Income Tax Appellate Tribunal - Pune
C.G.Lucy Swithchgear Ltd., vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH, 'B' PUNE
BEFORE SHRI I.C. SUDHIR, JM
AND SHRI R.C. SHARMA, AM
I.T.A. No. 1481/PN/2009 : A.Y. 2006-07
M/s. CG Lucy Switchgear Ltd.,
F-19 MIDC Ambad
Nasik 422 010
PAN AAACC 9268 P Appellant
Vs.
Jt. CIT R-2 Nasik Respondent
Appellant by : Shri Pradeep Kapsi
Respondent by: Shri A.C. Shukla
ORDER
Per I.C. Sudhir, JM
The assessee has questioned first appellate order on the grounds that the learned CIT(A) has erred in; (1) confirming disallowance u/s 40(a)(ia) of purchases amounting to Rs. 7,05,24,601/- made from four parties by treating the purchases as "works contract" and holding that the tax was required to be deducted at source on such purchases u/s 194- C and further erred in applying the provisions of section 40-
(a)(ia) of the Act even to the amount of Rs. 6,34,38,426/- actually paid during the year before the end; (2) passing an appeal in gross violation of principles of natural justice in as much as he has ignored all the evidences and proofs and 2 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07 statements made and/or produced before him; and (3) confirming the action of the A.O in levy of interest u/s 234B of the Act at Rs. 76,11,637/- without giving any opportunity of hearing.
2. We have heard and considered arguments advanced by the parties in view of the orders of lower authorities and the decisions relied upon.
Ground no. 1
3. The relevant facts are that the assessee, a limited company engaged in manufacture and sale of switchgears and other electrical apparatus, had made payments of Rs. 7,13,45,044/- to different parties towards purchase of components. The A.O noticed that the assessee had not deducted tax at source on the payment of Rs. 7,05,24,601/-, hence he disallowed this amount u/s 40(a)(ia) read with section 194-C of the Act. The learned CIT(A) has upheld the same following his earlier order on the issue in the A.Y. 2005-
06. The contention of the assessee before the learned CIT(A) remained that facts of the case during the year under consideration are not similar to that of A.Y. 2005-06. It was further contended on behalf of the assessee that it filed a separate letter before the A.O requesting for verification of certain facts and evidences as the facts were distinguishable in the present year. The assessee tried to explain that vendors 3 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07 who supplied components were also supplying the same or similar products to the others in the open market and these components had a general marketability.
4. Before us, the learned AR submitted that while deciding the issue, the learned CIT(A) has erred in applying the provisions of section 40(a)(ia) even to an amount of Rs. 6,34,38,426/- actually paid during the year before the end and ignoring the fact that the said provisions were applicable only to amount "payable" and not paid and has further erred in ignoring the amendment in section 194-C introduced with effect from 1-10-2009 only. He submitted that the said expenses were incurred in respect of purchase of goods which in essence were a contract for sale liable to excise duty and sales-tax. The property in goods purchased was passed to the assessee only on delivery of those goods to the assessee. This fact was confirmed by the vendors whose statements on oath were recorded by the A.O. The transactions were not contracts for work as held by the lower authorities. The goods in question had an independent market. The purchases where assessee's material, dyes and tools were used amounted to Rs. 1,67,15,430/- only. The amount of Rs. 6,34,38,426/- was paid before the year end against the purchases of Rs. 7,05,24,601/- and only Rs. 70,86,175/- was payable towards the year for the 4 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07 said purchases. The learned AR placed reliance on the following decisions in support.
