INCOME TAX OFFICER WARD 1 VIJAYAPUR , VIJAYAPUR vs. MS SADASHIVA SUGARS LTD , CHENNAI

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER

ITA No. 2364/Bang/2025 Assessment Year: 2012-13 The Income Tax Officer, Vs. MS Sadashiva Sugars Ltd., Ward – 1, EIP Parry India Limited, Bijapur. No.234 Warehouse NSC Bose Road, Parrys Corner, Chennai - 600001 PAN – AAICS 8468 F APPELLANT RESPONDENT Assessee by : Shri Satish Mehta and Shri Yash Mehta – CAs Revenue by : Shri N.S Shashidhara, CIT (DR) Date of hearing : 01.06.2026 Date of Pronouncement : 06.07.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: These two appeals filed by the Revenue are directed against the separate orders of the learned Commissioner of Income Tax (Appeal), (hereafter-learned CIT(A)) for the assessment years 2012-13 and 2013- 14, under the provision of section 250 r.w.s. 254 of the Income Tax Act, 1961 (hereafter- the Act).

First, we take up the Revenue’s appeal in ITA No. 2364/bang/2025 for the A.Y. 2012-13.

ITA No.2364 & 2365/Bang/2025 Page 2 of 25 2. At the outset we note that the appeal filed by the Revenue is delayed by 53 days. As per the provisions of the Act, the appeal was required to be filed before the Tribunal on or before 22.08.2025. However, the appeal came to be filed beyond the prescribed period of limitation resulting in a delay.

.

ITA No.2364 & 2365/Bang/2025 Page 3 of 25 furnished in the affidavit shows that the delay occurred on account of administrative and official exigencies including handling of time-barring matters, compliance with requirements of the Faceless Assessment Units, completion of penalty proceedings and discharge of additional charge responsibilities. The reasons assigned do not indicate any deliberate inaction, negligence or mala fide conduct on the part of the Revenue. It is a settled proposition of law that while considering an application for condonation of delay, a liberal approach should be adopted where sufficient cause is shown and where refusal to condone the delay may result in denial of an opportunity to contest the matter on merits. The expression "sufficient cause" should receive a pragmatic and justice- oriented interpretation so as to advance substantial justice. In the present case, we are satisfied that the Revenue was prevented by reasonable and bona fide circumstances from filing the appeal within the prescribed period. We are also of the view that no prejudice would be caused to the assessee if the delay is condoned, whereas refusal to condone the delay would result in dismissal of the appeal at the threshold without examination of the issues on merits. Considering the totality of the facts and circumstances of the case and in the interest of substantial justice, we deem it fit and proper to condone the delay in filing the present appeal. The delay is accordingly condoned, and the appeal is admitted for adjudication on merits.

.

ITA No.2364 & 2365/Bang/2025 Page 4 of 25 7. The facts in brief are that the assessee is a company and engaged in the business of manufacturing of sugar. The return of income filed by the assessee for the year was selected for assessment. The assessment order under section 143(3) of the Act was passed as on 24th March 2015 wherein addition of Rs. 10,78,58,310/- and Rs. 1,26,84,500/- was made to the total income of the assessee. The first addition of Rs. 10,78,58,310/- on account of disallowances of Harvesting and transportation Charges for non-deduction of tax. Likewise, the second addition was made on account disallowance of payment of business expenses to Anushka Business Consulting.

.

ITA No.2364 & 2365/Bang/2025 Page 5 of 25 the direction of the Tribunal as on 23-06-2025 wherein the ld. CIT-A deleted the disallowances of harvesting and transportation charges. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us raising grounds in relation to deletion of disallowances of payment to Anusha Anushka Business Consulting.

.

ITA No.2364 & 2365/Bang/2025 Page 6 of 25 12.1 The learned AR further submitted that the said finding of the learned CIT(A) attained finality as no adverse finding was recorded by the Tribunal while remanding certain issues for fresh consideration. Therefore, in the set-aside proceedings, the learned CIT(A) could not have reopened or re-adjudicated an issue which had already attained finality in the earlier round of appellate proceedings.

12.2 It was further argued that pursuant to the order giving effect passed by the AO on 23.07.2025, the relief granted by the learned CIT(A) in the first round stood duly implemented and the impugned expenditure was allowed while computing the assessed income. Thus, according to the learned AR, the issue already stood concluded in favour of the assessee and no fresh dispute survived for adjudication.

