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2018 (3) TMI 735

ture of contract payment the agreement clearly indicated that the payment was brand fee and the assessee had not entered in to any contract for rendering the services but manufactured the goods on itís own in the brand name of parent company and sold the same to APBCL. For using the Brand name the assessee had made the payment of Royalty which clearly indicated by the agreement and discussed in detail by the CIT(A). Therefore this argument of the assessee is not tenable. - The argument of the assessee that short deduction does not cause loss to the revenue is not a reasonable explanation and it shows the willful default of the assessee for short deduction - In the instant case the assessee could not establish with the tangible evidence to show that there was reasonable cause for short deduction of tax. Therefore we are of the considered view that the assessee has failed to explain the reasons for short deduction of tax at source, hence, we up hold the order of the Ld. CIT(A) - Decided against assessee. - I.T.A.No.454-456/Viz/2017 - 14-3-2018 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For The Appellant : Shri Y.A.Rao, AR For The Respon .....

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part of Hon ble ITAT s order vide ITA No.103, 104 & 105/Viz/2014 dated 10.08.2015 for the assessment year 2008-09 to 2010-11 which reads as under : 3. We have heard rival contentions and perused the record. The assessee might haveacted as contract manufacturer, but the facts remains that, for all practical purposes, it has declared itself to be the manufacture and has also sold the products under its invoice only. The financial statements prepared by it also vindicate the same. When, for all legal requirements, the assessee has claimed itself to be the manufacturer of beer and has sold it under its own name by using the brand name of main line companies, it is incomprehensible as to how the assessee could dim for the limited purpose of sec. 194J of the Act that it was a mere contract manufacturer manufacturing beers for others. It was not shown to us that the property and risk attached with the manufactured products always remained with the Contractee. Further, we notice that the assessee has claimed to have executed contract for others, whereas, on the payment of 'brand fee', it has deducted TDS u/s 194C of the Act treating the same as contract payment, as if it has en .....

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Branding of the UBL beer for sale pursuant to the terms and conditions contained in this Agreement and such representational right is granted only for manufacture and supply of Beer and for no other purpose, Any steps taken by BREWER or UBL for recordal under the relevant provisions of the Trade Marks Acts shall be to the benefit of UBL alone. This Agreement shall be used by either party for registration of Labels under various Laws. 10.1 UBL hereby permits BREWER to use the Trademarks in relation to only beer labels, beer packaging materials, beer crown corks. Upon the condition that the beer shall be produced according to the know-how and standards prescribed by UBL including for storing and packaging. 10.2 Permitting BREWER to use the Trademarks belonging to UBL will not in any way affect the rights of UBL to use the marks by itself or permitting the use of the same mark to! by other contract bottling units; 10.3. In view of the provisions of section 48(2) of the Trademarks Act 1999, permitted use of the Trademarks of UBL by BREWER is deemed to be used by UBL itself, not only for the purpose of Trademarks Act, 1999 but for any other law. 10.4. No amount shall be payable to UBL f .....

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he Ld A.R. that the amount transferred by way of "brand" was actually a transfer of business profits is to be accepted, it has to be shown that the property and risk attached with the products remained with the Contractee, In any case, it is a new argument raised for the first time before the Tribunal and hence we are not inclined to appreciate the said contentions of Ld A.R. Accordingly, we are of the view that there is no infirmity in the action of the tax authorities in treating the payment of 'brand fee' as payment of royalty failing within the scope of sec 194J of the Act. 6.3 The legal position as to existence of "reasonable cause" u/s 273B was explained by the Hon'ble Delhi High Court in the case of Woodward Governor India P Ltd v CIT (253 ITR 745), as under:- the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. Reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as probable cause. It means an hon .....

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ances in the Brewing Agreement that could lead to such belief. The argument that the assessee was under bonafide belief that the provisions of sec.194C would be applicable as the payments was made pursuance to a contract is totally illogical. It would be fallacious to deduce that all payments made under an agreement / contract would attract sec.194C, as transactions relating to royalty payment, rent payment etc would be invariably based on written agreement / contract in the case of companies. Thus, the plea that the assessee was under bonafide belief that the impugned payments were made towards execution of contract work and not towards royalty has no factual or legal merits, and patently it is not a case of application of wrong section. In view of these, I do not find any merit in the assessee's plea of reasonable cause for the impugned default. 6.5. During the appeal proceedings, the AR raised a plea that the statutory auditors did not mention in their audit report that tax deduction was not made properly and is a case of bonafide belief by the company. In support, the AR relied on the decision of the Hon'ble Supreme Court in the case of price Water Coopers (348 JTR) 306 .....

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tio expounded in Reliance Petro Products Pvt. Ltd. (supra). In the case of CIT v Arcatech Ltd. (ITA No.71/2013, dt.12th September, 2013), the Hon'ble Delhi HC observed:- We cannot stretch the plea that the issue was debatable or there was wrong advice beyond the point to believe or accept contentions when the claim itself is impossible to accept and is contrary to fundamentals of tax or accountancy. Income tax returns are mostly accepted without scrutiny or regular assessment. Self and due compliance of tax provisions is required. The above principles were followed by the Hon'ble ITAT Mumbai in the case of StateBank of Mauritius. (ITA No. 3139/208 dt 30 sep 2016) and the Hon'ble Tribunal went on to observe that fanciful claims under the garb of interpretation is not bonafide. Thus the judicial authorities have laid down the principle that prima facie inadmissible or patently wrong claims would not be bonafide; where the claim was exfacie wrong being contrary to fundamental / basic principles of accounts and Act, such claim cannot be said to be bonafide, whether or not supported by CA Certificate; that the pretence of legal opinion of a CA is only a smoke screen and faca .....

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at failure to deduct whole or part of the tax or failure to pay whole or part amount to the government account attracts the penalty under section 271C. With regard to the belief of the assessee that the payment was in the nature of contract payment the agreement clearly indicated that the payment was brand fee and the assessee had not entered in to any contract for rendering the services but manufactured the goods on it s own in the brand name of parent company and sold the same to APBCL. For using the Brand name the assessee had made the payment of Royalty which clearly indicated by the agreement and discussed in detail by the Ld.CIT(A). Therefore this argument of the assessee is not tenable. The assessee argued that short deduction of tax at source @2% instead of 10% does not put the revenue at loss, hence requested to cancel the penalty proceedings. The issue whether the revenue has sustained the loss or not is not the look out of the assessee and it is obligation on the part of the assessee to deduct the correct amount and remit the correct account before the due date. Whether the revenue gets loss or not is not a reasonable cause for not to levy the penalty. Similarly, the ass .....

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