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TMI Blog2010 (5) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of Rs. 23,42,054 made by the Assessing Officer under section 40(a)(ia) of the Income-tax Act, 1961 ; 2.1 The learned Commissioner of Income-tax (Appeals) has failed to appreciate the fact that payment to different farmers was made in accordance with the terms and conditions of the contract ; 3. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs. 4,28,805 made by the Assessing Officer under section 40(a)(ia) of the Income-tax Act, 1961 ; 3.1 The learned Commissioner of Income-tax (Appeals) did not appreciate the fact that the payments were made to the sub-contractors in cash exceeding Rs. 20,000 each." The first issue for consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k production expenses should not be disallowed. It was submitted by the assessee that the assessee sold seeds to farmers by raising invoices and, thereafter purchased the multiplied potatoes against invoice. The agreement was entered into to prevent the farmers from selling the multiplied seeds to other parties. The company was not making any payment in the nature of job work. It was also submitted that the items produced by the farmers for the company were not specified and also freely tradable in nature meaning thereby that the items could be sold by the farmers in the open market. The provisions of section 194C of the Act are applicable when contract is either a work contract or a contract for supply of labour. The agreement was for cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give advances to farmers along with potatoes seeds and used to recover the advances and cost of seeds at the time of receipt of potatoes from them. It was also argued that giving advances to farmers at the time of sowing of crop and recovery of the same at the time of harvest of the crop was a very common practice in the assessee's line of business. It was also argued that the purpose of executing agreements was two-fold : (i) to safeguard the credit given to the farmers ; and (ii) the seeds of potatoes which had been invented by it do not go to other competing business concerns in the market. The learned Commissioner of Income-tax (Appeals) after considering the written submissions and the provisions of section 194C of the Act was in agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultivation of potatoes apart from seed requires heavy investment as compared to the other crop. The farmers have to raise the crop on narrow beds. He has to put fertilizers like DAP, urea and requires 3-4 times watering. It also requires weeding out and other agricultural operations like raising of beds periodically and removal of potatoes from the field. For all these purposes, heavy expenditure is required. The assessee in order to facilitate the proper production had advanced the amount to the farmers by way of seeds and cash in advance. The cost of seed and the amount so advanced have been adjusted against the sale proceeds. The conclusion of the Assessing Officer that the farmer has to produce the potatoes seeds of desired size, in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The Assessing Officer also noted that the payments to various persons were made in such a way that none of the payment exceeded Rs. 20,000. He, therefore, concluded that payments made to the labour contractors were kept deliberately below Rs. 20,000 in order to circumvent the provisions of section 194C of the Act. In the absence of any such confirmations the Assessing Officer concluded that the entire payment was subject to deduction of tax at source under section 194C and since no deduction of tax at source was made, he disallowed the amount of Rs. 4,28,805 under section 40(a)(ia) of the Act. Before the learned Commissioner of Income-tax (Appeals), learned counsel for the assessee submitted that the Assessing Officer had invoked provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the material available on record. From the facts stated above, it is clear that the Assessing Officer has disallowed the payment on the presumption that the payment was made to the contractors and the assessee had kept the payments below Rs.20,000 deliberately in order to circumvent the provisions of section 194C of the Act. The provisions of section 194C are applicable in respect of a person responsible for paying any sum to any resident referred to as resident being a contractor for carrying out any work including supply of labour for carrying out any work in pursuance of the contract between the contractor and the person specified in section 194C(1) of the Act. The expression used is "any sum". Therefore, if the payment has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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