12.3 The learned AR accordingly contended that the learned CIT(A) was justified in holding that the question of reconsidering the consultancy charges did not arise in the remand proceedings and prayed that the order of the learned CIT(A) be upheld and the Revenue's ground be dismissed. We have heard the rival contentions of both the parties and perused the materials available on record. The Revenue in the present ground has challenged the action of the learned CIT(A) in deleting the disallowance relating to payment made to M/s. Anushka Business Consulting. At the outset, we note that the impugned disallowance of Rs. 1,26,84,500/- on account of payment made to M/s. Anushka Business Consulting was originally deleted by the learned CIT(A) vide appellate order dated 05.02.2018. Against the said order, the Revenue admittedly did not prefer any appeal before the Tribunal. The only issue carried in appeal before the Tribunal by the assessee in ITA No.147/Pan/2018 was the

.

ITA No.2364 & 2365/Bang/2025 Page 7 of 25 confirmation of disallowance of harvesting and transportation charges. Thus, the findings recorded by the learned CIT(A) in respect of deletion of the disallowance of Rs.1,26,84,500/- had attained finality.

12.4 Subsequently, while adjudicating the assessee's appeal, the Coordinate Bench of the Tribunal vide order dated 05.04.2022 restored only the issue relating to disallowance of harvesting and transportation charges to the file of the learned CIT(A) for fresh adjudication. Admittedly, no direction was issued by the Tribunal with respect to the disallowance of payment made to M/s. Anushka Business Consulting. Consequently, the scope of the proceedings before the learned CIT(A) pursuant to the remand order was confined only to the issue of harvesting and transportation charges.

12.5 It is a settled proposition of law that where an appellate authority passes an order on a particular issue and such order is not challenged by the aggrieved party, the same attains finality and cannot be reagitated in subsequent proceedings. Equally, while giving effect to the directions of the Tribunal, the lower authority is bound by the scope of the remand and cannot travel beyond the issues remanded. Correspondingly, a party cannot seek to revive an issue which had already attained finality, and which was never the subject matter of the remand proceedings. In the present case, the Revenue did not challenge the order of the learned CIT(A) dated 05.02.2018 wherein the deletion of the disallowance of Rs. 1,26,84,500/- was passed and the same has attained finality. Once the issue had attained finality, the Revenue cannot seek to challenge the very same issue indirectly in proceedings arising out of the remand order passed by the Tribunal on an altogether different issue.

.

ITA No.2364 & 2365/Bang/2025 Page 8 of 25 13. In our considered view, the present ground raised by the Revenue is not maintainable as the issue regarding payment made to M/s. Anushka Business Consulting had already attained finality and did not form part of the remand proceedings before the learned CIT(A). Therefore, no grievance survives to the Revenue on this issue in the present round of litigation. Accordingly, we dismiss the ground raised by the Revenue.

.

ITA No.2364 & 2365/Bang/2025 Page 9 of 25 transporter on behalf of the farmers were adjusted from FRP payable to the farmers for such supply of sugar cane.

16.1 It was also explained that the harvesting labour usually work in a group of 15-20 person and payment were made by the assessee company to one person on behalf all labour in the group and recorded in the name of only such person who has been nominated by those labourers under the group of 15-20 people.

16.2 However, the AO did not accept the assessee’s explanation by holding that the assessee has failed to furnish supporting documentary evidence to substantiate its claim. Hence the AO made disallowances harvesting and transport charges of Rs. 10,78,58,310/- by invoking the provision of section 40(a)(i) of the Act.

.

ITA No.2364 & 2365/Bang/2025 Page 10 of 25 17.1 It was submitted that in rural areas, harvesting activities are generally carried out by groups of villagers and agricultural labourers. For administrative convenience, one person acts as a gang leader and receives the payment on behalf of the members of the group. The gang leader merely distributes the amount among the individual labourers engaged in harvesting operations and does not retain the amount for himself.

17.2 The assessee further contended that though the payments were made to gang leaders, the ultimate beneficiaries were numerous individual labourers forming part of the harvesting groups. If the payments are viewed at the level of the actual recipients, the amount received by each labourer would be much below the threshold prescribed under the TDS provisions. Therefore, the provisions relating to deduction of tax at source are not attracted.

