2022 (9) TMI 289 - AT - Income Tax

TDS u/s 194C - wastage claimed in manufacturing of gold ornaments - disallowance of wastage claimed in manufacturing of gold ornaments by invoking the provisions of section 40(a)(ia) of the Act for non-deduction of TDS - AO treated this deemed wastage paid as job charges - deemed wastage in the eyes of Revenue is payment to the ornament manufacturers or goldsmiths or in local language called pathars - HELD THAT - TDS U/S. 194C of the Act has to be deducted wherever there is credit of such sum to the account of the contractor or payment thereof in cash, by cheque, by draft or by any other mode. But, in the present case before us the AO as well as CIT(A) has categorically noted that there is wastage charges and wastage to the extent of 4.5 to 6% varies in this trade as claimed by assessee. But, Revenue's contention is that the wastage is only 0.5% to 1%. Here only the issue is only claim of wastage and not any payment as envisaged in the provision of section 194C of the Act. Once, there is no payment there is no question of deduction of TDS U/S. 194C of the Act because there is no mandate in the Act for deduction of TDS without payment and that mode is also prescribed. The Tribunal i.e., the Co-ordinate Bench in the case of Siva Valli Vilas Jewellers Pvt. Ltd. 2021 (4) TMI 116 - ITAT CHENNAI has considered an identical issue and held that provisions of section 194C is applicable, when the assessee has paid or credited any charges covered thereunder. In case, no payment is debited or credited to respective parties account, then such payment cannot be considered within the ambit of section 194C or any other TDS provisions. In this case, the assessee has neither debited making charges into profit and loss account nor credit any amount to the respective parties account. Therefore, when no payment is made or amount is credited to respective parties account, then question of application of provisions of section 194C does not arise at all. Thus in the present case the issue of wastage whether it is 0.5% to 1% as estimated by Revenue or it is 4.5% to 6% as claimed by assessee, it neither involves any payment or credit of such sum by way of cash, issue of cheque or draft or by any other mode and hence does not liable for TDS u/s 194C of the Act. Hence, the disallowance made by AO and confirmed by CIT(A) is deleted. - Decided in favour of assessee.

Summary

Issues:
Disallowance of wastage claimed in manufacturing of gold ornaments for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act.

Analysis:
The appeals by the assessee arose from the common order of the Commissioner of Income Tax (Appeals), Puducherry, concerning the disallowance of wastage claimed in manufacturing gold ornaments due to non-deduction of TDS under section 40(a)(ia) of the Income Tax Act. The Assessing Officer (AO) noted discrepancies in the claimed wastage by the assessee and invoked provisions of section 40(a)(ia) for non-deduction of TDS under section 194C of the Act. The AO estimated the wastage at 1% and disallowed the excess as payment to goldsmiths without TDS deduction. The CIT(A) upheld the AO's decision, emphasizing the need for TDS deduction on claimed wastage. The Tribunal analyzed the situation, highlighting that the issue was not about payment but about the claim of wastage. Referring to section 194C of the Act, the Tribunal concluded that since there was no actual payment involved, TDS deduction was not applicable. Citing a previous case, the Tribunal ruled in favor of the assessee, stating that without actual payment or credit, TDS provisions did not apply.

The Tribunal observed that the assessee's manufacturing process involved purchasing old gold, melting it to get pure gold, and engaging goldsmiths to make ornaments. The assessee claimed a wastage of 4.5% to 6% during this process. However, the AO and CIT(A) contended that the wastage was only 0.5% to 1%, with goldsmiths retaining excess gold as payment in lieu of making charges. The Tribunal noted that the provisions of section 194C required TDS deduction upon payment to contractors. Since the issue was about claimed wastage and not actual payments, the Tribunal ruled that without a payment or credit, TDS deduction was not warranted. Relying on a precedent, the Tribunal held that in the absence of debiting or crediting payments, the TDS provisions did not apply. Consequently, the disallowance made by the AO and upheld by the CIT(A) was overturned, and both appeals by the assessee were allowed.

In conclusion, the Tribunal's decision revolved around the interpretation of TDS provisions under section 194C concerning the claimed wastage in manufacturing gold ornaments. The Tribunal emphasized the necessity of actual payments or credits for TDS deduction, ruling in favor of the assessee due to the absence of such transactions in the case at hand.