Loading judgment…
Facts
The Revenue appealed an order of the CIT(A) that deleted the addition made by the AO for non-deduction of TDS under Section 40(a)(ia) on the purchase of packing material. The assessee, a cooperative society, argued that these were contracts for sale and not work contracts. The assessee also filed a cross-objection against the disallowance of deduction under Section 80P(2)(d) on dividend income.
Held
The Tribunal held that the purchase of packing material was a contract for sale, not a work contract, and therefore, TDS under Section 194C was not attracted. The disallowance made by the AO was deleted. The Tribunal also noted that the assessee is a cooperative society and directed the AO to consider the claim for deduction under Section 80P(2)(d) on its merits.
Key Issues
Whether the purchase of packing material constitutes a work contract attracting TDS under Section 194C, and whether the assessee is eligible for deduction under Section 80P(2)(d) on dividend income.
Sections Cited
143(3), 144B, 40(a)(ia), 194C, 133A(2A), 201(1), 201(1A), 80P(2)(d), 142(1), 44AB, 44AE, 250, 251
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM vk;dj vihy la-@ITA. No. 634/JPR/2023
fu/kZkj.k o"kZ@Assessment Years : 2018-19 Assistant Commissioner of cuke Alwar Zila Dugdh Utpadak Income Tax, Vs. Sahakari Sangh Ltd. Circle-1, Jaipur Road, Bhawani Top Circle, Alwar. Alwar. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFA2046G vihykFkhZ@Appellant izR;FkhZ@Respondent CO. No. 7/JPR/2023 (Arising out of fu/kZkj.k o"kZ@Assessment Year : 2018-19 Alwar Zila Dugdh Utpadak cuke Assistant Commissioner of Sahakari Sangh Ltd. Vs. Income Tax, Jaipur Road, Bhawani Top Circle, Circle-1, Alwar. Alwar. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFA2046G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal, C.A. jktLo dh vksj ls@ Revenue by : Shr. Anup Singh, Addl.CIT-Sr.DR a lquokbZ dh rkjh[k@ Date of Hearing : 15/01/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 27/01/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. The present appeal filed by the Revenue and Cross Objection to that appeal was filed by the assessee, which arise out of the order of the National Faceless Appeal Centre, Delhi [for short CIT(A) / NFAC] passed on 30.08.2023. This order relates to the assessment year 2018-19. Ld. CIT(A) passed that order because the assessee challenged the assessment order dated 22.04.2021 passed under section 143(3) r.w.s. 144B of the Income Tax Act, [ for short “Act” ] by the National e- Assessment Centre, Delhi [ for short “AO” ].
The appeal of the revenue and cross objection of the assessee were heard together and with the consent of the parties we considered it appropriate to dispose by this consolidated order.
3. The grounds of the appeal filed by revenue are as under :- “1. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in facts and circumstances in deleting the addition of Rs. 1,84,16,722/- made by the assessing officer u/s 40(a)(ia) on account of failure of the assessee to deduct TDS on purchase of packing material as the purchase of specific packing material is covered within the meaning of contract and TDS u/s 194C was required to be deducted by the assessee.
2. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the specific finding given by the assessing officer regarding the nature of transaction as The transaction is in the nature of work contract because specific packaging material is being supplied as per the specification given by the assessee and the work is carried out by the third parties at a fixed rate as per the tender passed by RCDF (Rajasthan Cooperative Dairy Federation) which is liable to be treated as work contract for the purpose of deduction as per section 194C.
& CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd.
3. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the fact that a spot verification u/s 133A(2A) has been carried out at the premises of the assessee and an order u/s 201(1) and 201(1A) has been passed on 20.03.2019 in the case of the assessee determining that assessee was required to deduct TDS u/s 194C as the purchase of packaging material as per the specification of the assessee is covered within the meaning of works contract as per section 194C of the Income Tax Act, 1961.
The appellant craves the right to amend alter or add to any of the grounds of appeal
given above.”
