TMI Blog2016 (7) TMI 1482X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA Nos.214 to 216(Asr)/2016 (A.Y 2012-13 to 2014-15) - - - Dated:- 1-7-2016 - SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER Appellant by: Sh.Pawan Bhalla, Adv. Respondent by: Sh. Bhawani Shanker, DR ORDER PER A.D. JAIN, JM; These three appeals filed by the Revenue are directed against the combine order of ld. CIT(A)-1, Jalandhar, dated 25.01.2016, for the assessment years 2012-13, 2013-14 2014-15, respectively. 2. The Grounds raised by the Revenue are common in all the appeals except variation in amounts. However, Ground taken in ITA No. 214(Asr)/2016 are reproduced as under: 1. Whether, in the facts and circumstances of the case, the ld. CIT(A), Jalandhar is right in holding that provisions of section 194C are not applicable on the cost of bye-products retained by the millers free of cost. 2. Whether the ld. CIT(A), Jalandhar is justified in deleting the demand of ₹ 16,64,642/- created on account of non/short deduction of tax u/s 201(1)/201(1A) ignoring the fact that the assessee deductor applied provisions of section 194C on the cash part of the payments but not on the payments which were made in kind an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of tax at source is being made under section 194C of the Income Tax Act, 1961. 4. In reply, it is stated by the assessee that the rice millers are paid milling charges for custom milling of paddy as fixed by the Govt. And that all the by products shall be property of the rice miller. It is further stated that it will not be appropriate on the part of the assessee of Govt, since the same is the property of the millers as per policy. It is also stated that no transactions/entries of by products are affected in the books of accounts in their office. 5. In the aforesaid explanation, the assessee has admitted that all the by products of paddy, which is the property of the agency, is left with the miller as per the policy of the Government. Obviously, such a policy has been framed in order to compensate the miller in kind as the milling charges of ₹ 15/- are too small for the operational cost of milling which includes transportation, stitching and a number of other expenses borne by the miller. Thus, the value of by products is part of the milling expenses paid in cash. However, tax is deducted at source only out of cash charges paid. 6. The explanation is not acceptab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he explanation given by the assessee is not accepted. J hold the assessee in default for not deducting, tax at source on full valve of the milling charges i.e. paid in cash and passed on in kind. Tax is being deducted at source on the milling charges paid in cash while no deduction is being made in respect of the products which are token us stuck of the adder and sold at his convenience. 8. As regards by products, the main by products of paddy are rice bran, khudi phak and husk. Enquiries were made from some rice shelters to arrive at the value per quintal of the these by products. The value of by products from one quintal of paddy, as per information give by different parties ranges between given by these parties is adopted for working out the short deduction. The average value comes to ₹ 82/- per quintal during financial year '2011-12 and ₹ 86/- during financial year 2012-13. The latter figure is also adopted in financial year 2013-14. The figures of paddy got milled during different years have been provided by the assesee. Col.I in the fed owing chart contains figures of total paddy got milled by the assesee in a j particular year and value of by products is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... my ld. Colleague (CIT(A), Patiala and also the order of the Hon ble ITAT, Delhi, as referred above. The only difference between the contracts as discussed in the decision of the ITAT, Delhi Bench and the assessee government agency and the rice millers is that apart from the bye products left with the millers, the millers are paid ₹ 15/- per qtl. On which TDS is duly deducted and there is no dispute as to the facts. Rest of the facts are identical. The Hon ble ITAT, has discussed in great details every aspect of the transaction, legal issues involved and had examined the issue at hand from various angles and found that in terms of section 194C of the Act no tax was deductible. Moreover, this is the only decision available before me and no adverse decision is known and respectfully following the same as well as the order of my ld.colleagues (CIT(A), Patiala who has, in his order dated 29.11.2015 as referred above, I hereby direct the AO not to treat the assessee in default as far as the provisions of section 201(1)/201(1A) of the I.T Act are concerned. 6. Having heard the rival contentions in the light of the material available on record, we find that the ld. CIT(A) has rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Products (P) Ltd. (supra), it has been held as follows: 12. Now, we have to examine whether the assessee is obliged to deduct tax at source on the so-called constructive payment as construed by the Assessing Officer in terms of the agreement. The assessee, in this case, supplies 100 kg of wheat and takes back 88 Kgs. of Atta or 85 Kgs. Of Dalia after its processing done by the AIL and AM- is required to deliver the end product in this proportion to the assessee who has supplied the raw material. Does the provision of section 194C of the Act create an obligation on the part of assessee to deduct tax at source in respect of any of the transactions it has entered into with the AIL? section 194C of the Act was brought into statute by the Finance Act, 1972. Circular No. 86 dated May 29, 1972 was issued inter alia stating that the provisions of section 194C would apply only in relation to labour contacts and would not cover contracts for sale of goods. If a manufacturer purchases material on his own and manufactures a product as per the requirement of a specific customer, it was a case of sale and not a contract for carrying out any work. The fact that the goods manufactured were ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but to a different extent. In other words, it is difficult to say that the assessee has made any payment in undertaking this contract on the basis of the agreement that is acted upon by the parties. There is no payment of any sum by the assessee to AIL. Even if one were to say that there is a constructive payment, it is difficult to quantify the same and say that the assessee was under an obligation to deduct tax at source at such construed payments. The assessee has not even credited such construed consideration for supply of labour in the books of account of the assessee. In fact, it has not even claimed any expenditure as deduction. To say that such expenditure has resulted in an outflow without deduction of tax at source is too much and is not borne out from the transaction entered into between the parties. The question of disallowance by applying the provisions of section 40(a)(ia ), in our opinion, is not in accordance with law as the assessee is under no obligation to deduct the tax at source in terms of a contract where it does not require any payment of any sum even if the sum here means that the payment could be of some kind but it is difficult to say that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 38. Only when the claim of the assessee for deduction is under section 32 to section 38, the provisions of section 40(a)( ia) can be pressed into service to disallow such claims for deduction. At the cost of repetition, we may say that to invoke said provision of section 40(a)(ia ), first of all, the case should be made out by the department that the assessee is contemplating deduction under sections 32 to 38 on which tax is deductible and the assessee has not deducted tax at source. In our opinion, tax is not deductible and the assessee has not claimed any deduction under section 32 to section 38. This loss, if any, is in the net profit in the trading account which is a computation under sections 28 and 29 and not claims under sections 32 to 38 of the Income-tax Act. Even taking this view of the matter, in our opinion, the assessee is entitled to succeed and there is no question of deduction of tax at source and consequently no question of making any disallowance by invoking the provisions of section 40(a)(ia ) of the Act. 14. We must also view the whole transaction under the agreement from a different angle. The assessee gives the wheat and accepts Atta and Dalia in retu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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