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TMI Blog2013 (11) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... his contact/oral contract was lawful and was not void in any law and both the parties were competent to make a contract and had accepted it in their favour. Hence, the transactions between assessee and M/s. Ashit Packaging Pvt. Ltd. fulfil all the necessary conditions for a contract. Regarding M/s. Liba Enterprise, it is sister concern of the assessee and made sales to assessee all the moulds for 500 products & components it was manufacturing as per specific requirement of the assessee. The Ld. CIT(A) have not refuted that the transactions qualify to be a contract." 3. Facts necessary for disposal of this issue are stated in brief. Assessee company is engaged in the business of manufacture of school stationery articles. During the previous year relevant to A.Y. 2008-09 assessee declared total income of Rs.43,07,802/-. Though it was originally processed under section 143(1) of the Act it was later on taken up for scrutiny and accordingly notice under section 143(2) was issued. During the course of assessment proceedings the AO noticed that the assessee has got the work of packaging done from M/s. Ashit Packaging Pvt. Ltd. and M/s. Liba Enterprise but on the payments made to such pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -. 6. Aggrieved, assessee contended before the first Appellate Authority that in the case of purchase of packaging material from M/s. Ashit Packaging Pvt. Ltd., the purchase order clearly refers to the number of pieces, quality of boxes, size of the boxes and delivery time for supply of the boxes. It also refers to levy of excise on sale of such goods. It was therefore contended that it is not a service but it was supply of goods. Similarly the assessee purchased material from M/s. Liba Enterprise as per requirements given by it. The purchase order clearly refers to number of Moulds as also the delivery time for supply of moulds and it also refers to levy of excise on such sale of goods, which denote that it is merely a sale and it was not a job work. Assessee also highlighted the distinguishing features between job contract and purchase of goods to contend that provisions of section 194C are not applicable to the instant case, since the relationship between assessee and the above mentioned two concerns was on principal to principal basis. Both the suppliers had their own establishments where the product was manufactured and the materials required for manufacture of the product we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2010) in support of his contention that under identical circumstances the Hon'ble jurisdictional High Court held that provisions of section 194C are not attracted merely because a product or thing is manufactured according to the specifications of a customer unless raw material has been purchased from the customer who ordered the product. The Court had taken into consideration the amended provisions of section 194C of the Act to hold that the amendment was clarificatory in nature or declaratory of the law as it had always stood in the past. The Hon'ble Court further observed that so long as the agreement is on principal to principal basis and the manufacturer has own establishment where the product is manufactured, and obtained material from its own source for manufacturing the product, without depending on the ultimate purchaser, merely because the purchaser desired to get the product with certain specifications, it cannot be said that there is a contract of job work between the purchaser and the manufacturer. The learned counsel strongly submitted that in the instant case the facts are identical. It is not in dispute that the assessee did not supply any material to the manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be taken as attributable to earning of exempt income. 13. The learned CIT(A) observed that merely because the share capital and reserves are more than the investments in various years it cannot be assumed that there is no indirect cost associated with the investments. In fact the investments are made at different points of time and it is for the assessee to establish that no interest bearing funds/OD limits were utilised for making investments. This could be only possible if appellant had produced the day-to-day cash flow statement of not only the previous year but also of the past years, when the investments were made. For example, the assessee may have Rs.10 crores of share capital and reserves but may not have cash balance to invest since all these funds must have been utilised for purchase of plant and machinery, etc. and assessee company might utilise OD account for making investment. Thus, the comparison of share capital vis-à-vis investment cannot lead to a conclusion that investments were made out of interest free funds. In fact, to overcome such complications and differences Rule 8D was brought into the Statute and unless the assessee establishes with cash f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice-versa. In certain cases there may not be any income in the initial years though the assessee had incurred expenditure wholly and exclusively for the purpose of making or earning income on a particular head. In the case of CIT vs. Rajendra Prasad Mody 115 ITR 519 the Hon'ble Supreme Court observed that merely because an assessee has not received dividend income in a particular year the expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income should not be disallowed. By applying the same logic, in the instant case also the assessee having made huge investment it cannot be said that there is no expenditure indirectly attributable to the investment and for earning the dividend income. In fact the Legislature having noticed that it is difficult to determine the exact amount of expenditure, which is indirectly attributable to earning of dividend income, the formula was discussed under section 14A read with Rule 8D of IT Rules. Since the learned CIT(A) has taken the facts of the case to direct the AO to recompute the amount disallowable under Rule 8D, we do not find any infirmity in the order passed by the CIT(A). Therefore ground No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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