17.3 It was also submitted that harvesting charges are essentially part of the cost of sugarcane procurement. In neighbouring States such as Tamil Nadu and Andhra Pradesh, farmers themselves engage harvesters and bear such expenses, which ultimately form part of the cane price. Thus, the harvesting charges are intrinsically linked to the purchase of agricultural produce and cannot be viewed as independent contractual payments liable for deduction of tax at source. Accordingly, the assessee argued that the provisions of section 194C of the Act were not applicable to the harvesting charges paid by the assessee and, therefore, the disallowance made under section 40(a)(ia) of the Act was unjustified. The learned AR prayed that the addition of Rs.10,78,58,310/- be deleted.

.

ITA No.2364 & 2365/Bang/2025 Page 11 of 25 17.4 The learned CIT(A), after considering the facts in totality while adjudicating the issue pursuant to the directions of the Tribunal, examined the nature of the arrangement governing procurement of sugarcane and the payments made towards harvesting and transportation charges. The learned CIT(A) noted that the assessee purchases sugarcane from farmers on an ex-factory gate basis, under which the responsibility to harvest and transport the sugarcane to the factory rests primarily with the farmers.

17.5 The learned CIT(A) observed that where farmers are unable to arrange harvesting and transportation on their own, they request the assessee to facilitate such arrangements on their behalf. In such cases, the assessee arranges harvesters and transporters, and the corresponding expenditure is adjusted against the cane price payable to the concerned farmers. Thus, according to the learned CIT(A), the payments made to harvesters and transporters were intrinsically linked to the purchase of sugarcane and formed part of the overall procurement mechanism.

17.6 The learned CIT(A) further noted that the sugarcane purchase agreement specifically casts the obligation of harvesting and delivery of sugarcane upon the farmers. The agreement also authorises the assessee to arrange harvesting and transportation in situations where the farmers are unable to undertake such activities themselves. The cost incurred in this regard is ultimately borne by the farmers through adjustment against the cane price payable to them. Therefore, the learned CIT(A) concluded that the assessee was merely acting as a facilitator between the farmers and the harvesters/transporters and was not engaging the contractors for carrying out any work on its own behalf.

.

ITA No.2364 & 2365/Bang/2025 Page 12 of 25 17.7 The learned CIT(A) also took note of the fact that the assessee was not entitled to recover any amount from the farmers over and above the Fair and Remunerative Price (FRP) fixed under the Sugarcane (Control) Order. According to the learned CIT(A), this fact further demonstrated that the harvesting and transportation expenditure constituted a component of the purchase price of sugarcane and not an independent expenditure incurred by the assessee under a separate works contract. After examining the contractual arrangement and the manner in which the transactions were carried out, the learned CIT(A) held that the appointment of harvesters and transporters formed part of a composite arrangement for procurement of sugarcane. The payments made to such parties could not be viewed in isolation from the purchase transaction with the farmers. In substance, the payments represented expenditure incurred on behalf of the farmers for facilitating delivery of sugarcane to the factory gate.

17.8 The learned CIT(A) further placed reliance on the decision of the Bangalore Bench of the Tribunal in the case of NSL Sugars Ltd., wherein under similar facts and circumstances it was held that harvesting and transportation charges paid on behalf of farmers and adjusted against the cane bills did not attract the provisions of section 194C of the Act. Following the ratio laid down in the said decision, the learned CIT(A) held that the assessee was not making payments under an independent contract for carrying out any work but was only facilitating procurement of sugarcane in terms of the arrangement with the farmers. In view of the above, the learned CIT(A) concluded that the payments made towards harvesting and transportation charges formed part of the purchase price of sugarcane and, therefore, the provisions of section 194C of the Act

.

ITA No.2364 & 2365/Bang/2025 Page 13 of 25 were not applicable. Consequently, the disallowance made by the AO under section 40(a)(ia) of the Act amounting to Rs. 10,78,58,310/- was directed to be deleted.

19 The learned Departmental Representative (DR) supported the order of the Assessing Officer and submitted that the assessee had made payments towards harvesting and transportation through contractors, thereby attracting the provisions of section 194C of the Act. It was contended that the assessee failed to deduct tax at source on such payments and the learned CIT(A) erred in treating the arrangement as part of a composite sugarcane procurement mechanism. The learned DR accordingly prayed for restoration of the disallowance made by the Assessing Officer.

.

