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2019 (7) TMI 1086 - AT - Income TaxTDS u/s 194C - purchase and sale transaction - AO observed that the activity given by the assessee company to the organizers was in the nature of work contract / job - organizers purchase seeds from farmers on behalf of company - HELD THAT - It is established that the company has not made any payment to the organizers for the services rendered and the company has also charged the interest for the advances and made only payment for the seed purchased from the organizers. It appears that the organizers have made the profit out of the seeds procured from the farmers for the services rendered which required to be brought to tax. From the facts of the case, it is clear that it is purchase and sale transaction, hence the provisions of TDS has no application on purchases made by the assessee company. If at all TDS has to be deducted, the same should be deducted on component of commission but not on the entire payment made to the organizer / farmer. From the foregoing discussion, it is established that the department neither quantified the commission nor proved that the company has paid the commission. The department has neither taken any action u/s 201/201(1A) against the assessee nor for assessment of income in the hands of the organization. Therefore, we hold that there is no case for deduction of tax at source u/s 194C and the disallowance u/s 40(a)(ia), accordingly, we set aside the orders of the lower authorities and delete the addition made by the AO. - Decided in favour of assessee Addition relating to purchase of seeds from the growers made u/s 40(A)(3) - HELD THAT - As per the information available on record, the assessee made payments in excess of ₹ 20,000 to the organizers, but not to the farmers. The assessee did not explain any reason for making the payment in cash. The payment stated to be made for the purpose of delinting, processing, platform, hand-grading and hamali, blower, ginning etc. In the preceding paragraphs we, have held that the transaction between the assessee and the company is purchase transaction. Having held the it was purchase transaction there is no case for making payment separately for delinting, processing, platform, hand-grading and hamali, blower, ginning etc.. by the company. As argued by the Ld.AR for non deduction of TDS that it was the obligation of the farmer/organizer to separate cotton and kappas and sell the hybrid seed to the company. Therefore there is no reason to make such payments by the assessee and the assessee did not make out a case that the payment is exempt from the provisions of section 40A(3). Hence, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. Enhancement of income by CIT(A) u/s 251(2) - no notice of enhancement - HELD THAT - During the appeal hearing, the Ld.AR submitted that the Ld.CIT(A) enhanced the addition without giving notice and opportunity to the assessee. As per the Income Tax Act, if the CIT(A) intends to enhance the addition, he is bound to issue notice as per section 251(2) of the Act. CIT(A) is not permitted to enhance the addition without issue of notice and giving opportunity to the assessee. During the appeal hearing, the AR submitted that no notice of enhancement was issued by the CIT(A). The department did not place any evidence to show that the CIT(A) has issued notice for enhancement. Therefore, the enhancement made by the Ld.CIT(A) is unsustainable, accordingly, the enhancement made by the Ld.CIT(A) is deleted. Addition for purchase of foundation seeds - HELD THAT - DR though the assessee did not purchase the foundation seed from the organizers, the do purchase the Hybrid seed from the organizers. Hence this issue require verification at the end of the AO. Therefore, we remit the matter back to the file of the AO the examine the issue in detail and decide the same on merits after giving opportunity to the assessee. The appeal of the assessee on this ground is allowed for statistical purposes. Addition relating to EPF contribution beyond due date as required under Provident Fund Act - AO disallowed the sum u/s/36(va) - HELD THAT - The issue is related to the payment of PF belatedly. The assessee submitted that the payment was made before the due date for filing the return and the department did not controvert the submissions made by the assessee. The expenditure is allowable u/s 36(1)(va) of the Act r.w.s.43B of the Act. This Tribunal has taken the decision on identical facts in favour of the assessee in the case of M/s Eastern Power Distribution Company of AP Ltd 2017 (9) TMI 1803 - ITAT VISAKHAPATNAM ITAT held that the payment made before the due date of filing the return required to be allowed as deduction. Respectfully following the view taken by this Tribunal, the appeal of the assessee is allowed.
Issues Involved:
1. Whether the payments made by the assessee to the organizers constitute a contract requiring TDS deduction under Section 194C of the Income Tax Act. 2. Disallowance under Section 40A(3) for cash payments exceeding ?20,000. 3. Enhancement of addition by the CIT(A) without issuing notice. 4. Disallowance of EPF contribution paid beyond the due date under Section 36(1)(va). Detailed Analysis: Issue 1: TDS Deduction under Section 194C - Facts: The assessee, a company engaged in the production and marketing of hybrid seeds, entered into agreements with organizers for the production of hybrid seeds. The Assessing Officer (AO) treated the payments made to organizers as contractual payments requiring TDS deduction under Section 194C, leading to disallowance under Section 40(a)(ia) for non-deduction of TDS. - Assessee's Argument: The assessee contended that the transactions were purely purchase and sale transactions and not contractual, as the organizers were only facilitators. The payments were for the purchase of hybrid seeds from farmers through organizers, and no job work or works contract was involved. - Tribunal's Findings: The Tribunal observed that the assessee sold parent seeds to organizers, who in turn supplied them to farmers. The hybrid seeds produced were then purchased by the assessee. The Tribunal concluded that the transactions were simple purchase transactions and not works contracts. The Tribunal noted that no separate commission was paid to organizers, and the advances given were for business facilitation. The Tribunal also highlighted that the department did not treat the assessee as an assessee in default under Section 201/201(1A), which supported the assessee's contention. - Conclusion: The Tribunal held that the provisions of Section 194C did not apply, and the disallowance under Section 40(a)(ia) was deleted. Issue 2: Disallowance under Section 40A(3) - Facts: The AO disallowed ?29,30,860 for cash payments exceeding ?20,000 made to organizers, arguing that these payments were not for the purchase of seeds but for services like delinting, processing, etc. - Assessee's Argument: The assessee argued that these payments were for the purchase of agricultural produce and were covered under exceptions in Rule 6DD. - Tribunal's Findings: The Tribunal upheld the AO's disallowance, noting that the payments were made to organizers and not directly to farmers, and the assessee did not provide a valid reason for making cash payments. - Conclusion: The Tribunal confirmed the disallowance under Section 40A(3). Issue 3: Enhancement of Addition by CIT(A) without Notice - Facts: The CIT(A) enhanced the addition by ?51,40,800 without giving notice to the assessee. - Assessee's Argument: The assessee argued that the enhancement was made without issuing a notice, violating Section 251(2) of the Income Tax Act. - Tribunal's Findings: The Tribunal found that no notice was issued by the CIT(A) for enhancement, making the enhancement unsustainable. - Conclusion: The Tribunal deleted the enhancement made by the CIT(A). Issue 4: Disallowance of EPF Contribution under Section 36(1)(va) - Facts: The AO disallowed ?13,94,646 for EPF contributions paid beyond the due date but before the filing of the return. - Assessee's Argument: The assessee argued that the payments were made before the due date for filing the return, and thus, allowable under Section 36(1)(va) read with Section 43B. - Tribunal's Findings: The Tribunal noted that the payments were made before the due date for filing the return and cited previous decisions allowing such deductions. - Conclusion: The Tribunal allowed the deduction for EPF contributions. Summary: The Tribunal ruled in favor of the assessee on the primary issue of TDS deduction, holding that the transactions were purchase transactions and not contracts, thus not attracting Section 194C. The disallowance under Section 40A(3) for cash payments was upheld. The enhancement by the CIT(A) was deleted due to procedural lapses, and the deduction for EPF contributions was allowed as they were paid before the due date for filing the return. The appeals of the revenue were dismissed, and the appeals of the assessee were partly allowed.
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