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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 ..... ) - excise duty was charged on the goods sold by the above mentioned parties. The claim that the agreement of sale was on principal to principal basis is not controverted by the Revenue. - Decided against Revenue. Disallowance u/s 14A - Held that:- It is well settled that the income need not be proportionate to the expenditure and vice-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 - 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 194C of the I.T. Act are applicable and upon failure to deduct tax at source amount paid to parties cannot be allowed as deduction in view of section 40(a)(ia) of the Act. The AO noticed that M/s. Ashit Packaging Pvt. Ltd. is dealing with assessee company for the last 25 years. It was making packaging material as per assessee s requirements, i.e. size, quality and printing work. On behalf of M/s. Liba Enterprise the partner stated on oath that it is a sister concern of the assessee company and manufactures moulds for M/s. Allied Instruments Pvt. Ltd. Having regard to the facts of the case the AO was prima facie of the opinion that the payments made to M/s. Ashit Packaging Pvt. Ltd. and M/s. Liba Enterprise should be treated as payments for job work given on contractual basis. In response thereto the assessee submitted that this is a case of purchase of goods and material from the respective parties and not a case of contract. In support of the above contention it was shown that both the parties have collected excise duty on goods sold to the assessee. Had it been a labour work there would not have been any excise duty. 4. The submissions of the assessee were rejected by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d product which was delivered to the assessee and hence it is in the nature of sale and hence there was no obligation to deduct tax under section 194C of the Act. 7. The learned CIT(A) perused the record and analysed the facts of the case to notice that the assessee purchased goods on principal to principal basis; the suppliers have their own infrastructure and machineries and have also bought raw material themselves and hence the purchase, in the instance case, cannot be regarded as works contract, since the products purchased remained the property of the supplier till the time of delivery and such items get transferred to the assessee only thereafter. On the other hand, it is a pure transaction of sale. By placing reliance upon the decision of the ITAT, Delhi Bench, in the case of Rebok India, as well as amended provisions of section of 194C the learned CIT(A) observed that the assessee had not supplied any material to the manufacturer but merely provided specifications. Such a transaction would not constitute contract for work and thus the same is not liable for TDS. Consequently disallowance under section 40(a)(ia) is not warranted. 8. Aggrieved by the order of the CIT(A) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt provisions of section 194C are not applicable and payments made to the above mentioned two concerns are not attracted by provisions of section of 40(a)(ia). 10. We have carefully considered the rival submissions and perused the record. It is not in dispute that the material for manufacturing the end product was not supplied by the assessee to M/s. Ashit Packaging Pvt. Ltd. or to M/s. Liba Enterprise. In fact, excise duty was charged on the goods sold by the above mentioned parties. The claim that the agreement of sale was on principal to principal basis is not controverted by the Revenue. Having regard to the circumstances of the case we are of the view that the decision of the Hon'ble Bombay High Court is squarely applicable to the facts of the case. Under the circumstances we do not find any infirmity in the order passed by the CIT(A). Therefore the ground urged by the Revenue is dismissed. 11. In the cross objections the assessee strongly supported the order passed by the learned CIT(A) with regard to deletion of disallowance made by the AO under section 40(a)(ia) of the Act. Since the appeal filed by the Revenue is dismissed, ground No. 1 urged by the assessee in the cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd there is no indirect expenses relatable to such investments, application of Rule 8D cannot be questioned. However, having regard to the fact that the assessee paid interest on car loan, etc. which are not either directly or indirectly attributable to exempt income, while working out the disallowance under Rule 8D the AO needs to take those facts into consideration. In other words, the learned CIT(A) was of the opinion that there is a mistake in calculating the value of average investment and accordingly the AO was directed to correct the figure of average investment for calculating the disallowance under section 14A of the Act. It may be noticed that the assessee strongly relied upon the decision of the ITAT Mumbai Bench in the case of Yatish Trading Co. (P.) Ltd. vs. ACIT 9 taxmann.com 164 (Mum) which pertains to A.Y. 2004-05 wherein it was held the Rule 8D was not applicable. The learned CIT(A) observed that the aforementioned decision is distinguishable since Rule 8D is applicable for A.Y. 2008-09 and the assessee failed to establish that no borrowed funds were utilised in any of the investments. 14. Though initially the assessee did not file appeal against the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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