a viz section 194C of the Act as there exist a works contract 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 bill .....

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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 present transaction does not fall in the category of the work because here the material was not supplied by the asse .....

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f BDA Ltd. Vs ITO reported in 281 ITR 99 (Bom), The Hon ble Bombay High Court, on the issue involved has held as under : That when the printing work was being carried out in the premises of M, though as per the specifications of the assessee, the supply was limited to the quantity specified in the purchase order, there was nothing on record to show that, all other ancillary costs like the labels, ink, papers, screen-printing, screens, etc., were being supplied by the assessee to M. In the facts .....

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or sale - Section 194C Not Applicable - Income Tax Act, 1961. In the case of Tuareg Marketing Pvt. Ltd. Vs ACIT reported in 122 TTJ 343 (Delhi) it was held by the Hon ble ITAT has held as under:- In the case of Tuareg marketing Pvt. Ltd. Vs. ACIT reported in 122 TTJ 343 (Delhi) it was held by the Hon'ble ITAT, Delhi that where the manufacturing activity was carried out at the risk of contract manufacturer or supplier, the manufacturer purchased required raw material on his own and purchases .....

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ase 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 12.06.20 .....

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does not mean or imply that any work was carried out on behalf of that customer. So from the aforesaid judicial pronouncement, it is clear that a work does not include where supply of a product according to requirements or specification of a customer by using materials purchased from a person other than the customers. Hence, the provision of Sec. 194C does not attract to the present case. The case cited by the Ld. DR is not applicable as it was decided in the context of the provisions of Bombay .....

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f the expenses 2) violation of section 40(a)(ia) viz a viz section 194C of the Act, Consequently stating that Ld. CIT(A) has erred in deleting the disallowance made by the AO. In this case AO has found that assessee has debited a sum of ₹ 4,19,23,214/- as selling expenses and ₹ 88,85,919/- of sale promotion expenses under head selling and distribution of ₹ 24,38,51,825/- as per Schedule-17 forming part of the profit and loss account for the year ended 31stMarch, 2008. Firstly w .....

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t is target fixed for achieving sales. Hence the AO has disallowed the expenses for not getting the satisfactory reply from the assessee and recorded the following reasons for the disallowance:- 1) Genuineness of the incentive payment with regard to the manner of working of the incentive and genuine distributors for 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) T .....

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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. 3) The pr .....

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on to the products. 8) The transaction has been given the nomenclature of purchase-sale transaction although it was merely the transaction of principal and agent. 9) Assessee company carried out programs, meetings, seminar with the dealers and also reviews performances which is not definitely a simple purchase/sale relationship. On the basis of above the AO concluded that the provisions of section 194H read with section 40(a)(ia) attracts to it and the assessee has violated the provisions of the .....

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ibutors, there was no financial transaction between the parties but only credit notes were provided to such distributors who achieved the target which they can redeem against future purchases. There was no transaction between the parties of principal and agent but all the transaction were of principal to principal basis. The distributor makes full payment upfront for the value of invoice raised for the sale of appellant products. The appellant does not take back the unsold stock of its product. .....

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