ITA No.2364 & 2365/Bang/2025 Page 14 of 25 20.1 The learned AR submitted that sugarcane is purchased on an ex- factory gate basis and the responsibility for harvesting and transportation rests with the farmers. Only where the farmers are unable to make such arrangements, the assessee facilitates harvesting and transportation on their behalf. The corresponding cost is recovered by way of deduction from the cane bills payable to the farmers. Therefore, the assessee merely acts as a facilitator, and the expenditure is ultimately borne by the farmers.

20.2 The learned AR further submitted that the sugarcane purchase agreements clearly establish that the obligation to cut and deliver sugarcane lies with the farmers and the assessee is only authorised to arrange harvesting and transportation at the request of the farmers. The cost incurred is adjusted against the cane price payable to the farmers and does not constitute any separate expenditure of the assessee.

20.3 It was argued that the learned CIT(A), after examining the agreements, farmers ledger accounts and the surrounding facts, has rightly concluded that the harvesting and transportation charges form part of a composite sugarcane procurement arrangement and are not independent contractual payments attracting section 194C of the Act.

20.4 The learned AR also distinguished the decision of the Panaji Bench of the Tribunal in the case of EID Parry India Ltd. v. ITO (TDS) reported in 140 taxmann.com 20. It was submitted that in that case the farmers were paid separately for sugarcane, the harvesting charges were not adjusted against the cane bills, and the assessee had entered independent contracts with harvesting contractors on a principal-to-

.

ITA No.2364 & 2365/Bang/2025 Page 15 of 25 principal basis. The farmers were not parties to such contracts. In contrast, in the present case the harvesting and transportation charges are adjusted against the cane bills payable to the farmers, the assessee acts only on behalf of the farmers, and the agreements specifically authorise such adjustment. Therefore, the facts of the said decision are materially different and the same is not applicable to the present case.

20.5 The learned AR further submitted that the Revenue's reliance on CBDT Circular No. 6/2007 is misplaced. On the contrary, the Circular itself recognises that harvesting and transportation expenses incurred for procurement of sugarcane are incurred on grounds of commercial expediency and are allowable business expenditures. Therefore, the Circular does not support the Revenue's case. Accordingly, the learned AR submitted that the learned CIT(A) has correctly appreciated the facts and law and prayed that the order of the learned CIT(A) be upheld and the grounds raised by the Revenue be dismissed.

21.1 At the outset, we note that the controversy involved in the present appeal is required to be examined in the backdrop of the peculiar contractual arrangement governing procurement of sugarcane by the assessee. The undisputed factual position emerging from the material

.

ITA No.2364 & 2365/Bang/2025 Page 16 of 25 placed before us is that the assessee purchases sugarcane from farmers on an ex-factory gate basis. Under the terms of the sugarcane purchase agreement, the responsibility to harvest and transport the sugarcane up to the factory gate squarely rests upon the farmers. The agreement further provides that where a farmer is unable to arrange harvesting and transportation on his own, the assessee may, at the request of such farmer, arrange harvesting and transportation facilities and recover the corresponding cost from the cane price payable to the farmer.

21.2 We further note that the learned AR has furnished copies of farmers' ledger accounts and cane purchase records, which have been placed on record. From these records, it is evident that the harvesting charges were not claimed by the assessee as an independent expenditure. On the contrary, the payments made to harvesters were adjusted against the purchase consideration payable to the farmers. Thus, the harvesting charges did not constitute a separate outgoing cost incurred by the assessee for carrying on its business but represented a part of the overall mechanism of procurement of sugarcane.

21.3 A significant fact is that the assessee was not under any contractual obligation to undertake harvesting and transportation activity for itself. The obligation to deliver sugarcane at the factory gate was that of the farmer. The assessee merely facilitated harvesting and transportation on behalf of the farmers whenever requested by them. Therefore, the responsibility for the harvesting and transportation activity was of the farmer who was obliged to deliver sugarcane at the factory gate. The cost incurred by the assessee in arranging such activity was ultimately borne

.

ITA No.2364 & 2365/Bang/2025 Page 17 of 25 by the farmer through deduction from the amount payable against the purchase of canes.

