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TMI Blog2019 (7) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... d the commission nor proved that the company has paid the commission. The department has neither taken any action u/s 201/201(1A) against the assessee nor for assessment of income in the hands of the organization. Therefore, we hold that there is no case for deduction of tax at source u/s 194C and the disallowance u/s 40(a)(ia), accordingly, we set aside the orders of the lower authorities and delete the addition made by the AO. - Decided in favour of assessee Addition relating to purchase of seeds from the growers made u/s 40(A)(3) - HELD THAT:- As per the information available on record, the assessee made payments in excess of ₹ 20,000 to the organizers, but not to the farmers. The assessee did not explain any reason for making the payment in cash. The payment stated to be made for the purpose of delinting, processing, platform, hand-grading and hamali, blower, ginning etc. In the preceding paragraphs we, have held that the transaction between the assessee and the company is purchase transaction. Having held the it was purchase transaction there is no case for making payment separately for delinting, processing, platform, hand-grading and hamali, blower, ginning etc.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT held that the payment made before the due date of filing the return required to be allowed as deduction. Respectfully following the view taken by this Tribunal, the appeal of the assessee is allowed. - I.T.A.No.167/Viz/2015, I.T.A.No.55/Viz/2016, I.T.A.No.139/Viz/2015 And I.T.A.No.06/Viz/2016 - - - Dated:- 19-7-2019 - SHRI V. DURGA RAO, JUDICIAL MEMBER And SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER Revenue by: Shri D.K. Sonowal, CIT DR Assessee by: Shri G.V.N. Hari, AR ORDER Per D.S. Sunder Singh, Accountant Member : These appeals are filed by the revenue and the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Guntur dated 12.03.2015 and 28.08.2015 for the Assessment Year (A.Y.) 2011-12 and 2012-13. Since the grounds raised in these appeals are common, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under. I.T.A. No.167/Viz2015 and 55/Viz/2016, A.Y.2011-12 and 2012-13 2. We take up the Revenue s appeal for the A.Y. 2011-12 and refer the facts from the ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no agreements were entered with other organizers who are associated with refugee cotton seeds. As all the agreements are in the same format without any change and the AO examined one of the agreements with the organizer for procurement of seeds. The terms and conditions and the salient features of agreement as noted by the AO are as under : The assessee-company paid the amount for procurement of seeds to the organizers not to the farmers. As per the terms of agreement entered with organizers, there are so many obligations entrusted to the organizers. They are- (1) the organizer should take up the production of hybrid cotton seed of the proprietary hybrids of the company through potential local seed growers in their fields for supplying back to the company (2) the organizer shall take the parental (foundation) seeds from the company; (3) the organizer shall distribute foundation seed to the seed growers and a list of such seed growers must be submitted within 7 days from the date of receipt of foundation seed by the organizer to the company; (4) the organizer shall pay the cost of foundatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement with growers before or at the time of distribution of foundation seed, which should contain the information like procurement price, terms of production, quality parameters etc,. (19) the agreement with the growers should also include a clause wherein the grower should assured that they will not mix or replace the seeds and entire seed produced will be supplied to the company through organizers; (20) the company agrees to pay a procurement price of ₹ 280/- (including organizers commission) per packet of 750 gms of delinted (at or below IO% moisture level), graded hybrid cotton seeds after completion of quality test. (21) both the parties agreed that the payment will be made to those lots which confirm to the minimum quality standards after deducting the packing losses (22) the organizer agrees for the rejection of the seeds which are below minimum standards and these seeds will be returned to the growers through the organizers only at the time of cotton sowing season (23) the organizer shall employ the required number of supervisors throughout the cotton seed production period at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ginning, delinting and processing which causes loss to the company by way of delay in supply of seed and pilferage of seed material; (34) the company shall recover such loss from organizer only; (35) for non-supply of seeds due to internal disputes between organizer and grower the company will recover losses from the organizer; (36) the company is neither responsible nor liable for compliance of any legal or statutory or grower or payment of any compensation, sets or revenue dues to the government or authorities; 2.2. The AO has gone through the agreement entered by the assessee with Mahyco Monsanto and sub license agreement dated 14.05.2007 and observed that the assessee is involved in research, development, production and sale of