4. The assessee has filed cross objection in CO No. 07/JPR/2023 against the revenue’s appeal, on the following grounds:-
“1. The Ld. CIT(A) has erred on facts & in law in confirming disallowance of deduction u/s 80P(2)(d) of Rs. 15,91,846/- being dividend received from RCDF by incorrectly holding that assessee has not submitted sufficient evidence for claim of said deduction. 2. The assessee craves right to add, alter, amend, and modify any of the ground of appeal
3. Necessary cost be awarded to the assessee.”
5. The brief facts as culled out from the records are that the case of the assessee was selected for Complete Scrutiny assessment under the E-assessment Scheme, 2019 on the four reasons / issues: i) Quantitative details of principal items of goods traded of raw material as well as finished goods not submitted. ii) Issue of default in TDS and disallowance for such default. iii) Mismatch in amount paid to an employee as bonus or commission reported in Audit Report and ITR.
& CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. iv) Demand raised u/s.201 for no deduction or short deduction. Statutory notice u/s 143(2) and 142(1) was sent to the assessee. The assessee is a manufacturer and supplies dairy products like milk, milk products, ghee etc.
5.1 Assessee had furnished details in relation to the queries for the alleged default in TDS and disallowance for such default. The assessee had only submitted partial response to the queries and documents sought from the initial notice u/s.142(1) dated 31/12/2020, multiple reminders were sent for compliance subsequently the assessee responded on 15/02/2021. Post this the assessee in connection to issue of default in TDS and disallowance for such default was further asked to submit certain details related to packaging material which has been alleged to be a 'regular purchase' by assessee vide notice u/s.142(1) dated 10/03/2021, in response to which the assessee furnished its response vide letter dated 16/03/2021.
5.2 From the careful perusal of assessee's response, and submissions with the details on record, ld. AO noted that the assessee in its defense for not deducting TDS in relation to the procurement of packaging materials/items has consistently & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. furnished completely untenable justifications. According to the assessee who is a renowned manufacturer of myriads of dairy products like milk, ghee, butter milk, paneer, rasgullas and other sweets etc., it has not deducted TDS on transactions pertaining to procurement of packaging materials/items, because, according to assessee such procurement does not involve any work component rather it is just another mundane over the counter like purchase of goods/items for the assessee, and as such the liability to deduct TDS does not arise. Further the assessee in support of his claim has provided copies of certain sample invoices, a confirmation letter from a few traders with respect to no deduction of TDS by the assessee. It is pertinent to note that the assessee has submitted a certificate by CA certifying "no requirement of TDS deduction" with respect to only one party i.e. IDMC Ltd, Anand(Gujarat), and such certificates however have not been furnished with respect to any other party.
5.3 From the submission made ld. AO noted that the claim of the assessee with respect to the non deduction of the TDS for the transactions under consideration, supported by the argument that these procurements pertaining to packaging materials / items / containers does not involve any work component rather they are & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. just like any other ordinary over the counter purchase, is stretched too far and seems far-fetched and untenable. Moreover, the kind of packaging materials which the assessee has procured from various parties for the kind of business the assessee is involved in further reinforces the hollowness of assessee's claim, this was precisely because the kind of business assessee involved requires not only procurement of ready to use containers / tins / plastic boxes / plastic bags etc to pack and store the dairy products ready for sale, but also it requires those packaging containers/materials to have on them embossed the logo/mark of the brand name and other relevant necessary details like packaging/manufacturing, expiry date, logo/hallmark/ingredients etc., at the same time such packaging materials should also meet certain specific criteria’s and specifications with respect to their size, dimensions and also with respect to the kind of material used to manufacture those containers for perishable dairy and other dairy related products. Now, such purchases of packing materials cannot be of the nature of everyday over the counter purchase of raw materials/packaging materials or any other items as such, rather such transactions more in nature of pure contractual tailor made procurements packaging materials as per the requirements of the firm.
& CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. Furthermore, the assessee's business significantly diversified when it comes to dairy and related products, at the same time it has wide marked presence over substantially large territory. Because of which the demand and sale of the firm is not the kind of just another average subsistence dairy operating in some regular town. To meet such requirement of packing materials of particular kind which would have various details printed on them ranging from ingredients to that of firm's name and logo etc., also having specific dimensions, size and nature there can only be two logical possible ways. First, either to have self owned dedicated units and machineries manufacturing and labelling such packaging and storing materials or second, to procure the same from various vendors as per the specific needs and requirements of the firm. The assessee being involved in business of 'manufacturing and supplying' dairy products, rules out the first possibility which invariably leaves out the second one, which in turn, because of the kind of nature of assessee's business and the packaging materials / items / containers needed by the assessee, can only be met out in a certain defined manner which is nothing but, contractual procurement involving a dedicated job to be carried out under certain agreement / arrangement to fulfill the tailor made & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. requirements and needs pertaining to specifications/parameters etc. Thus, ld. AO observed that involvement of work component cannot be ruled out, consequently these kinds of transactions definitely attracts the provision of Section 194C of the I.T. Act, 1961. The assessee submitted the response and submission ld. AO on going through the same noted that the assessee establishes the veracity of the remarks and discussions made so far highlighting the error on the part of the assessee in not deducting the TDS for the transactions carried out to procure packaging materials beyond doubt. The assessee has not only tried to keep these transactions under consideration out of the purview of Section 194C through its hollow, untenable logic but also at the same time it has failed to substantiate the same with facts and materials on record. As already discussed above in para 1.3 the assessee had only submitted CA certification with respect to a single party apart from a few confirmation letters from some parties which otherwise also have no admissibility value in so far as the claim of validity of non deduction of TDS with respect to the transaction under consideration. Considering these facts and documents on record and the remarks made above so far, the purchases of Rs.35,49,905/- made from IDMC Ltd., Anand, Gujarat & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. which was without TDS entertained (CA certificate with respect to the party submitted by the assessee), out of the total transactions of Rs.6,49,38,378/-. Based on these facts and keeping in view the provisions of Section 40(a)(ia) of the I.T. Act, 1961, disallowance of Rs.1,84,16,722/- i.e. 30% of Rs.6,13,89,073/- (Rs.6,49,38,378 Rs.35,49,905/-) was made to the total income of the assessee under the head of 'Business Income' for the year under consideration.
5.4 Vide show cause notice dated 30.03.2021 assessee was asked, show cause as to why the deduction claimed by the assessee u/s. 80P(2)(d) of the Act shall not be disallowed. Ld. AO noted that as the assessee failed to comply therefore, again vide notice dated 19.04.2021 the assessee was given final opportunity which the assessee responded on 19.04.2021. On going through the reply ld. AO noted that the assessee being firm cannot be given the benefit of sectin 80P(2)(d) of the Act and thereby a sum of Rs. 15,91,846/- was disallowed.
Feeling dissatisfied, the assessee carried the matter before the ld. CIT(A). A propose to the grounds so raised the findings of the ld. CIT(A) is reiterated here in below:-
& CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. “5. Observation and Decision: From the perusal of the Form 35 and other documents, it is seen that the appeal has been preferred against the order u/s 143(3) rws 144B of the IT Act, 1961 dated 22-04-2021. The said appeal was filed by the assessee company on 02.09.2021 resulting in delay of 130 Days. The appellant has requested to condone the delay. The same is condoned and appeal is admitted. Ground No. 1 "The Ld AO has erred on facts and in law in holding that the assessee has defaulted in non-deduction of TDS u/s 194C on payment made for purchase of packing material and disallowances was made ignoring the facts that some direct purchases were made without contract and for some purchases contract entered by the assessee for supply of goods not for carrying out of any work and such contract does not fall in the definition of WORK as specified in clause (iv) of the explanation to section 194C of the Income Tax Act, 1961. Further sufficient opportunity was also not provided to produce form no 26A though in tough time wherein various offices were closed due to covid-19." At the outset, it is pertinent to note that, in the instant case, the assessee is a cooperative society and engaged, interalia, in the business of manufacturing and trading of milk and milk products. In order to supply the said products, the assessee must need buy/purchase, packing materials, without which it would not be able to supply/sale its products. For the purchase of the said packing materials, the assessee by way of tender issued various tenders for the supply of packing materials which includes Metal Tins, HDPE Crate, LDPE & LLDPE Films, etc. The AR of the assessee in its written submitting submitted copy of such tenders and the same was also submitted during the course of assessment proceedings. From the perusal of the said tender, it can be collated that:
1. 1. The assessee company has given a tender for purchase of such packing materials which was supposed to be manufactured at per the specification of the tender.
2. Materials used for such manufacturing had to be procured/purchased by the said party directly.
& CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd.