21.4 We find that an identical issue came up for consideration before the coordinate bench of this Tribunal in the case of Parry Sugar Industries Limited in ITA Nos.2814/Bang/2018 and 782/Bang/2019. The Tribunal, after examining substantially similar clauses of sugarcane purchase agreements, held that the responsibility for harvesting and transportation rested upon the farmers and that the assessee was merely arranging such activities on behalf of the farmers. The Tribunal further noted that harvesting charges were adjusted against the cane price payable to the farmers and did not constitute the assessee's own expenditure. Accordingly, it was held that the provisions of section 194C of the Act were not attracted. The relevant observation of the Bench is extracted as under: 8. We have heard rival contentions and perused the record. It is an undisputed fact that the assessee has not claimed harvesting charges as its expenditure. It is the submission of the assessee that it has paid the harvesting charges to the labourers through the gang leaders on behalf of the farmers. At the time of hearing, the Ld A.R also took us to the Sugarcane purchase agreement entered by the assessee with the farmers. A model copy of agreement is available at pages 37 to 43 of the paper book. Since it is in Kannada language, the translated copy is placed at pages 44 to 46 of the paper book. The clause 8 of the agreement (translated copy) reads as under:- “8. Harvesting and supplying of cane to the factory is my responsibility, however for any reason if it is not possible, on my request the factory can arrange both harvesting and transportation on my behalf and I do not have any objection to the deduction of costs of such harvesting and transportation from my cane bill. Further, I agree to make appropriate inner roads to the plots to facilitate smooth transportation of cane from the field to the factory and extend all such help that may be required in this respect. In case the factory has to incur expenses to lay such roads, I agree to deduction of such cost(s) from my cane bill.” The above said clause of Sugarcane purchase agreement makes it clear that the responsibility of harvesting sugarcane and transporting them to the factory of the assessee is placed upon the farmers. It is further stated that the assessee can also arrange harvesting and transportation on behalf of the farmers on the request of the farmers and in such case, the costs incurred in that connection shall be adjusted against the Cane bill. This clause makes it clear that the assessee shall be acting on behalf of the farmers and hence the payment of harvesting charges is also made on behalf of the farmers only, which shall be

.

ITA No.2364 & 2365/Bang/2025 Page 18 of 25 adjusted against the Sugarcane bill. Hence there is merit in the submission of the assessee that the harvesting charges do not constitute its own expenditure. 9. We notice that an identical issue was examined by the co-ordinate bench in the case of M/s NSL Sugars Ltd (ITA No.1228/Bang/2017 relating to assessment year 2012-13 in its order dated 8th November, 2019. For the same of convenience, we extract below the relevant portion of the order passed by the co-ordinate bench in the above cited case:- ************************* 10. The co-ordinate bench has expressed the view that the payments made for harvesting and transportation should be regarded as payments made towards purchase of sugarcane, if the purchase price is determined at ex-gate of sugar factory. The view expressed by the co-ordinate bench also finds support from the following decisions:- (a) Khedut Sahakari Khand Udyog Mandli Ltd vs. CIT-TDS (2016- TIOL-2269- HC-AHM-IT)(76 taxmann.com 117). In this case, the assessee paid transportation charges for transporting the sugar cane to its factory. On facts, it was found that the same formed part of Sale transaction and hence the assessee was not liable to deduct tax at source. In this regard, the Hon’ble Gujarat High Court followed its earlier decision rendered in the case of CIT (TDS) vs. Krishak Bharti Coperative Ltd.(Tax Appeal No.211 of 2006 dated 01- 12-2014). (b) The CIT vs. Dwarkadheesh Sakhar Karkhana Ltd (2018-TIOL-118- HC-Mum- IT). In this case, the Hon’ble Bombay High Court has upheld the decision rendered by the Tribunal holding that there is no requirement of deducting TDS on payments made towards transportation and harvesting charges when these payments formed part of sugarcane purchase price payable to farmers. The Hon’ble Bombay High Court followed the decision rendered by the Hon’ble Gujarat High Court in the case of Khedut Sahakari Khand Udyog Mandli Ltd (supra). Following observations made by Hon’ble Bombay High Court are relevant:- “(e) Further, on an identical facts, the Gujarat High Court in CIT (TDS) v/s. Khedut Sahakari Khand Udyog Mandli Ltd., 76 taxmann.com 117 = 2016-TIOL- 2269-HC-AHM-IT has held that there is no liability to deduct the tax at source on payments made to Mukadam and Transport Contractor for supply of sugarcane to sugarcane factories. The SLP filed by the Revenue has also been dismissed by the Apex Court. Nothing has been shown to us to justify/warrant taking a view different from that taken by Gujarat High Court in Khedut Sahakari Khand Udyog Mandli Ltd., (supra). (f) Mr. Walve, learned Counsel for the Revenue places reliance upon the order dated 18th December, 2017 of this Court, admitting the Revenue’s appeal in CIT v/s Manisha Construction (ITA No.412 of 2015) to submit that an identical question has been admitted. However, Mr. Walve is not able to point out the facts and circumstances in the case of Manisha Construction (supra) being identical to the facts in the present case. In the present case, there is a concurrent finding of fact recorded by the CIT(A) and the Tribunal that the payment made to the harvesting and transport contractor are on behalf of the sugarcane farmers, is a part of the price payable to them. Further no separate deduction for payments made to the Mukadam and transport contractor was

.