(a) Mrs. Shah Charulata Milind Vs. ITO Ward 3 Satara (ITA No. 1318/PN/2008 for A.Y. 2005-06, order dated 31-5- 2010;
(b) Pathare Satish Gulabrao Vs. ITO 4, Ahmednagar (ITA No.1462/PN/2009 for A.Y. 2006-07, order dated 21-5- 2010;
(c) Jaipur Vidyut Vitran Nigam Ltd. Vs. DCIT (2009) 123 TTJ (JPR) 888;
(d) A Constructions Vs. ACIT (2010) 129 TTJ (Hyd) (UO) 57;
(e) Hindustan Coca Cola Beverage P. Ltd. Vs. CIT (2007) 293 ITR 226 (SC)
(f) Mrs. Meena S. Patil Vs. ACIT (2008) 114 ITD 181 (Bangalore)
5. The learned AR submitted further that since the year 1999 the assessee is in business with the same customers and in earlier years, the A.O accepted the same and no such disallowance has been made. Thus there should have been consistency in the approach of the department on an issue under the similar facts and circumstances. In this regard, he placed reliance on the decision of Hon'ble Supreme Court in the case of Radhasaomi Satsang Vs. CIT (1992) 193 ITR 321 (SC). The learned AR also referred the provisions of section 194-C especially the Explanation (1)(d) after sub-section (7) thereof, wherein under the definition of "specified person" a company has also been included. The learned AR pointed out 5 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07 that in the A.Y. 2006-07 (under consideration) this definition was not available and only section 194-C(1) was available. In section 194-C(1) available for the assessment year under consideration a specified person was also defined including a company like the assessee. The learned AR referred page 65 of the paper book Vol. II for the citation in support. The AR also contended that the Hon'ble Gauhati High Court in the case of CIT Vs. Arman Sheikh (2007) 293 ITR 266 (Gauhati) has been pleased to hold that when taxes have been paid by the assessee then there is no question of making disallowance on the default of non-deduction of tax at source on the part of the assessee. In this regard, he also placed reliance on the decision of Bangalore Bench of the Tribunal in the case of Mrs. Meena S. Patil Vs. Asstt. CIT (2008) 114 ITD 181(Bang). The learned DR on the other hand, tried to justify the orders of lower authorities on the issue. The learned DR submitted that all the arrangements have been devised by the assessee in the present case to defeat the provisions of section 40(a)(ia) read with section 194-C of the Act. The learned DR also referred contents of written submissions filed on behalf of the department. The learned DR placed reliance on the following decisions:
(a) Geoffrey Maners and Co. Ltd. Vs. CIT (1996) 221 ITR 695 (Bom)
(b) Radhasoami Satsang Vs. CIT (1992) 293 ITR 321 (SC) 6 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07
5. In rejoinder, learned AR placed reliance on the decision of Hon'bleGujarat High Court in the case of Sayaji Iron and Eng. Co. (2002) 253 ITR 749 (Guj). He also referred para 12 of the assessment order with this submission that fresh statements were recorded by the A.O in his remand report during the assessment year 2006-07. The learned AR also referred pages no. 19 to 32 of the paper book, Vol. II filed on behalf of the assessee i.e. copy of order dated 23-2-2010 of the Tribunal in the case of assessee itself for A.Y. 2005-06 and submitted that facts in the assessment year 2005-06 are different. The appeal for A.Y. 2005-06 has been allowed partly by the Tribunal with this finding if the vendors purchased the material for meeting the requirements of the impugned products the said products are outside the scope of section 194-C and alternatively if the customers supplies or sells the material to the vendors, such transactions fall within the ambit of definition of "works". This view was taken following the decision of Hon'ble Supreme Court in the case of Associated Cement Co. Vs. CIT & Anr (1993) 201 ITR 435 (SC) and in view of CBDT circular No. 681 and recent amendment to section 194-C brought by the Finance (No. 2) Act 2009.
6. On perusal of orders of the lower authorities, we find that the A.O has held the provisions of section 40(a)(ia) applicable in the present case with this observation that the assessee has 7 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07 been supplying raw materials to the contractor who manufactured the goods as per specifications and drawings of the assessee, thus those goods cannot be sold to third party. The A.O further observed that by preparing invoices as sales invoices or purchase invoices inherent character of transaction does not change. He accordingly held that there is no departure from the facts of the case in the assessment year 2005-06. The learned CIT(A) has upheld the action of the A.O mainly following his order in the case of the assessee for A.Y. 2005-06. The learned CIT(A) in para 5 has observed that "............. It is undisputed fact that the vendors are supplying various components to the appellant as per specification given in the purchase order. It may be true that such goods were sold in the open market by the vendors, but the issue was decided considering various other factors not based on any single issue or point................". The learned CIT(A) also held that facts of the case for the year under consideration are similar to that of assessment year 2005-06 and the said decision applies with equal force for the A.Y. 2006-07. Before us, learned AR submitted that the facts of the case for A.Y. 2005-06 were different from the facts in the present assessment year. Learned AR submitted that the assessee amongst its other sales had made sales of certain raw materials worth Rs. 45,02,746/- to all the four parties during the financial year 2004-05 (A.Y. 2005-06) viz. Press