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TMI Blog2018 (4) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... he sec. 194C of the Act specifically excludes supply of a product according to the requirements of the customers by using material purchased from a person other than such customers. Water in the present case was purchased by the assessee not from the customers but from a 3rd party and supplied to its clients. Therefore, the price paid for purchase of water in my view cannot be construed as a payment for payment to a contractor for carrying out any work. - Decided in favour of assessee. - ITA Nos.2077 And 2078/Bang/2017 - - - Dated:- 28-3-2018 - SHRI N.V VASUDEVAN, JUDICIAL MEMBER For The Appellant : Shri Ramadhyani, C.A For The Respondent : Shri K.N Dhandapani, JCIT ORDER PER N.V VASUDEVAN, JUDICIAL MEMBER : These are appeals filed by the assessee against the orders of the Commissioner of Income-tax (Appeals) - V, Bengaluru both dated 31.7.2017 relating to the Assessment Years 2013-14 and 2014-15. 2. The assessee is a company engaged in the business of providing management services such as housekeeping and security services to malls, residential and commercial buildings. For assessment year 2013-14, assessee filed return of income declaring N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'service' that has the element of implicit contract. As per the KVAT Act, 'Goods' means all kinds of movable property (other than newspaper, actionable claims, stocks and shares and securities) and includes livestock, all materials, commodities and articles (including goods, as goods or in some other form) involved in the execution of a works contract or those goods to be used in the fitting Out, improvement or repair of movable property, and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale. Water has been classified as 'Goods' in the KVAT Act and as per entry number 54 of the first schedule [dealing with exempted 'goods'] of the KVAT Act, water, other than (i) aerated, mineral, distilled, medicinal, ionic, battery and de-mineralised water; and (ii) water sold in sealed containers are exempted from VAT. Further, aerated water has also been classified as input tax restricted 'goods' in the fifth schedule of the KVAT Act. 'Goods' not falling in the first schedule or in schedule 2. 3 or 4 are taxable at the rate of 14.5%. As such, water, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case, there is no justification for the Commissioner of Income Tax (Appeals) to confirm the order of the Assessing Officer in disallowing a sum of ₹ 39,33,528/- representing water charges paid to M/s. Gangothri Water Supply (Gangothri) under section 40(a) (ia) of the Income Tax Act, 1961 (Act). 2. The Commissioner of Income Tax (Appeals) erred in not appreciating the contentions of the Company that the payment made to Gangothri represents consideration for pure supply of goods and is accordingly not a payment for carrying any work (including supply of labor), in pursuance to a contract between the appellant and Gangothri and is covered by circular No. 13, 2006 dated December 13, 2006 issued by the Central Board of Direct Taxes. Accordingly, in the opinion of the appellant, the provisions of section 194C of the Act is not at all applicable to the payment under consideration. 3. Without prejudice to the foregoing contentions, even assuming but without admitting that the provisions of section 194C of the Act is applicable to the payment made to Gangothri, the Commissioner of Income Tax (Appeals) erred in not appreciating the contentions of the Company that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal before the honourable income tax appellate tribunal. Due to oversight, the action of the Commissioner of Income Tax, Appeals in not adjudicating ground 3 was not included in the grounds of appeal filed. Accordingly, the assessee has justified it claim for admission of the additional grounds of appeal. 11. Similar application for admission of additional ground has been filed in assessment year 2014-15 also. 12. I am of the view that the additional ground sought to be raised by the assessee arises out of the order of the CIT(A) and is therefore admitted for adjudication. 13. I have heard the submissions of the ld AR and ld DR. As far as the question whether the money paid to M/s Gangothri Water Supply was claimed as a deduction by the assessee in computing income from business is concerned, I find from the ledger account of water charges from the period 1/4/2012 to 31/3/2013 (a copy of which placed at page 7 to 11 of the assessee s paper book) for assessment year 2013- 14, that the assessee had purchased water from M/s Gangothri Water Supply. The assessee as per the terms of the agreement with a client had to supply water to the commercial establishment of the customer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 986/- received by the assessee. It is from this entry that the Revenue authorities have concluded that the assessee was getting a markup on supply of water. In my opinion this conclusion drawn by the Revenue authorities cannot be sustained. It is clear from the terms of the agreement between the assessee and his client that water charges will be recovered at actuals by the assessee from his clients. As to why there is difference between the amount received by the assessee from the clients and the amount paid to M/s Gangothri Water Supply was explained by the ld counsel for the assessee as an excess payment received which the clients did not claim from the assessee. In assessment year 2014-15, there is no such excess and the debit and credit in the water charges account tally. This proves the case of the assessee and there is no markup in procuring and supplying water by the assessee to his clients and, therefore, I am of the view that the contention put forth by the assessee that the water charges paid to M/s Gangothri Water Supply was never claimed by the assessee as a deduction in the profit and loss account and, therefore, the same cannot be subject matter of addition u/s 40a(ia ..... 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