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2020 (12) TMI 547 - AT - Income TaxTDS u/s 194C - Disallowance u/s. 40(a)(ia) - payment to harvesters/transporters - HELD THAT - In the present case of the assessee, there were specific separate contracts entered into by the assessee one with the farmers and another with the transporters and therefore, the farmers were not reaching the sugarcane to the gate of the assessee factory. When the assessee is entering in his own right and capacity in contract and the payment to harvesters/transporters were the liability of the assessee and directly done by the assessee to them, when the farmers were only concerned with the receipt of net sugarcane price fixed before the start of the season and when the facts are crystal clear that the payments made by the assessee were not made on behalf of the farmers, in such scenario, there is a strict relationship between the assessee and the contractor/transporter as that of the contractor and the contractee and in such circumstances, the assessee was under the legal obligation to deduct TDS u/s 194C and since this legal obligation was not fulfilled by the assessee, therefore, disallowance u/s. 40(a)(ia) as confirmed by CIT (Appeals) is hereby sustained. Accordingly, grounds 1 to 4 of the assessee's appeal are dismissed. TDS on transport expenses in view of the provisions of Sec. 194C(6) - HELD THAT - Since the provisions of Sec. 194C r.w.s. 194C(6) of the Act, imposes a specific liability of deducting TDS with respect to payment made under the contract to a contractor/transporter only and it does not extend to harvester by any state of imagination. The argument of the assessee that the harvester is the same person, who is transporting the cane is absolutely found false and untrue as regards the facts of the assessee's case since we have already analyzed from the facts that there exist two separate agreements one with the farmers and another with the contractor/transporter - there existed the prima facie liability on the part of the assessee to deduct TDS before making payment to these contractors/transporters. There is a clear cut contractor contractee relationship and the assessee cannot escape its legal obligations of deducting TDS - rigours of Sec. 40(a)(ia) of the Act applies to the assessee and the addition is sustained. Accordingly, ground No. 5 is dismissed. Payments to the H T contractors does not exceed both the limits prescribed under Sec. 194C(5) - HELD THAT - Whether there were some cases where payment made to some contractor does not exceed the limits prescribed under Sec. 194C(5) of the Act or not has not been brought out at all and it requires factual verification.This limited issue with regard to Sec. 194C(5) of the Act is restored to the file of learned Assessing Officer for factual verification and adjudicating of the issue while complying with the principles of natural justice. Ground No. 6 is allowed for statistical purposes. Amendment vide Finance Act, 2014 in respect of Sec. 40(a)(ia) of the Act to restrict the disallowance at 30% instead of 100% and the amendment is w.e.f. from 01.04.2015 - HELD THAT - Various courts have held that prescribed amendment is retrospective in nature i.e., it will be applicable to the period even prior to 01.04.2015. Ground No. 9 is also restored to the file of learned AO to adjudicate the issue considering relevant judicial pronouncements while complying with the principles of natural justice.
Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 (ITA) for expenses related to Cane Harvesting, Cane Transportation, and Cane Incentive. 2. Applicability of Section 194C of ITA on payments made to Harvesting and Transport (H&T) Contractors. 3. Applicability of Section 194C(6) of ITA regarding the requirement of TDS for payments made to H&T Contractors. 4. Consideration of Section 194C(5) of ITA for payments not exceeding specified limits. 5. Retrospective application of the amendment to Section 40(a)(ia) of ITA by the Finance Act, 2014. Detailed Analysis: 1. Disallowance under Section 40(a)(ia) of ITA: The primary issue revolves around the disallowance of ?8,20,70,865/- under Section 40(a)(ia) of the ITA, which includes Cane Harvesting Expenses (?3,74,23,326/-), Cane Transportation Expenses (?3,29,22,026/-), and Cane Incentive Expenses (?1,17,25,513/-). The Assessing Officer (AO) noted that the assessee had not deducted TDS on these expenses as required under Sections 194C and 194J of the ITA. The assessee contended that these expenses were part of the purchase price of sugarcane and thus not liable for TDS. However, the AO rejected this argument, stating that the assessee had applied for lower deduction certificates under Section 197 but had not deducted TDS as required. 2. Applicability of Section 194C of ITA: The AO and Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee had entered into separate agreements with farmers for purchasing sugarcane and with contractors for harvesting and transportation. The CIT(A) concluded that the payments to contractors were not made on behalf of farmers but were the liability of the assessee. Therefore, the assessee was obligated to deduct TDS under Section 194C. The CIT(A) distinguished this case from other case laws cited by the assessee, noting that in those cases, the payments were adjusted against the account of the cane growers, unlike the present case where the assessee incurred the costs directly. 3. Applicability of Section 194C(6) of ITA: The assessee argued that TDS was not required on payments to transporters who provided their PAN numbers under Section 194C(6). However, the AO and CIT(A) held that this provision applies only to entities engaged in the business of plying, hiring, or leasing goods carriages, which the assessee was not. The Tribunal upheld this view, stating that the relationship between the assessee and the contractors was that of contractor and contractee, necessitating TDS deduction. 4. Consideration of Section 194C(5) of ITA: The assessee contended that TDS was not required for payments not exceeding ?30,000/- per transaction or ?75,000/- in aggregate. The Tribunal noted that this issue required factual verification and remitted it back to the AO for further examination. 5. Retrospective Application of Amendment to Section 40(a)(ia) by Finance Act, 2014: The assessee argued that the amendment to Section 40(a)(ia) by the Finance Act, 2014, which restricts disallowance to 30% instead of 100%, should be applied retrospectively. The Tribunal remitted this issue back to the AO for adjudication, considering relevant judicial pronouncements. Conclusion: The Tribunal upheld the disallowance of ?8,20,70,865/- under Section 40(a)(ia) for failure to deduct TDS. However, it remitted the issues related to Section 194C(5) and the retrospective application of the amendment to Section 40(a)(ia) back to the AO for further verification and adjudication. The appeal was partly allowed for statistical purposes.
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