SHRIRAM JAWAHAR SAHAKARI SAKHAR UDYOG vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by the assessee is emanating out of the order of 1. Commissioner of Income Tax (A) – 4, Pune dt.09.01.2015 for the assessment year 2010-11.

Assessee is a Co-operative Society stated to be engaged in the business of manufacturing and sale of white crystal sugar and its bye- products. Assessee initially electronically filed its return of income for A.Y. 2010-11 on 25.09.2010 declaring total income at Rs. Nil.

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Subsequently, assessee electronically filed revised return of income on

29.09.2011 declaring total income at Rs.69,750/-. The case was

selected for scrutiny and thereafter assessment was framed u/s 143(3)

of the Act vide order dt.21.03.2013 and the total income was determined

at Rs.6,72,50,330/-. Aggrieved by the order of AO, assessee carried the

matter before Ld.CIT(A), who vide order dt.09.01.2015 (in appeal

No.PN/CIT(A)-4/Circle-Satara/135/2013-14) granted partial relief to the

assessee. Aggrieved by the order of Ld.CIT(A), assessee is now before us

and has raised the grounds which have been later modified and the

modified grounds read as under :

“1. The learned CIT(A)-4, Pune erred in law and on facts in sustaining the addition of Rs.6,07,91,993/- (out of total addition of Rs.6,71,80,576/-) u/s 40(a)(ia) of the ITA, 1961; made by the learned AO, on the analogy that the payment of Rs.6,07,91,993/- to Shriram Sahakari Sakhar Karkhana Ltd. (Shriram SSK) is in the nature of contract work and therefore, subject to provisions of section 194C of the ITA, 1961.

assessee had made payment of Rs.6,71,80,576/- to Shriram SSK Ltd.,

Assessee was asked to furnish the TDS details on the payments made to

Shriram SSK Ltd. Assessee inter-alia submitted that it had entered into

a Joint Venture with Shriram SSK Ltd., and as per the terms of Joint

Venture agreement, Shriram SSK Ltd., had to depute its employees for

which the assessee had to reimburse the salary and wages to Shriram

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SSK Ltd. It was further submitted that in terms of understanding, the

employees were working on deputation for the new venture and that the

assessee was reimbursing the salary on cost to cost basis to Shriram

SSK Ltd and therefore the requirement of deducting TDS was not

applicable. The submission of the assessee was not found acceptable to

the AO. AO was of the view that assessee was required to deduct TDS

u/s 194C of the Act as the payments made by assessee to Shriram SSK

Ltd., were not covered under the exceptional provisions of the Act. He

thereafter relying on the decision of the Hon’ble Apex court in the case of

Associated Cement Company Ltd., Vs. CIT reported in (1993) 111 CTR

(SC) 165 held that since assessee has committed default within the

meaning of Sec.194C of the Act, the expenses of Rs.6,71,80,576/- were

liable for disallowance u/s 40(a)(ia) of the Act. He accordingly

disallowed the aforesaid payment made by assessee to Shriram SSK Ltd.

u/s 40(a)(ia) of the Act.

Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A). Ld.CIT(A) after considering the submissions of the assessee

noted that the reimbursement of salary of Rs.63,88,583/- by the

assessee to Shriram SSK Ltd., was not subject to the provisions of

Sec.194C r.w.s 40(a)(ia) of the Act and therefore deleted addition to the

extent of Rs.63,88,583/-. However, with respect to the payment of

wages amounting to Rs.6,07,91,993/- he held that the payments falls

within the ambit of Sec.194C of the Act and since assessee has failed to

deduct TDS, he has upheld the disallowance to the extent of

Rs.6,07,91,993/-. Aggrieved by the order of Ld.CIT(A), assessee is now

before us.