After purchasing the raw materials, manufacturing activity as per the assessee company's specification had to be undertaken. Hence, it is clear that the assessee company had not supplied the raw materials to the vendors/parties. Manufacturers had manufactured packing material as per specifications given by assessee and also printed assessee's name on packing material. For the sake of convenience, reference is drawn to sec 194C of the IT Act, 1961, which states that: Payments to contractors. 194C (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family, (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family. of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source- (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice, or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.
& CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. (4) No individual or Hindu undivided family shall be liable to deduct income- tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed [thirty] thousand rupees: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds [one lakh] rupees, the person responsible for paying such sums referred to in sub- section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, [where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with] his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed. Explanation. For the purposes of this section, - (i) "specified person" shall mean,- (a) the Central Government or any State Government, or (b) any local authority, or (c) any corporation established by or under a Central, State or Provincial Act, or (d) any company; or (e) any co-operative society; or (f)any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India or (h) any trust, or (i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956), or (j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or (k) any firm; or (l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,- (A) does not fall under any of the preceding sub-clauses; and (B) is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, (ii) "goods carriage" shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE: (iii) "contract" shall include sub-contract; (iv) "work" shall include- (a) advertising; (b) broadcasting and telecasting including for such broadcasting or telecasting; production of programmes (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. according to the requirement or specification of a customer by using material purchased from a person, other than such customer.]" Thus, from the perusal of the above section, it is clear and evident that the definition of the work has been specifically laid down in the Income Tax Act, 1961 and it includes, manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. In the instant case, from the perusal of the Tender documents submitted by the assessee company, it is seen that the assessee company was supplied goods as per the specification of the assessee company, but the raw materials supplied were not supplied by the assessee company. The raw materials were rather purchased by the supplier directly. Furthermore, the assessee company placed reliance on various judicial pronouncements and the same has been duly perused. Considering the submission made and after perusal of the documents submitted, it is seen that the Purchase of packing material by the assessee was a contract for sale and outside the purview of section 194C of the IT Act, 1961. Taking into account the entire conspectus of this case, I see no reason to uphold the findings of the assessing officer regarding disallowance u/s 40(a)(ia) of Rs. 1,84,16,722/- in the assessment order u/s 143(3). Hence, these grounds of appeal are allowed. Ground No. 2: "The Ld AO has erred on facts and in law in holding that assessee is not eligible to claim deduction u/s 80. P(2)(d) of the Income Tax Act, 1961 though supporting documents have been provided before making assessment. Assessee is co operative. society doing dairy business and dividend earned from investment from RCDF which was straight forward disallowed." From the perusal of the Assessment order u/s 143(3) rws 144B of the IT Act, 1961, it is seen that the assessment has been concluded by the Assessing Officer considering the assessee status as "Firms", wherein the assessee contended itself to be a Co-operative Society. In support & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. of the same, the assessee submitted the copy of the certificate dated 02- 09-1972 regarding the formation of the co-operative society. Hence, the status of the assessee should be Co-operative instead of Firms. Furthermore, the said ground of appeal also spells out towards disallowance of deduction of 80P(2)(d) of Rs. 15,91,846/- by the Assessing officer in the assessment order. From the perusal of the said order, it is seen that the Assessing officer had vide various notices asked for the details and documents pertaining to the said deduction claimed by the assessee company. However, no response was submitted by the assessee at the time of hearing. "However, at the time of the appeal, assessee has submitted certain documents pertaining to dividend received from RCDF (Rajasthan Co-operative Dairy Federation Limited). Since, the said documents could not be furnished by the assessee before the Assessing Officer and the same is being submitted before the appellate state, being additional evidences as per Rule 46A of the IT Rules, 1962, as the assessee has not submitted or bought on record sufficient circumstances or causes from producing the said evidences before the assessing officer. Furthermore, the assessee has not submitted any other details and documents like bank Statement, balance sheet in order to substantiate the said receipt of the dividend. Considering the submission made and after perusal of the documents submitted and taking into account the entire conspectus of this case, the said grounds of appeal is dismissed. Ground No. 3 This ground is in respect initiating penalty on account of misreported income The same is consequential in nature. It does not require separate adjudication. Ground No. 4: This These grounds are general in nature and hence, do not require any adjudication.
5. Conclusion: In the result, the appeal is partly allowed. Order passed under section 250 read with section 251 of the Act.”
& CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. 7. The Revenue by aggrieved from the findings of the ld. CIT(A) preferred this appeal and since the appeal of the assessee was allowed in part the assessee has also preferred the cross objection.