Metal 8 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07 Industries, Bunts Tools Co., Rishi Laser Cutting Ltd., and Shubhada Polymers Products Pvt. Ltd., as per their purchase orders reflected as sales and purchases by the respective parties. These were used by those parties in manufacturing components constituting purchases made by the assessee. The said sales were made by the assessee against sale invoices with duly charged excise duty and sales-tax. During the financial year relevant for the assessment year under consideration the assessee has sold material only to two parties i.e. M/s. Shubhada Polymer Products Pvt. Ltd., and M/s. Press Metal Industries instead of four parties amounting to Rs. 46,67,594/-. He submitted that the material purchased by using these material is worth Rs. 1,15,59,744/- only. Based on the assessment order for A.Y. 2005-06 the A.O has made addition applying the facts of the case to assessment year under consideration also. In view of the decision of Pune Bench of the tribunal in the case of assessee itself for A.Y. 2005-06 vide order dated 23-2-2010 in ITA No. 490/PN/2009 we find that there were two situations in the assessment year 2005-06. One situation was whether products were purchased by the assessee from the vendors who manufactured or supplied the products out of his own purchases. The Tribunal held that such situation is outside the scope of "works contract". Strength was taken from the clarificatory amendment brought in by the Finance (No. 2) Act, 9 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07 2009 as well as CBDT circular no. 681 dated 8-3-1994 and the decision of Hon'ble Supreme Court in the case of Associated Cement Co. Ltd. Vs. CIT & anor (supra). The second situation was that the assessee got the supply of products which were manufactured by the vendors i.e. sub-contractor out of material purchased form the customers as per the specification or design or dyes. The Tribunal held that such transactions fall within the ambit of definition of "work". Under these backgrounds, the Tribunal allowed relief to the assessee in the first situation and held the assessee responsible to deduct tax at source treating the same as work contract payment. During the year, the contention of the learned AR before us is that the assessee company has sold material only to two parties viz. Shubhada Polymers Products P. ltd., and Press Metal Industries instead of all four parties amounting to Rs. 46,67,594/-. His further contention remained that the material purchased by using this material is Rs. 1,15,59,744/- only. We are of the view that these material facts are required to be verified as to whether the transactions in question is work contract or sale. It is required to be examined in view of the decision of Pune Bench of the tribunal in the case of assessee itself for the A.Y. 2005-06 (supra). We accordingly set aside the matter to the file of the A.O to examine the facts of the present case especially with the matter of transaction in question in view of the decision of the 10 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07 Tribunal in the case of assessee itself for the A.Y. 2005-06 (supra) and decide the issue accordingly after affording opportunity of being heard to the assessee. The A.O while deciding the issue is also directed to take into account the applicability of the decision cited above on behalf of the assessee including the decision of Jaipur Bench of the Tribunal in the case of Jaipur Vidyut Vitran Nigam Ltd. Vs. DCIT (supra) cited by the learned AR. Ground no. 1 is accordingly allowed for statistical purposes. Ground no. 2
6. In this ground the assessee has alleged that the submissions and evidences filed in support of its claim before the first appellate authority have not been considered by the learned CIT(A) while adjudicating upon the issue, hence there was violation of principles of natural justice. Since we have already set aside the issue to the file of the A.O to consider it afresh after affording opportunity of hearing to the assessee, the grievance if any, raised in ground no. 2 has been met out. Ground no. 2 has thus become infructuous. The same is rejected as such.
Ground no. 3
7. The assessee has questioned action of learned CIT(A) in confirming the levy of interest u/s 234B at Rs. 76,11,637/- on the basis that the learned CIT(A) has not given opportunity of being heard before upholding levy of interest and has not 11 ITA No. 1481/PN/2009 CG Lucy Switchgear Ltd.
A.Y. 2006-07 passed any speaking order for the same. There is no doubt that charging of interest u/s 234B is mandatory and consequential in nature still it is required to be levied after affording opportunity of being heard to the assessee and by passing a speaking order. Since the issue regarding validity of disallowance made u/s 40(a)(ia) read with section 194-C in question has been set aside to the file of the A.O for fresh consideration, the A.O is directed to consider the issue of levy of interest u/s 234B of the Act afresh after affording opportunity of being heard to the assessee in this regard in view of his finding on the above issue. Ground no. 3 is accordingly allowed for statistical purpose.
8. In the result, the appeal is partly allowed.
Order pronounced in the open court on 31st August 2010.
Sd/- sd/-
(R.C. SHARMA) (I.C. SUDHIR)
Accountant Member Judicial Member
Pune,dated the 30th August 2010
Ankam
Copy forwarded to:
(1) Assessee
(2) Department
(3) CIT- (A) II Nasik
(4) CIT - I Nasik
(5) The D.R. 'B' Bench, Pune
True copy By order,
Assistant Registrar
Income-tax Appellate Tribunal,
Pune Benches, Pune
12 ITA No. 1481/PN/2009
CG Lucy Switchgear Ltd.
A.Y. 2006-07