P.R.GOLD AND SILVER CRAFT,PONDICHERRY vs. DCIT PONDICHERRY CIRCLE, PONDICHERRY

आदेश /O R D E R

PER MAHAVIR SINGH, VICE PRESIDENT:

3 & 1144/Chny/2018 84960.48 gram of gold to the goldsmiths for making new ornaments and received back 83673.45 gram. The balance stock left with the goldsmith was nil. In the process, the assessee claimed wastage of 1286.03 gram in total. But, the AO also noted that for all other jewellery, the assessee has shown wastage charges ranging between 4.5% to 6%. According to AO, the wastage would be only in the range of 0.5% to 1% and the excess rate of gold from the assessee as wastage was actually gold retained by the goldsmiths in lieu of making charges. The AO recorded the statement of various goldsmiths wherein many goldsmiths admitted the wastage from 5% to 6% but many goldsmiths admitted contrary estimate i.e., 0.5% to 1%. Accordingly, the AO treated this wastage as payment to goldsmiths without deduction of tax u/s.194C of the Act and accordingly estimated the wastage at 1%, excess wastage was treated as payment and disallowed by observing in para 3.6 as under:- “3.6 Finally, assessee’s contention that tax need not be deducted at source when consideration is paid otherwise than by cash/cheque is not acceptable because even if prices by way of winnings, game shows, etc are paid partly in cash and kind. TDS needs to be deducted on the aggregate value of the cash and the price received in kind.

Hence, in view of the above findings, the wastage is restricted to 1% of the gold retained by the goldsmith. Wastage in excess of this 1% is treated as gold in lieu of making charges which works out to 4328.08gm. For valuation of the same, closing stock value of the gold adopted by the 4 & 1144/Chny/2018 assessee is adopted which works out to Rs.1,10,45,260/- (4328.08 x 2552) (34,42,24,851 / 1,34,884 = Rs.2,552 per gram). With this, making charges paid by the assessee in cash of Rs.39,58,959 is added and the aggregate sum of Rs.1,50,04,219/- is disallowed u/s 40(a)(ia) of the I.T. Act since the assessee has not deducted TDS on this.” Aggrieved, assessee preferred appeal before CIT(A).

5 & 1144/Chny/2018 5. We have heard rival contentions and gone through facts and circumstances of the case. We noted the fact that the assessee purchases old gold from the customers and the same are melted to get pure gold through goldsmiths. The assessee gets the jewellery made through goldsmiths to whom he pays making charges. The assessee in the process claims that there is wastage suffered to the extent of 4.5% to 6% of gold. The entire process is that the assessee had outsourced its manufacture to certain jewelers outside Pondicherry and pathars in Pondicherry. It could be seen that the jewelers have not claimed any wastage as they have made good the loss and have paid higher job charges which includes the value of wastage suffered. But the pathars have been allowed wastage and have been paid lessor job charges. The making charges incurred during the year is Rs.39,58,951/- and out of which a small amount of Rs.5,40,983/- has been paid to other jewellery manufacturers. The assessee has filed complete party-wise details of making charges paid and TDS deducted there from. The assessee claimed that in the course of manufacturing of jewellery / ornaments due to various processes involved, there is loss of gold which is actual and real. This loss is on account of cutting, mixing of chemicals and alloys, etc. In the process, the loss of pure gold it may be in the form of powder of gold, etc. The assessee claimed that accepted

6 & 1144/Chny/2018 normal loss is allowed to pathars. It was claimed that the wastage suffered during the manufacture is true and will within the accepted norms. But the AO accepted the loss to the extent of 0.5% to 1% and the balance which is equivalent to the amount of Rs.1,50,04,219/- was disallowed being deemed wastage paid as job charges liable to TDS u/s.194C of the Act and paid without TDS thereby invoking the provisions of section 40(a)(ia) of the Act, made disallowance.

8 & 1144/Chny/2018 because there is no mandate in the Act for deduction of TDS without payment and that mode is also prescribed. The Tribunal i.e., the Co-ordinate Bench in the case of Siva Valli Vilas Jewellers Pvt. Ltd., in ITA No.3071/Chny/2017, order dated 31.03.2021 has considered an identical issue and held that “We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The provisions of section 194C is applicable, when the assessee has paid or credited any charges covered thereunder. In case, no payment is debited or credited to respective parties account, then such payment cannot be considered within the ambit of section 194C or any other TDS provisions. In this case, the assessee has neither debited making charges into profit and loss account nor credit any amount to the respective parties account. Therefore, when no payment is made or amount is credited to respective parties account, then question of application of provisions of section 194C does not arise at all.”

Order pronounced in the open court on 24th August, 2022 at Chennai.