Before us at the time of hearing both the parties relied upon the orders of the lower authority as favourable to them.
Ld. DR in support of the grounds so raised submitted that the ld. AO vide para no. 1.3, 1.4 & 1.5 has given the reasoned finding as to why the addition is required to be made on the default of the TDS made by the assessee. Even the similar institution Jaipur Jaila Dugdh Utpadak Sahakari Sangh follows the provision of section 194C of the Act in the similar set of facts and the assessee does not follow the provisions of deducting TDS on the material purchased by them and therefore, he supported the order of the ld. AO. As regards the cross objection he relied upon the finding of the lower authority.
On the other hand, ld. Authorized Representative appearing on behalf of the assessee, apropos to the appeal “Facts:-
1.
1. Assessee is a cooperative society engaged in the business of manufacturing and trading of milk and milk products. In order to supply the said products, the assessee needs packing material without which it would not be able to supply/sale its products.Rajasthan Co-operative Dairy Federation Limited (RCDF) select the parties for procurement of packing material and supply list of same to all other district dairy federation and as per requirement assessee places purchase orders for supply of packing materials which includes metal tins, HDPE Crate, LDPE & LLDPE Films, etc.
2. The AO observed that on procurement of such packing material assessee was required to deduct TDS u/s 194C of the Act which it has failed to do so. Accordingly AO issued notice u/s 142(1) dt. 10.03.2021 in response to which assessee filed the reply on 16.03.2021 (PB 13) stating that as per section 194C of IT Act, TDS should be deducted wherein work component is there in the contract but for purchasing packing material no work was involved and all the purchases were made as goods, therefore question of tax deduction does not arise.
3. The AO, however held that the kind of business assessee is involved requires not only procurement of ready to use containers/tins/plastic boxes/plastic bags etc. to pack and store the dairy products ready for sale, but also it requires those packaging containers/materials to have on them embossed the logo/mark of the brand name and other relevant necessary details like packaging/manufacturing, expiry date, logo/hallmark/ingredients etc., at the same time such packaging materials should also meet certain specific criterias and specifications with respect to their size, dimensions and also with respect to the kind of material used to manufacture those containers for perishable dairy and other dairy related products. Now such purchases of packing materials cannot be of the nature of everyday over the counter purchase of raw materials/packaging materials or any other items as such, rather such transactions are more in nature of pure contractual tailor made procurements packaging materials as per the requirements of the firm. Thus, it is very much logical that involvement of work component cannot be ruled out, consequently these kinds of transactions definitely attracts the provision of section 194C of the I.T. Act, 1961. Regarding purchases of Rs.35,49,905/- made from IDMC Ltd., Anand, Gujarat the assessee has produced certificate by CA certifying no requirement of TDS deduction. Thus purchases of Rs.35,49,905/- without TDS is entertained out of total transactions of Rs.6,49,38,378/-. Hence disallowance u/s & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. 40(a)(ia) is made to the extent of Rs.1,84,16,722/-, i.e. 30% of Rs.6,13,89,073/- (6,49,38,378-35,49,905).
4. The Ld. CIT(A) deleted the disallowance made by AO by holding that from the perusal of the tender documents submitted by the assessee company, it is seen that the assessee company was supplied goods as per the specification of the assessee company but the raw materials supplied were not supplied by the assessee company. The raw materials were rather purchased by the supplier directly. Thus, the purchase of packing material by the assessee was a contract for sale and outside the purview of section 194C of the IT Act, 1961. Submission:-
1.
Section 194C applies when a person is responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and a specified person. For the purpose of this section "work" shall include:- (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. In the present case, the assesseewas supplied goods as per its specificationbut the raw materials were not supplied by the assessee. The raw materials were purchased by the supplier directly. From the sample copy of invoices placed at PB 15-21 it can be noted that the invoices raised by the supplier do not contain any break-up of the cost of material and cost of labour and they have charged taxes as applicable on sale of products. Merely because the assessee’s name/logo is being printed on the packing material, the contract cannot be termed as a works contract. The other details mentioned in the packaging material like date of packaging/manufacturing, expiry date, ingredients, etc.are to comply with the statutory requirements under the relevant laws. These requirements are not specific to the assessee but as per the statutory and industry regulations.Thus, the purchase of packing material by the assesseeis on principal-to-principal basis and is not a contract for carrying out of work ratheris a contract for sale outside the purview of section 194C of the IT Act, 1961.