ITA No.2364 & 2365/Bang/2025 Page 19 of 25 claimed by the Respondent-Assessee. Therefore, the above decision does not assist the Revenue.” (c) Sudalagunta Sugars Ltd vs. DCIT TDS (2017)(79 taxmann.com88)(Visakhapatnam). In this case, it was held that though the payments were made by the assessee, yet for purpose of sec.194C, payers are farmers only. Since the income of farmers being agricultural income exempt from income-tax, impugned payments were not hit by provisions of sec.194C. 11. We have noticed that the tax authorities have taken support from the decision rendered by Hon’ble jurisdictional Karnataka High Court in the case of Ryatar Sahakari Sakkare Kharkhane Niyamit (supra) to hold that the assessee is liable to deduct tax at source from the harvesting charges paid by the assessee. We have gone through the said decision carefully. In the case before Hon’ble Karnataka High Court, the TDS officer initiated penalty proceedings u/s 201(1) of the Act for non-deduction of tax at source fromthe harvesting charges paid by the said assessee and accordingly raised demand u/s 201(1) and 201(1A) of the Act. The Ld CIT(A) confirmed the order of the TDS officer. The Tribunal, however, restored the matter to the file of the TDS officer directing him to restrict the demand to the portion relating to the harvesting charges which remained payable as at the year end. In this regard, the Tribunal followed the decision rendered by Hon’ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd (2013)(38 taxmann.com 77). Aggrieved by the order passed by the Tribunal, both the assessee & revenue filed appeals before Hon’ble Karnataka High Court. The questions raised by both the parties before the High Court are extracted below, for the sake of convenience:- “4. Assessee has raised following questions of law in its appeals: "i. Whether the Tribunal was justified to rest its decision upon the case of Vector Shipping Services (P.) Ltd. in the facts and circumstances of Appellant's case as against the CBDT Circular No. 6/2007 dated 11/10/2007? ii. Whether the Bond Agreement/s (produced in this Appeal as Annexure 'B' and 'C') for appointing Harvesters / Transporters by the Appellant as an Agent on behalf of the Farmers constituted a CONTRACT as per the Indian Contract Act, 1872? iii. Whether the Tribunal was right in not determining the issue relating to the existence of a CONTRACT between the Harvesters/Transporters and Appellant as per the Bond Agreement/s? iv. Whether the Tribunal was justified in directing the Appellant to furnish details to the Assessing Officer for verifying whether or not the recipients of Harvesting, Transportation and Legal Consultancy payments have been respectively offered for taxation so as to determining the levy of interest in the case of the Appellant?" 5. Revenue has raised following questions of law in its appeals:— ' 1. Whether on the facts and the circumstances of the case and in law the Tribunal is correct in interpreting the language of section 40(a)(ia) to mean that the consequence of disallowance is attracted only in respect of amounts which remain payable on the last day of the financial year? 2. Whether on the facts and circumstances of the case and in law, the Tribunal erred in not appreciating the fact that section 40(a)(ia) cannot be interpreted to mean that it applies only to amounts "payable" and not to those which have been "paid", as held by the Hon'ble High Court of Kerala in the case of Thomas George Muthoot v. CIT in ITA No. 278 of 2014?

.

