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TMI Blog2015 (12) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered by the Learned AO in this regard in the remand report. Hence it has to be presumed that the Learned AO had accepted the same in the remand proceedings. Having done so, we hold that the revenue ought not to have come on appeal before us on the alleged ground of violation of Rule 46A of the Income Tax Rules - Decided in favour of assessee. Applicability of provisions of section 40(a)(ia) read with section 194C - Held that:- Learned CIT(A) appreciated the fact that the assessee’s case falls only under contract for sale and not contract for work and relied on the CBDT Circular No. 13/6 dated 13.12.2006 wherein it was categorically stated that the provisions of section 194C would not apply to contracts for sale of goods and further clarifies that where the property in the article or thing so fabricated passes from the fabricator contractor to the assessee only after such article or thing is delivered to the assessee, such contract would be a contract for sale and so outside the purview of section 194C - Decided in favour of assessee. - ITA No. 91/Kol/2013 - - - Dated:- 27-11-2015 - Shri Mahavir Singh, Judicial Member And Shri M. Balaganesh, Accountant Member For the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the assessee and accordingly held that the assessee is entitled to claim bad debts as deduction. Aggrieved, the revenue is in appeal before us on the following grounds:- 1(a) That the ld.CIT(A) has erred on facts and circumstances of the case and in law in holding that the AO has erred in disallowing the bad debt written of amounting to ₹ 13,60,091/- (b) That the ld.CIT(A) has erred on facts and circumstances of the case and in law in holding that the AO has erred in disallowing the bad debt written off amounting to ₹ 13,60,091/- on the alleged ground that the same is allowable under the provisions of Sec. 36(1)(vii) read with Sec. 36(2) of the Act. 3.1. The Learned AR reiterated the submissions made by him before the Learned CIT(A). He further argued that name given to a transaction by the parties does not necessarily decide the nature of the transaction. He relied on the following case laws in support of his contentions:- a) TRF Ltd vs CIT reported in 323 ITR 397 (SC) b) Inland Revenue Commisisoner vs Weleyan General Assurance Society reported in 16 ITR (Suppl) 101 (HL) c) Mcdowell Co Ltd vs CTO reported in 59 STC 277 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvoked. The mere fact of payment of money after stoppage of interest from the subsidiary company by itself could not be a ground to hold that the transactions were not in the course of the business. There was no bar in law for financing the subsidiary company. The income received by the assessee from the subsidiary company by way of intrest was subjected to tax and the advance made by the assessee to that company was also subjected to tax. At the time of writing off the debt, the subsidiary company had accumulated huge losses. The assessee also suffered a loss while selling the shares of the subsidiary company which resulted in the subsidiary company ceasing to be the subsidiary of the assessee. Therefore, in the circumstances the money advanced by the assessee had become irrecoverable and was given during the course of the business. What was not paid by the subsidiary company was only the interest and there was no principal amount due at the time of advancing the amount thereafter. The advances made by the assessee were also utilized by the subsidiary company for the purpose for which they were obtained which was to run the foundry. This would also indicate that the amount had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its return of income. According to Learned AO, since the commission payments were made to sister concern of the assessee and no details regarding nature of services rendered by the said concern was made available before him and whether the commission paid to sister concern is excessive or unreasonable or not could not be verified. Accordingly he sought to disallow the sum of ₹ 40,82,939/- towards commission payment. 4.2. On first appeal, the assessee placed the copy of the agreement entered into with Sunshine Commotrade Pvt Ltd and also elaborated the various services rendered by the said party to the assessee. The assessee pleaded that the services provided by Sunshine Commotrade Pvt Ltd inter alia included the following activities :- (i) entering into business relationships with customers in relation to sale of the products of the assessee. (ii) getting involved into the projects relating to the products of the assessee in various matters (iii) securing contracts from customers in relation to the products of the assessee. It was also pleaded before the Learned CITA that Sunshine Commotrade Pvt Ltd assisted the assessee to bid for and negotiate contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for a long time. We find that the revenue before us has not controverted the findings given by the Learned CITA with regard to the nature of services rendered by the said party and the validity of the agreement entered into with them. We also find from the declaration filed by the Managing Director of the assessee and confirmation vide letter dated 19.7.2012 from Sunshine Commotrade Pvt Ltd that they are not related to the assessee within the meaning of section 40A(2) of the Act and hence disallowance made by the Learned AO on this wrong understanding of facts is not appreciated. We find that the assessee s case is also covered by the decision of this tribunal in the case of IFB Agro Industries Ltd vs CIT in ITA No. 3756 (Cal.) 92 , 382 383 (cal.)/90 for Asst Years 1985-86 , 1984-85 1995-96 dated 9.4.1996 wherein it was held as follows:- The payment of commission would be allowable even if the same has been paid to any related entity provided the following conditions are fulfilled:- (i) there must be two separate corporate entities (ii) there must be an agreement entered in the normal course of business (iii) the amount paid for commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Learned AO had accepted the same in the remand proceedings. Having done so, we hold that the revenue ought not to have come on appeal before us on the alleged ground of violation of Rule 46A of the Income Tax Rules. Accordingly, the ground no. 2 4 raised by the revenue are dismissed. 5. The last issue to be decided in this appeal is as to whether the provisions of section 40(a)(ia) read with section 194C of the Act would be applicable in the facts and circumstances of the case. 5.1. The brief facts of this issue is that the assesse claimed purchase of project materials of ₹ 60,85,03,187/- which includes a sum of ₹ 20,91,62,853/- incurred by the assessee towards upply of manufactured goods by the vendors as per assessee s technical specifications and drawing. The Learned AO after going through the agreement entered into by the assessee in this regard came to a conclusion that the same is nothing but contract for work and hence would come under the ambit of TDS provisions u/s 194C of the Act and invoked section 40(a)(ia) disallowance for the same. The Learned AO observed as under :- The goods manufactured by the vendor for the appellant company were tail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether in these circumstances the provisions of section 194C would apply or not, the Hon ble High Court concluded that such transactions would not be liable to TDS u/s 194C. Further, while arriving at this conclusion, the Hon ble High Court referred to the amendment made in Finance (No.2) Act, 2009 and took cognizance of the fact that the definition of work has been amended. After referring to the Memorandum explaining the provisions, the Hon ble High Court has opined that the amendment being clarificatory in nature would be applicable retrospectively. 5.3. The Learned CIT(A) also relied on the CBDT Circular No. 681 dated 8.3.1994 containing various situations in which the provisions of section 194C would apply / not apply. He also relied on the CBDT Circular No. 13/6 dated 13.12.2006 wherein it was categorically stated that the provisions of section 194C would not apply to contracts for sale of goods and further clarifies that where the property in the article or thing so fabricated passes from the fabricator contractor to the assessee only after such article or thing is delivered to the assessee, such contract would be a contract for sale and so outside the purview of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of articles as per the specification of the customer would not attract TDS under section 194C and that the present case is one of sale per se and not a contract of work, it was fairly agreed by both the sides that the issue is squarely covered in favour of the assessee by the decision of the co-ordinate bench of this tribunal in assessee s own case in ITA No.349/Kol/2011 dated 30th day of March 2012 for the assessment year 2007-08, wherein the co-ordinate bench of this Tribunal vide para 4 held as follows:- 4. We find that the issue is square covered , in favour of the assessee, by a coordinate bench, decisions in Khadim s case (supra) and by Hon ble Bombay High Court, judgment in the case of CIT vs- Glenmark Pharmaceuticals Ltd (324 ITR 199). As held by Hon ble Bombay High Court in Glenmark s case (supra), the amendment in section 194C which lays down that purchase of goods made as per the specifications of buyer will not attract, the provisions of section 194C is only clarificatory in nature and will hold filed for the earlier years as well. There is no contrary decision by the Hon ble jurisdictional High Court, or, for that purpose by any other High Court. The esteemed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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