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Ld.CIT(A) and further submitted that assessee is a partnership of two

Sugar Factories namely, Shriram Sahakari Sakhar Kharkhana Ltd. (SSK

Ltd.,) and Jawahar Shetkari Sahakari Sakhar Karkhana Ltd., registered

vide deed of partnership dated 09.10.2006. The main object of the

partnership was to process the sugarcane through the existing unit of

Shriram Sahakari Sakhar Kharkhana Ltd. As per the partnership deed,

SSK Ltd., was to make available the services of the employees for the

operation and running of the sugar plant and for which it was to be

reimbursed the wages and salary. He pointed to the Clause 15 of the

Partnership Deed which is placed at Page 50 onwards of the Paper Book.

It was submitted that the assessee was not the principal employer of the

employees and the responsibility of deduction of tax was the

responsibility of SSK Ltd. He submitted that the payments made to

SSK Ltd., was disbursed to the employees on cost to cost basis and had

no element of profit and therefore assessee was not liable for deduction

of TDS. He submitted that AO was of the view that reimbursement of

salary made by assessee was liable for deduction of TDS u/s 194C of

the Act. He submitted that the present arrangement was continuing

since A.Y. 2007-08 onwards but there was no disturbance by Revenue

authorities from 2007-08 to 2009-10 and for the first time amount was

disallowed u/s 40(a)(ia) of the Act. He further submitted that wherever

applicable, if the salary of the individual employee was in excess of the

prescribed limits, SSK Ltd., had deducted TDS if applicable. Ld.A.R.

therefore reiterated and submitted that since the amounts have been

reimbursed without any markup, assessee was not liable to deduct TDS

and consequently no disallowance u/s 40(a)(ia) of the Act is called for in

the present case.

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authorities and submitted that relying on the decision of Hon’ble Apex

Court in the case of Associated Cement Co., Ltd., (supra), AO has rightly

invoked the provisions of Sec.40(a)(ia) of the Act. He thus supported the

order of lower authorities.

record. The issue in the present appeal is with respect to disallowance

u/s 40(a)(ia) of the Act. It is assessee’s case that as per the

Memorandum of Understanding (MOU) entered between two parties

name Shriram SSK Ltd., and Jawahar Shetkari Sahakari Sakhar

Kharkhana Ltd., Shriram SSK was required to depute its employees for

running the sugar plant and for which the assessee was required to

reimburse the salary / wages of the employees deputed by it. As per the

terms of agreement, assessee had reimbursed the wages to Shriram SSK

Ltd., on cost to cost basis, without any element of profit and Shriram

SSK in turn had disbursed the salary / wages to the concerned

employees. The aforesaid contentions of assessee have not been

controverted by Revenue. The argument of Revenue is that on the salary

/ wages that has been paid / reimbursed by assessee to Shriram SSK

Ltd., assessee should have deducted TDS u/s 194C and since assessee

had failed to deduct TDS, provisions of Sec.40(a)(ia) of the Act are

applicable and therefore expenses cannot be allowed as deduction. The

contention of the assessee as noted above that the payments made by

assessee to Shriram SSK Ltd., is on cost-to-cost basis, has no element of

profits, has not been controverted by Revenue. In such a situation, we

are of the view that when the amounts that have been paid are by way of

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reimbursements without any element of profits or mark up, then the

provisions of Sec.40(a)(ia) of the Act are not applicable. For our

aforesaid view, we find support by the decision of Hon’ble Delhi High

Court in the case of CIT Vs. DLF Commercial Project Corporation (2015)

379 ITR 538 (Del) wherein the Hon’ble High Court has held

reimbursement of expenses cannot be regarded as revenue receipts and

hence tax need not be deducted at source from such payments. We

also find the Hon’ble Bombay High Court in the case of CIT Vs. Karma

Energy Ltd. (2015) 375 ITR 264 (Bom) has held that when the payments

made to a group company was not in the nature of income but was

expenditure which was reimbursed then disallowance u/s 40(a)(ia) of

the Act was not warranted. Relying on the aforesaid decisions, we are of

the view that in the present case, AO was not justified in invoking the

provisions of Sec.40(a)(ia) of the Act. We therefore set aside the order of

AO on this issue and thus the grounds of assessee are allowed.

Order pronounced on 7th day of June, 2019.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 7th June, 2019. Yamini

ITA No.430/PUN/2015

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.