ITA No.2364 & 2365/Bang/2025 Page 20 of 25 3. Whether the Tribunal erred in placing reliance on the decision of Hon'ble Allahabad High Court in CIT v. Vector Shipping Services (P) Ltd. (2013) 357 ITR 642 (All.), that the provisions of Section 40(a)(ia) are applicable only in respect of amounts which remain payable on the last day of financial year ignoring the language used in the statutory provisions which makes it clear that the consequences of disallowance is attracted when a person liable to deduct tax on any interest payable to a resident, on which tax is deductible at source, commits a default? 12. The revenue’s appeal was allowed by the High Court by holding that the disallowance u/s 40(a)(ia) cannot be restricted to the amount remaining payable as at the year end. With regard to the assessee’s appeal, the Hon’ble High Court noted the fact that the assessee has claimed harvesting expenses as deduction in its profit and loss account. Further the assessee has contended that the Contract entered by it with the Harvestors should not be considered as a valid contract, since the same has been entered without the consent of the farmers. Accordingly the assessee contended that there is no liability to deduct tax at source from the payments made out invalid contract. This argument of the assessee was rejected by the Hon’ble High Court. The relevant observations made by the Hon’ble Karnataka High Court are extracted below:- “27. We have carefully gone through the judgment in the case of Vector Shipping Services (P.) Ltd. (supra). In the said case, Hon'ble High Court of Allahabad was considering an issue with regard to non- compliance of provisions of Section 194C by the assessee therein. The said company had advanced a contention that work was carried out by one M/s. Mercator Lines Ltd., on behalf of Vector Shipping Services (P.) Ltd. (supra) and M/s. Mercator Lines Ltd., had deducted TDS in the salary of its employees and fully complied with the provisions relating to deduction of tax at source. It was also contended that no amount had remained payable at the year end. Thus, it was in the facts and circumstance of that case, the Hon'ble High Court of Allahabad had rendered the said decision. In contrast, in the instant case, it is an admitted position as borne out on records that the assessee has not deducted tax at source as required under Section 194C, 194I and 194J of the Act. However, non-compliance of the said provisions is sought to be justified on the ground that the agreement inter se between the assessee and the harvester is not a valid contract inasmuch as the farmer is not a party to the said agreement upon whose land the harvester works and whose produce is purchased by the assessee. It is also argued that the said agreement is not ratified by the farmer. In our considered view, the said argument advanced on behalf of the assessee is fallacious and is noted only to be rejected. We say so because, there is no dispute with regard to the fact that the assessee has entered into specific agreement/s for harvesting and transportation of sugarcane and the harvester has been admittedly paid harvesting and transportation charges by the assessee. This leads to an irresistible inference that the produce namely the sugarcane has been harvested and transported by the contractor. Harvesting and transportation can be effected only with consent of the owner of the sugarcane namely farmer.” The assessee also took two other arguments, viz., (a) the assessee, being a co- operative society existing for the benefit of members, the demand raised by the TDS officer would affect the interests of members. And (b) the assessee did not have the benefit of proper legal advice due to its locational disadvantage. Both these arguments were also rejected by Hon’ble High Court.

.

ITA No.2364 & 2365/Bang/2025 Page 21 of 25 13. It can be noticed that the assessee before the Hon’ble Karnataka High Court took different kinds of arguments in support of its failure to deduct tax at source, which were not urged in this case. The arguments in the present case are that (a) the price of sugarcane is fixed at ex-factory gate and not at ex-field. (b) If the price is fixed at ex-field, then the responsibility to harvest and transport the sugarcane would be that of the assessee herein. (c) In the instant case, the purchase agreement clearly states that the price fixed is at ex-factory gate and the responsibility to harvest and transport sugarcane is that of the farmer. (d) Under the purchase agreement, the farmer agrees and authorises the assessee to harvest and transport the sugarcane on his behalf. Further he agrees that the expenditure incurred in this connection shall be adjusted against the sugarcane price. (e) The assessee has not claimed harvesting and transportation expenses separately, since it is not the expenditure of the assessee. The payment made on behalf of the farmers, in effect, constitute purchase price of sugarcane only, since the said payment has been adjusted against the purchase price. (f) The assessee has only acted as agent of the farmers in connection with harvesting & transportation and hence the responsibility to deduct tax at source shall lie on the shoulders of the farmers only. None of these kinds of arguments were placed before Hon’ble Karnataka High Court in the above said case. In our view, the above said facts prevailing in this case, would distinguish the present case from that decided by Hon’ble Karnataka High Court. 14. Accordingly, following the decision rendered by the co-ordinate bench in the case of M/s NSL Sugars Ltd (supra), we hold that the assessee is not liable to deduct tax at source from the harvesting charges paid by it on behalf of the farmers in both the years. Accordingly, we set aside the orders passed by Ld CIT(A) in both the years and direct the AO to delete the impugned additions in both the years.