2. Reliance in this connection is placed on the following case laws:- ITO Vs. Millan Dairy Foods (P) Ltd.(2005) 24 CCH 616 (Del.) (Trib.) The assessee is a private limited company engaged in the business of milk and milk products. It purchases, as packaging material, poly film, tins and containers from various manufacturers/suppliers. It was under the bona fide belief that the purchase of packaging material was purely a & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. purchase contract and that no deduction of tax at source was to be made on payments made against such purchases. A survey was carried out on the assessee’s business premises where it was pointed out that payment made against the purchase of packaging material/packing material was allowable for TDS u/s 194C as such material was in the nature of printed material. It was held that just because the assessee’s name is being printed on the packing material, the contract cannot be termed as a works contract. The assessee purchases packing material from independent manufacturers who sells similar materials to other customers also. The manufacturers produce material as per the specifications provided by the customers. The manufacturers sell the package material on the basis of a purchase order issued by the assessee. The excise duty and sales-tax on the manufactured and sale of packaging material is paid by manufacturers and is included in its invoice raised on the assessee. The ownership of the packaging material passes on to the assessee only after the material is delivered to the assessee. If the packaging material is damaged or destroyed before it is delivered to the assessee, the loss is to be borne out by the manufacturer to the moulds, dyes, etc. used in the manufacture of packaging material owned by the manufacturer. The manufacturer is under no obligation to part with them at all, in case the assessee stops producing from the manufacture. The purchase of packaging material is thus made on principal to principal basis. There is no element of any work involved. The invoice raised on the assessee by the manufacturer does not bear any break-up of the cost of material or cost of labour. All raw materials were purchased independently by the manufacturers for use in the production of packaging material and no material is supplied by the assessee. There is no long-term contract entered into between the assessee and the manufacturers. If the assessee is not satisfied with the quality of the product, it goes to another manufacturer. The assessee purchased only the quantity indicated in the purchase order. It is not obliged to purchase any excess production. The cost of imported raw material for the manufacture of product is a substantial portion of the total value of the product/packaging material sold to the assessee. For most of the packaging material printing is incidental. Many details mentioned in the packaging material are to comply with the statutory requirements under the relevant laws. These requirements are not specific to the assessee, being as per the statutory and industry/regulations. Thus, the transactions between the manufacturers and the assessee are transactions of sale and purchase on a principal to principal basis. Hon’ble Supreme Court in Hindustan Shipyard Ltd. vs. State of Andhra Pradesh (2000) 119 STC 3533 (SC) has held that production of goods as per the specifications prescribed by the buyer is not the conclusive determining factor as to the true nature of the transaction. So, the customization of the packing material supplied in accordance with the specifications laid down by the assessee, would not make the transaction into a transaction of contract. Hence assessee is not required to deduct any tax at source.
Bangalore District Co-operative Milk Producers Societies Union Ltd. Vs. ITO (2006) 25 CCH 380 (Bang.) (Trib.) The appellant is a registered co-operative society dealing in milk and milk-products. For the relevant assessment years, the appellant had made purchases of packing material from successful bidders on tenders issued by the Karnataka Co-operative Milk Producers’ Federation Ltd. (hereinafter referred to as "the KCMP"). On the basis of the tender, the bidders give their best offer and the successful bidder is issued the purchase order by the various members of the KCMP of which the appellant is one. The ITO was of the opinion that as the packing materials were printed packing material, the transaction that the appellant had with the sellers of the packing material was a specific work-order and consequently invoked the provisions of sec. 194C of the Act and held that the appellant was due to deduct TDS on payment made to the suppliers of the packing material and TDS having not been made, assessee should be treated as an assessee-in-default and consequently invoked the provisions of ss. 201(1) and 201(1A) of the Act. It was held that sec. 194C provides that any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract shall at the time of credit of