9911796707
TMI Blog2014 (6) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is now in appeal before us. Before us at the outset, the ld. A.R. submitted that though the Assessee has raised various grounds the only effective ground which it wants to argue are ground 1 & 2 and both the grounds are interconnected. The ground no 1 & 2 reads as under:- 1. That the ld. CIT(A) grossly erred in confirming the addition u/s. 40(a) of the I.T. Act of Rs. 1,40,33,118/- on account of disallowance of various amounts for non-deduction of tax thereon. 2. That the CIT(A) grossly erred in law in confirming the view that entire expenses should be disallowed and not that expenses which remain outstanding at the year end as envisaged in the use of words "amount payable" in section 40(a)(ia). 4. During the course of assessment proceedings, A.O. noticed that Assessee was manufacturing grey cloth and for which it had stated to have taken looms and other machineries on rent from sister concerns. He also noticed that Assessee was carrying out the same activities in earlier years also from same sister concerns and had paid job work charges to them and had also deducted TDS on the payment of job charges. He also noticed that in earlier years, the sister concerns had filed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to him proves that the written agreement of rent was not confined to rent only but was a positive agreement for all the work to be carried out by the sister concerns for the Assessee. He was therefore of the view that Assessee had planned his affairs in such way that by merely creating documents between sister concerns it avoided provision of TDS on job work charges payable to sister concerns. He accordingly treated the activity carried out by sister concerns as job work activity and not being different from the activity carried out by them in earlier years for the Assessee. Since no TDS was deducted by Assessee on the payments made to sister concerns, A.O. was of the view that provisions of Section 40(a)(ia) were applicable. He accordingly disallowed the entire expenditure of Rs. 1,40,33,118/- u/s. 40(a)(ia) of the Act on account of non deduction of TDS u/s. 194C of the Act. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the Assessee confirmed the disallowance made by A.O by holding as under:- " During the appellate proceedings the appellant has reiterated its earlier-stand that provisions of section 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractor. The explanation II to section 194C has also visualized such a situation and hence law in its wisdom has visualized those cases where such crediting though subject to TDS are not brought to tax by way of disallowance u/s 40a(ia) being a very harsh provision Hence the only situation envisaged is that where expenses which remains outstanding and due for payment at the year end over which no TDS has been deducted and paid would come under the ambit of such section. And that payment which is made and not outstanding, would come under the provisions of TDS violation and would not attract provisions of section 40a(ia), It is thus submitted that disallowance made by the AO should be deleted. I have gone through the contention of the appellant as well as that of the AO. As regard the appellant's plea that provisions of section 40a(ia) would be attracted only for those payment which remained out standing at the year end and on which tax has not been deducted , is concerned, I am unable to accede to the argument of the appellant, the word payable is meant for obligation created for payment and whether or not such payment is made either before or after the year end would not alte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso all those expenses were incurred by those sister concerns and in the year under consideration also all those expenses are incurred by those sister concerns only and therefore in sum and substance there is no change in working save and except book keeping entries where the profit element is worked out under the guise of rent but in sum and substance there is no change of whatsoever nature in working between the appellant firm and those sister concerns and therefore the appellant's plea that provisions of TDS would not be applicable is far from facts of the case. Thus I am in agreement with the AO that in the instant case the rent is nothing but consideration for all the services rendered by those sister concerns and hence it would be inapt to say that since there was rental agreement between the parties and expenses incurred were solely on agency terms is out of place and can not be accepted more so in line with arrangements between the parties which are consistently followed in the same line Thus looking to the facts of the case since no TDS is deducted by the appellant on such payments provisions of section 40a(ia) would be applicable in full force. And since the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity of the Assessee as compared to earlier years and the Assessee has only devised the method in the current year so as to avoid the provisions of TDS. He further submitted that the expenses were not in the nature of reimbursement but were in the nature of job charges. He thus supported the order of A.O. and CIT(A). 8. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the Assessee was engaged in the manufacturing of grey cloth in the year under consideration and also in earlier years. It is also a fact that in the earlier years, the Assessee was getting the work of weaving done from sister concerns for which it was paying job work charges and also deducting the TDS u/s 194C of the Act. It is also a fact that the sister concerns in earlier years were having losses and while filing their income tax returns, the entire TDS deducted by the Assessee was claimed by them as refund. During the year under consideration it is submission of the Assessee that it was reimbursing the expenses to the sister concerns and on the reimbursement, the provisions of TDS were not applicable and therefore no TDS was deducted. CIT(A) while upholding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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