21.5 The facts before us are materially identical. The sugarcane purchase agreement placed on record specifically casts the responsibility of harvesting and transportation upon the farmers and authorises the assessee to make arrangements on behalf of the farmers where necessary. The ledger extracts produced before us further substantiate that the corresponding cost was adjusted against the cane payments due to the farmers. Respectfully following the aforesaid decision of the coordinate bench, we see no reason to take a different view than that of the ld. CIT-A.

.

ITA No.2364 & 2365/Bang/2025 Page 22 of 25 21.6 The reliance placed by the learned DR on the decision of the Panaji Bench of the Tribunal in the case of EID Parry India Ltd. v. ITO reported in 140 taxmann.com 20 is, in our considered view, misplaced and distinguishable on facts. In that case, the Tribunal specifically recorded a finding that the farmers were not parties to the contracts entered into with harvesting contractors; the sugarcane bills and harvesting bills were raised separately; the value payable to farmers was exclusive of harvesting and transportation charges; and the assessee had engaged harvesting contractors on its own account on a principal-to-principal basis under independent enforceable contracts. The Tribunal further found that the assessee failed to establish that the harvesting charges were recovered from the farmers or adjusted against the amount payable for the purchase of cane. On those peculiar facts, the Panaji Bench held that the payments were contractual payments attracting section 194C of the Act.

21.7 The position in the present case is fundamentally different. Here, the contractual arrangement itself provides that harvesting and transportation are the responsibility of the farmers. The assessee merely arranges such services on behalf of the farmers, and the corresponding cost is adjusted against the cane price payable to them. The harvesting and transportation charges are therefore embedded in and form part of the sugarcane procurement cost itself. Consequently, the factual foundation on which the Panaji Bench proceeded is absent in the present case. Therefore, the said decision does not advance the Revenue's case. Similarly, we find that the judgment of the Hon'ble Karnataka High Court in the case of Ryatar Sahakari Sakkare Karkhane Niyamit reported in 67 taxmann.com 283, in our humble understanding, is also distinguishable on facts. In that case, the assessee had entered into specific agreements

.

ITA No.2364 & 2365/Bang/2025 Page 23 of 25 with harvesters and transporters and had claimed the corresponding payments as expenditure in its books. The Hon’ble High Court proceeded on the basis that the assessee had engaged contractors for harvesting and transportation and had made payments pursuant to such contracts. The issue before the Hon'ble High Court was considered in the context of those contractual arrangements.

21.8 In the present case, however, the harvesting and transport charges are not claimed as a separate expenditure of the assessee. The material placed before us demonstrates that such payments were merely adjusted against the purchase price payable to the farmers. The assessee was acting only as a facilitator for procurement of sugarcane and not as a principal engaging contractor for carrying out work on its own behalf. Therefore, the factual matrix before the Hon'ble Karnataka High Court, in our humble understanding, is clearly distinguishable and the ratio of the said decision cannot be mechanically applied to the facts of the present case.

21.9 We also find considerable force in the reasoning adopted by the learned CIT(A) that the arrangement in question is a composite arrangement for purchase of sugarcane. The harvesting and transportation activity cannot be artificially segregated from the overall procurement transaction. Once it is accepted that the responsibility for harvesting and delivery rests with the farmer and the corresponding cost is recovered from the cane price payable to him, the payment made by the assessee to harvesters partakes the character of a component of purchase price rather than a payment under an independent works contract. Considering the totality of the facts and circumstances of the

.

ITA No.2364 & 2365/Bang/2025 Page 24 of 25 case, the documentary evidence placed on record, the contractual terms governing procurement of sugarcane, and respectfully following the decision of the coordinate bench in the case of Parry Sugar Industries Limited. (supra), we hold that the provisions of section 194C of the Act were not attracted to the harvesting and transport charges in the facts of the present case. Consequently, no disallowance under section 40(a)(ia) of the Act could have been made. Accordingly, we find no infirmity in the order of the learned CIT(A) deleting the disallowance of Rs. 10,78,58,310/-. The same is upheld and the grounds raised by the Revenue are hereby dismissed.

Coming to Revenue‘s appeal in ITA No. 2365/Bang/2025 for A.Y. 2013-14

.

ITA No.2364 & 2365/Bang/2025 Page 25 of 25 13 shall also be applied for the assessment year 2013-14. Hence, the ground of appeal filed by the Revenue is hereby dismissed.

Order pronounced in court on 6th day of July, 2026

Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 6th July, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore

.