such sum to the account of contract deduct tax at an appropriate rate. Circular dt. 29th May, 1972, was issued, inter alia, stating that the provisions of sec. 194C would apply only in relation to "work-contracts" and labour contracts and would not cover contracts for sale of goods. If a manufacturer purchases material on his own and manufactures a product as per the requirement of a specific customer, it is a case of sale and not a contract for carrying out any work. The fact that the goods manufactured were according to the requirement of the customer does not mean or imply that any work was carried out on behalf of that customer. In the present case it is seen that to ensure uniform supply with uniform pricing, the Federation KCMP floats a tender and selects the successful bidders for supply of packing materials. The tender is for supply of goods being packing material, duly printed and marked as desired. The invoices raised in this behalf clearly show that it is for supply of co-extruded transparent LD/LLDPE pouch, film, 5 layer nylon film for packing ghee, printed BOPP tapes, corrugated boxes of various sizes and varieties etc. The printing of certain specification is only incidental but is not the sole intention. In CBDT Circular No. 681, dt. 8th March, 1994 relating to supply of article or thing fabricated as per the order of the customer, whether covered by sec. 194C, it was explained that where the contractor, undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of sec. 194C. Hence the assessee having procured packing material from various suppliers as per its specification, it was a case of purchase of material and not a payment towards works & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. contract. Accordingly the assessee was not required to deduct tax at source u/s 194C. ITO Vs. Mother Dairy Food Processing Ltd. (2011) 7 ITR 0016 (Delhi) (Trib.) Assessee is not liable for TDS u/s 194C in respect of purchase of printed packing materials from various suppliers which are transactions of purchase and sale of goods and not contract for supply. Such contract is outside the purview of sec. 194C. Hero Moto Corp. Ltd. Vs. ACIT (2013) 91 DTR 1 (Del) (Trib.) Vendors, who are independent legal entities with their own manufacturing establishments, employing huge labour, utilize the raw materials purchased for producing customized finished goods for the assessee and the title in the finished goods passes to the assessee only after the goods have come into existence and are supplied by the vendor to the assessee, there was a contract of sale and not contract of work. Hence, provisions of sec. 194C are not applicable & consequently disallowance made u/s 40(a)(ia) is to be deleted.
CIT &Anr. Vs. Allergan India Pvt. Ltd. (2016) 132 DTR 114 (Kar.) (HC) Assessee engaged in the business of ophthalmic products, outsourced its manufacturing process to one PHL according to its own specifications. Raw material for manufacturing was not supplied by the assessee but purchased by PHL. Know-how for manufacture was supplied by assessee but no royalty charged. AO disallowed the payment by holding that assessee defaulted in deducting tax at source on payment made to PHL as payment has been made for execution of contract work falling u/s 194C. It was held that no raw material was supplied by the assessee to the manufacturer. Know-how is not a material but even if it is taken as material supplied by the assessee, there was no sale or purchase of the technical know-how as no royalty was received by the assessee. Thus, when there was no purchase of such know-how, contract cannot be termed as ‘contract for work’ under Explanation to section 194C. Hence, assessee is not required to deduct TDS from payment made to PHL in connection with the manufacturing contract. CIT Vs. A.P. State Road Transport Corporation (2015) 122 DTR 178 (AP) (HC) Fabrication of bus bodies on the chassises supplied by assessee involved sale and not works contract, hence TDS u/s 194C was not attracted. Once a finished product of a definite description and shape was brought into existence with the material and expertise of the agency or person, who undertook the activity and a fixed price is paid thereon, the activity tends to be close to sale. Once it is a sale, it ceases to be a work or works contract from the point of view of sec.194C.
In view of above, order of Ld. CIT(A) be upheld by dismissing the ground of department. Assessee’s CO The Ld. CIT(A) has erred on facts & in law in confirming disallowance of deduction u/s 80P(2)(d) of Rs.15,91,846/- being dividend received from RCDF by incorrectly holding that assessee has not submitted sufficient evidence for claim of said deduction. Facts& Submission:-
1. 1. During the year assessee has claimed deduction of Rs.15,91,846/- u/s 80P(2)(d) of the Act. The AO disallowed the same by holding that deduction u/s 80P(2)(d) is available to a cooperative society but assessee is a firm involved in the business of dairy and associated products.
