2019 (5) TMI 303 - HC - Income Tax

Addition u/s.40(a)(ia) - TDS u/s 194C - purchase or job work - major part of the materials viz., Gold and Nickel for undertaking the job work was purchased only by M/s.Spectronic Plating (P) Ltd., from the third parties and not from the Assessee and therefore composite Invoice was raised charging sales tax - duty of appellate authority - HELD THAT - CIT (Appeals) has not at all answered to the contentions raised before him and has not especially not dealt with the exclusion part in the Explanation to Section 194C; whether the said Section applies to the present case or not, in view of the definition 'Work' as defined in the Explanation to Section 194C, where apparently the material used for electroplating viz., Gold and Nickel were purchased by the job worker M/s.Spectronic Plating Pvt., Ltd., Bangalore from third parties and for which a composite Sale Invoice consequent to the Purchase Order of the Assessee was raised, and in respect of the same, then property in goods has been transferred to the Assessee along with job work charges of electroplating undertaken by the said Company. Whether such works would attract the provisions of Section 194C or not was a debatable question and unless a finding of fact was arrived at by the CIT (Appeals) independently discussing the contentions raised before him, the mere affirmation of the finding of the Appellate Authority that provisions under Section 194C are attracted and that the Assessing Officer was justified in making disallowance to the extent of ₹ 2,76,67,052/- is not at all a satisfactory disposal of the Appeal by the First Appellate Authority, who was under an obligation to discuss the facts and legal contentions in detail and the FAA cannot affirm the order passed by the lower Assesseing Authority just like that. The Tribunal is also equally duty bound to discuss the facts and legal contentions in detail. Cutting short their findings by merely affirming the order of the lower Appellate Authority, shows total non-application of mind and the failure to discharge their legal duty provided under the Act. Assessing Authorities are adopting a pro-revenue approach to raise demands of tax, interest and penalty, perhaps to fetch more revenue to the coffers of the Treasury, but at the same time, we cannot ignore the legal rights of the Assessees to raise its contentions. Therefore, it is incumbent on the part of the appellate forums, to thrash out the facts and legal contentions, with the aid of statutory provisions discussed in detail as may be canvassed before them, under the Income Tax Act - we are constrained to remit the matter back to the learned CIT (Appeals) for passing fresh orders in accordance with law, after dealing with the contentions of the Assessee in an appropriate, fair and objective manner by proper application of mind.

Summary

Issues Involved:

1. Applicability of Section 194C of the Income Tax Act for Tax Deduction at Source (TDS) on payments made for job work.
2. Retrospective applicability of Section 40(a)(ia) of the Income Tax Act.
3. Consideration of revenue loss and tax liability discharge by the recipient.

Detailed Analysis:

1. Applicability of Section 194C of the Income Tax Act for TDS on Payments Made for Job Work:

The primary issue revolves around whether the payments made by the Assessee to M/s. Spectronic Plating (P) Ltd for electro-plating services are subject to TDS under Section 194C of the Income Tax Act. The Assessee argued that the provisions of Section 194C are not attracted because the major materials (Gold and Nickel) used for the job work were purchased by M/s. Spectronic Plating (P) Ltd from third parties, making it a purchase transaction rather than a job work. The Assessee contended that the definition of "work" under Section 194C excludes manufacturing or supplying a product using materials purchased from third parties.

The CIT (Appeals) and Tribunal upheld the disallowance under Section 40A(ia) of the Act, concluding that the payments were for job work and thus subject to TDS. The Tribunal cited the Supreme Court judgment in State of Tamil Nadu Vs. Anandam Viswanathan, emphasizing that the finished product supplied was not a commercial commodity, thereby qualifying as a works contract.

2. Retrospective Applicability of Section 40(a)(ia) of the Income Tax Act:

The Assessee raised the issue of the retrospective applicability of Section 40(a)(ia) of the Income Tax Act, arguing that even if Section 194C were applicable, disallowance under Section 40A(ia) should not be made because the recipient (M/s. Spectronic Plating (P) Ltd) had already paid tax on the job work receipts. The Revenue countered that the Second Proviso to Section 40A, which allows for such consideration, was inserted with effect from 01.04.2013 and would apply only to the Assessment Year 2013-2014, not the Assessment Year 2012-2013 involved in this case.

3. Consideration of Revenue Loss and Tax Liability Discharge by the Recipient:

The Assessee argued that there was no revenue loss to the government since M/s. Spectronic Plating (P) Ltd had already discharged the tax liability on the income accrued from the job work. The Assessee presented an Auditor's Certificate to substantiate this claim. However, this contention was not adequately addressed by the CIT (Appeals) or the Tribunal.

Remand for Fresh Consideration:

The High Court found that the CIT (Appeals) and the Tribunal failed to adequately address the contentions raised by the Assessee, particularly regarding the applicability of Section 194C and the exclusion clause in the Explanation to Section 194C. The Court noted that the orders lacked detailed discussion and analysis of the facts and legal contentions, reflecting non-application of mind.

The High Court emphasized the importance of a thorough and reasoned analysis by the appellate authorities and criticized the pro-revenue approach that overlooks the legal rights of the Assessee. The Court remitted the matter back to the CIT (Appeals) for fresh consideration, directing a detailed examination of the Assessee's contentions and proper application of the relevant statutory provisions.

Conclusion:

The High Court disposed of the Tax Case Appeal by remanding the case back to the CIT (Appeals) for a fresh decision, ensuring a fair and objective analysis of the issues involved. The Court refrained from answering the Substantial Questions of Law raised, focusing instead on the need for a reasoned and detailed consideration by the lower appellate authority. No order as to costs was made.