proprietary hybrid cotton seed and has entered into sub license agreement with Mahyco Monsanto Biotech (I) Ltd. on 03.06.2003 which was amended on 02.03.2007 and further amendment was made on 14.05.2007 and as per the terms and conditions of the agreement, the sub-licensor granted sub-license to the assessee company to use Monsanto technology provided to sub licensee to test, prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t efforts to prevent theft or other loss of the Monsanto Technology 2.3. The AO observed from the agreement dated 03.06.2003 that the sublicensee i.e. the assessee company has accepted certain terms and conditions as under : (1) The sub-licensee shall only cross or back cross the BT gene into most suitable lines of cotton proprietary germplasm and it shall not cross or back cross the BT gene into any third party germplasm. (2) The sub-licensee shall not cross or back cross the BT gene into cotton public germplasm or sell cotton public germplasm which has been crossed or back crossed with BT gene without the prior permission of the sub-licensor; (3) The assessee-company shall not market or otherwise commercialize any genetically modified hybrid cotton seed without approval of the sublicensor; (4) The sub-licensee shall be solely responsible for any and all marketing costs inducing in connection with sale and marketing of genetically modified hybrid cotton seed; (5) The sub-licensee is responsible to the extent of the claim determined as a result of seed quality problem; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is to bring to your kind consideration that our understanding with the seed organizers is not at all job work or works contract. Normally in case of job work or works contract there is no production of any article or thing. Normally in case of job works, all kinds of raw material is supplied and in turn contractor will give the same goods duly assembled but no other new product is given. In case of hire work also normally some material is given and the same material is further processed and the ultimate product is given by making additional process. Whereas in this case we are selling foundation seed or parent seed and we are purchasing hybrid cotton seed from the farmers. This foundation seed is sown by grower in their agricultural lands and after 4 to 6 months they get cotton crop of Kapas where in this hybrid seed is available. This purchasing and selling is organized through so called organizers as company cannot deal with thousands of farmers. When the organizers purchased the foundation seed from our company, his account is debited by raising the sale invoice in his name. This sale of parent seed is actually to the growers / farmers but as explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as amounts received by us as advances for the supply of cotton seed from the farmers. This A/c also includes the expenses that were to be borne by the farmers / organizers and their reimbursement. In this way we also collect interest for the advances given to the organizer. In turn the organizer used to sell foundation seed to the farmer, distribute the advances and final sale prices to the farmers after adjustment of interest for the earlier advances given. We are herewith enclosing copy of the organizers A/c evidencing the purchase of cotton seed from different farmers. We are also herewith enclosing sample purchase bills and payment vouchers of respective organizers whose items are recorded in the organizer A/c. Therefore the organizer A/c in our books of accounts finally shows the sale of particular seeds by us and purchase of seeds grown by the farmers, amount received either in advances or on final payments for the supply of cotton seed through the farmers. Therefore the payment made by us to the organizer is for the purchase of cotton seed from the farmers. It is not at all a job work or hire work or any contract work. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fails to produce, we will not give him anything and farmers have to return our money with interest. In fact, for the amount given as advance also, we charge interest and it is appearing in the account of organizer. This particular cotton seed ie., BT cotton seed with the technology of Monsanto from USA was having lot of demand. Therefore we need not give any amount to the organizers and for this entire activity they get profit from the farmers. This group heads have agreed for the same because of the demand for the product. In case there is no demand we would have given cost to these organizers also. In fact in the subsequent years when the demand for the product is coming down by virtue of other several manufacturers now we are giving commission to the organizers. The agreement with the organizers is also discussed as follows: On page-2 preamble, it clearly says this is an agreement between organizer and company to organize hybrid cotton seed production so that is for the seed production and selling. Point No. I of agreement clearly says that the organizer shall purchase parent seed for supply back the product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by us to the organizer is not the expenditure to us i.e., an advance given to them for purchase of seeds from the farmers and on purchase of said seeds by way of purchase invoice from farmers those purchases will go to the Trading Account. During the relevant Assessment year the company has made a turnover of ₹ 196 crores. This entire sales turnover requires cost of raw material. Without that cost of raw material the sales will never came. That cost of raw material is nothing but the purchase of seeds from the farmers. This purchase of seeds can never be compared with any works contract under any circumstances. Moreover, these purchases of our raw material is also from the agricultural farmers. Under these circumstances and explanations given above, this is not a works contract liable for deduction of tax at source'. 