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2016 (1) TMI 753 - AT - Income TaxTDS u/s 194C - disallowance of job work charges without deduction of TDS - CIT(A) deleted the addition - Held that - See case of BDA Ltd. vs. ITO (TDS) (2004 (3) TMI 11 - BOMBAY High Court ), wherein it is held that supply of printed materials constitutes sale under the sale of Goods Act; and section 194C of the Act is not applicable. In that case it was held that supply of printed packaging labels merely because the printing was done as per requirement/specifications of the assessee, it could not be said that any work was carried out on behalf of the assessee. We find that similar issue was dealt by various courts, wherein it has been held that supply of any article or thing fabricated according to the specification of the purchaser and the property in such article passes to the person only after the same is delivered, the contract will be a contract on sale and as such falls outside the purview of section 194C of the Act. Therefore, the Assessing Officer erred in law in making disallowance despite the facts that the said amount is paid for purchases and section 194C of the Act is not applicable. Accordingly, no disallowance by invoking the provisions of section 40(a)(ia) of the Act can be made. - Decided in favour of assessee. Disallowance of set off of unabsorbed depreciation loss against current year s income - CIT(A) allowed the claim - Held that - In view of the ratio laid down in the case of General Motors India Pvt. Ltd V DCIT (2013) 2012 (8) TMI 714 - GUJARAT HIGH COURT we are of the considered view that the unabsorbed Depreciation loss of A.Y. 1997-98 & 1998-99 is allowable and should be adjusted with the total computed income unabsorbed Depreciation loss should be carried forward. The CIT(A) has rightly allowed the claim of unabsorbed depreciation loss of the assessee and we confirm the same - Decided in favour of assessee.
Issues Involved:
1. Disallowance of job work charges under Section 40(a)(ia) due to non-deduction of TDS under Section 194C. 2. Set off of unabsorbed depreciation loss against current year's income. Issue 1: Disallowance of Job Work Charges under Section 40(a)(ia) The first issue pertains to the disallowance of job work charges amounting to Rs. 1,10,42,997 due to non-deduction of TDS under Section 194C. The Assessing Officer (AO) noted that the assessee made payments for procuring printed materials as per their specifications, and as per CBDT's Circular No. 715, such payments were subject to TDS under Section 194C. Consequently, the AO invoked Section 40(a)(ia) to disallow these expenses. The CIT(A) reversed this disallowance, observing that the term 'work' under Section 194C does not cover contracts for the sale of goods. The CIT(A) referenced several legal precedents, including CIT v. Dabur India Ltd. and Balsara Home Products Ltd. v. ITO, which held that contracts for the supply of printed materials are contracts of sale, not work contracts, and thus not subject to TDS under Section 194C. The CIT(A) concluded that the transactions in question were outright purchases, evidenced by the inclusion of VAT/Excise in the bills, and therefore, Section 194C was not applicable. The Tribunal upheld the CIT(A)'s decision, agreeing that the transactions were sales and not work contracts. The Tribunal noted that the assessee had made outright purchases and paid sales tax on these transactions, which confirmed their nature as sales. Consequently, the disallowance under Section 40(a)(ia) was not warranted. Issue 2: Set Off of Unabsorbed Depreciation Loss The second issue concerns the set-off of unabsorbed depreciation loss against the current year's income. The AO disallowed the set-off of unabsorbed depreciation for AY 1998-99 and 1999-2000, citing the restriction of an 8-year carry-forward period as per the Act. The CIT(A) allowed the set-off, referencing the Gujarat High Court's decision which clarified that there is no time limit for carrying forward unabsorbed depreciation under Section 32(2). The Tribunal affirmed the CIT(A)'s decision, noting that prior to the Finance Act No.2 of 1996, unabsorbed depreciation could be carried forward indefinitely. The Finance Act, 2001, restored this position, allowing unabsorbed depreciation from AY 1997-98 onwards to be carried forward indefinitely. The Tribunal cited the Gujarat High Court's ruling in General Motors India Pvt. Ltd. v. DCIT, which held that unabsorbed depreciation available on 1st April 2002 would be governed by the amended Section 32(2) and could be carried forward indefinitely. Therefore, the Tribunal concluded that the unabsorbed depreciation loss for AY 1998-99 and 1999-2000 should be allowed to be set off against the current year's income. Conclusion: The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s decisions on both issues. The disallowance of job work charges under Section 40(a)(ia) was not justified as the transactions were sales and not work contracts. Additionally, the set-off of unabsorbed depreciation loss against the current year's income was allowed, following the legal precedents and the amended provisions of Section 32(2).
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