2.6. The AO examined the explanation offered by the assessee and did not accept the contention of the assessee that it was not job work and the purchase. The AO was of the view that the organizers are the contractors. The AO also noted the differences in explanation offered by the assessee in interpreting / changing the word used in ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct the TDS at source. Non deduction of TDS attracts the disallowance u/s 40(a)(ia) of the Act. For the A.Y.2011-12, the assessee company made the payment of ₹ 51,21,67,527/- on which the TDS was not made u/s 194C of the Act. Hence, disallowed the sum of ₹ 51,21,67,527/- for the A.Y. 2011-12 and a sum of ₹ 74,19,91,425/- for the A.Y.2012-13 u/s 40(a)(ia) of the Act and accordingly brought to tax. 3. Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) has agreed with the view of the AO that the payment in question made by the assessee to the organizers is in the nature of contract, therefore, held that the TDS is required to be made u/s 194C of the Act. Since the assessee failed to deduct the tax at source, the Ld.CIT(A) allowed the appeal partly. The Ld.CIT(A) followed the decision of special bench in the case of Merilyn Shipping Transports Vs. Addl.CIT and accordingly directed the AO to delete the addition relating to the payment already made and confirmed the addition representing the amount outstanding. 3.1. The Ld.CIT(A) also observed that the assessee is engaged in the production o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, requested to uphold the order of the AO and dismiss the appeals of the assessee. 5. On the other hand, the Ld.AR argued that the entire activity involves purchase of seeds from the farmers through organizers, and there is no contract involved in the entire transaction. There is no supply contract for supply of material by the organizers uninterruptedly by the assessee. The company has not entered into any works contract with the organizers to get any work from the organizers. The company receives parent seeds from M/s Mahyco Monsanto Bio-tech (India) Ltd., Mumbai which are multiplied in the laboratory of the assessee company in environment controlled shaded areas. After yielding of the cotton crop, the kapas are separated and hybrid seeds are supplied to the assessee. The assessee purchases hybrid seeds from the organizers. The organizers have to purchase female seeds from the assessee company for onward supply to the farmers and the assessee purchases hybrid seeds through organizers @₹ 280/- per packet of 750 gms. The said seeds are sold in the open market by the company for raising the cotton crop by the cotton growers. The Ld.AR submitted that as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly reversed by the Hon ble Bombay High Court (281 ITR 99). Therefore, the Ld.AR argued that there is no job contract or supply contract. It is a pure activity of purchase of hybrid seeds from the organizers. Since it is a purchase transaction, there is no contract involved and the provisions of TDS do not apply. Hence, argued that the addition made by the AO u/s 40(a)(ia) of the Act required to be deleted and the appeal be allowed. 6. We have heard both the parties and perused the material placed on record. The revenue s case is that the assessee had entered into works contract with the organizers, hence TDS required to be made u/s 194C of the Act. The AO is also of the view that it is a composite supply contract, but not purchase and sale transaction. The assessee contended that the entire activity is agricultural activity of growing cotton seeds with the help of farmers and the organizers and it is a purchase and sale transaction but no contract is involved. The assessee is engaged in the selling of parent seeds to the farmers through organizers and purchasing hybrid seeds at a fixed rate from the farmers through organizers. Since it is simple transaction of purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be paid for the hybrid seeds sold to the assessee company. The assessee company does not deal with the farmers directly. The amount paid to the organizers for purchase of hybrid seeds is treated by the AO as contract work and disallowed the entire payment u/s 40(a)(ia) of the Act. 6.2. The assessee is engaged in the business of production and marketing of hybrid seeds. It is undisputed fact that the assessee has sold the parent seeds to the organizers. There is an agreement with the assessee company and the organizers for identifying the farmers and production of hybrid seeds as per the stipulated norms. Though agreement provides for payment of commission, there is no evidence having paid the commission to the organizers. Commission is included in purchase price of Hybrid seeds. The parent seeds are supplied to the organizers as a sale transaction and in turn the organizers supply the parent seeds to the various farmers to cultivate the hybrid seeds in the specific conditions under the control and monitoring of the assessee company. In case, there is loss or failure of crop, the assessee company is not responsible to compensate the farmer / organizer. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom purchases made from the company, there was no separate payment made by the company to the organizers. It appears that the organizers have made the profit out of the seeds procured from the farmers for the services rendered which required to be brought to tax. Similarly, the company has not purchased the entire produce. It has purchased only the hybrid cotton seeds which are tradable in the open market. Remaining cotton and kapas are left to the farmers only. The AO relied on the decision in the case of State of Gujarat Vs. Variety Body Builders 38 STC 176 of Hon ble Apex Court. The issue in the case relied upon by the AO is related to the construction of railway coaches as per the designs provided under the frames supplied by the railways. The AO also relied on the decision of Bombay High Court in the case of CIT Vs.Glenmark Pharmaceuticals Ltd. reported in 324 ITR 0199 (2010), the issue involved in the cited case is related to carrying on work of involving labour and service and the use of materials is incidental to the execution of the work. The decision of ITAT Pune in the case of BDA Ltd. Vs. ITO, 84 ITD 442 (2003) is related to the printing of labels on the bottles., None ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 6.4. Similarly, the assessee also contended that the activity of the organizer is agricultural activity and the income of the organizer is exempt. From the agreement though there was a provision for payment of commission, in the impugned assessment year, no commission was paid to the organizers. The Ld. AR stated that the entire payment towards the purchase of Hybrid seeds was passed on to the farmers and the department did not show any evidence to controvert the submission of the assessee. The profit of the organizer is included in the purchase price of hybrid seed. If at all tax is to be deducted the same should be related to the commission payment to the organizers. As per the submission made by the Ld.A.R the company has neither paid any commission separately nor claimed the expenditure in the books of accounts. To ascertain the income of the organizer, the Bench also asked the clarification from the department whether the department has taken any action against the organizers to assess their income from the purchases made by the company? The Ld.DR replied that that the department did not take any action against the organizers also to assess the relevant i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,000 2. K.Ramudu, Ieeja 31.03.2011 19,000 9,488 3. G.Narasimha Reddy, Ieeja 31.03.2011 19,000 18,840 4. N.Chakrapani Reddy 31.03.2011 4,100 19,000 5. Lavu Nagavara Prasad 01.10.2010 50,532 1,00,000 6. Polanati Rama Krishna 01.10.2010 50,366 1,00,000 7. Sai Baba Bobbili 01.10.2010 1,00,000 4,805 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly disallowed the expenditure and made the addition. 9. Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO. 10. We have heard both the parties and perused the material placed on record. As per the information available on record, the assessee made payments in excess of ₹ 20,000 to the organizers, but not to the farmers. The assessee did not explain any reason for making the payment in cash. The payment stated to be made for the purpose of delinting, processing, platform, hand-grading and hamali, blower, ginning etc. In the preceding paragraphs we, have held that the transaction between the assessee and the company is purchase transaction. Having held the it was purchase transaction there is no case for making payment separately for delinting, processing, platform, hand-grading and hamali, blower, ginning etc.. by the company. It was argued by the Ld.AR for non deduction of TDS that it was the obligation of the farmer/organizer to separate cotton and kappas and sell the hybrid seed to the company. Therefore there is no reason to make such payments by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undations seeds were purchased from the organizers relying on the order of the Ld.CIT(A) in the earlier years. 15.1. During the appeal hearing also, the Ld.AR argued that the AO made the addition without verifying the facts and requested to remit the matter back to the file of the AO. 15.2. We have carefully considered the submissions of the Ld.A.R as well as the DR. though the assessee did not purchase the foundation seed from the organizers, the do purchase the Hybrid seed from the organizers. Hence this issue require verification at the end of the AO. Therefore, we remit the matter back to the file of the AO the examine the issue in detail and decide the same on merits after giving opportunity to the assessee. The appeal of the assessee on this ground is allowed for statistical purposes. 16. Ground No.3 for the A.Y. 2012-13 is related to the addition of ₹ 13,94,646/- relating to EPF contribution beyond due date as required under Provident Fund Act. The AO disallowed the sum u/s/36(va) of the Act. 17. On appeal, the Ld.CIT(A) confirmed the addition since the assessee failed to furnish the details and dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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