2. The Ld. CIT(A) held that the assessee has submitted the copy of certificate dated 02.09.1972 regarding the formation of co-operative society. Hence, the status of the assessee should be co-operative instead of firms. However, he confirmed the disallowance of deduction of Rs.15,91,846/- u/s 80P(2)(d) by holding that the AO vide various notices asked for the details and documents pertaining to the said deduction claimed by the assessee company. However, no response was submitted by the assessee at the time of hearing. At the time of the appeal, assessee has submitted certain documents pertaining to dividend received from RCDF. Since the said documents could not be furnished by the assessee before AO and the same is being submitted before the appellate state, being additional evidences as per Rule 46A of the IT Rules, 1962, as the assessee has not submitted or bought on record sufficient circumstances or causes from producing the said evidences before the AO. Furthermore, the assessee has not submitted any other details and documents like bank statement, balance sheet in order to substantiate the said receipt of the dividend.
3. From the balance sheet and list of investment placed at PB 29-30 it can be noted that the investment made by the assessee in the equity share capital of RCDF Ltd. as on 31.03.2017 is Rs.68,97,000/-. On such investment assessee has received dividend of Rs.15,91,846/- during the year on which deduction u/s 80P(2)(d) has been claimed. Copy of administrative order of RCDF regarding distribution of dividend and bank receipt voucher of receipt of divined is at PB 24-28. All these documents were also furnished by the assessee during the course of assessment proceedings vide letter dt. 19.04.2021 (PB 22-23). The Ld. CIT(A) confirmed the disallowance by incorrectly holding that no response was submitted by the assessee during the course of assessment & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. proceedings and these are additional evidences. Hence the disallowance confirmed by Ld. CIT(A) is uncalled for.”
The ld. AR of the assessee filed on a detailed paper book in support of the contention so raised in the written submission and the index of the document submitted are as under:-
Filed Page S. No. Particulars before No. AO/CIT(A) Copy of submission filed before ld. CIT(A) 1-12 CIT(A) 1. Copy of rely dt. 16.03.2021 to AO regarding Both TDS on packing material with list of parties 13-21 2. and sample bills of packing material purchases. Copy of acknowledgment of letter dt. AO 22 3. 19.04.2021 filed to AO Copy of letter dt. 19.04.2021 to AO along Both with administrative order of RCDF regarding 22-28 4. distribution of dividend and ban receipt voucher of receipt of dividend Copy of balancesheet of assessee & Both 29-30 5. benevolent schedule
Ld. AR of the assessee supported the order of the ld. CIT(A) and submitted that the same has been passed considering the overall facts of the case and case law relied upon. As regards the deduction claimed u/s. 80P(2)(d) of the Act the assessee vide notice dated 19.04.2022 submitted the proof of dividend, certificate & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. of the society and other related details and thus the finding of the ld. CIT(A) that the assessee has not submitted the details is against the facts on record. On the contrary ld. CIT(A) also noted that the assessee filed certain documents which were not furnished before the ld. AO and therefore, he confirmed the addition. We not that the assessee was denied the deduction on the count that the assessee was a firm based on the PAN allotted and therefore, the deduction was not denied. The assessee has proved that the assessee is co-operative society and therefore, the deduction based on the evidence merely the PAN is of the firm deduction cannot be denied.
We have heard both the parties and perused the materials available on record. Ground no. 1 to 3 raised by the revenue deal with the obligation of the assessee to deduct the TDS on the purchases wherein the product specific details were printed and therefore, that purchases made was considered liable for deducting the TDS as per provision of section 194C of the Act as detailed in the assessment order. When the finding of the Assessing Officer was challenged before the ld. CIT(A) he directed to delete the addition so made on this account by observing as under:
& CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. Thus, from the perusal of the above section, it is clear and evident that the definition of the work has been specifically laid down in the Income Tax Act, 1961 and it includes, manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. In the instant case, from the perusal of the Tender documents submitted by the assessee company, it is seen that the assessee company was supplied goods as per the specification of the assessee company, but the raw materials supplied were not supplied by the assessee company. The raw materials were rather purchased by the supplier directly. Furthermore, the assessee company placed reliance on various judicial pronouncements and the same has been duly perused. Considering the submission made and after perusal of the documents submitted, it is seen that the Purchase of packing material by the assessee was a contract for sale and outside the purview of section 194C of the IT Act, 1961. Taking into account the entire conspectus of this case, I see no reason to uphold the findings of the assessing officer regarding disallowance u/s 40(a)(ia) of Rs. 1,84,16,722/- in the assessment order u/s 143(3). Hence, these grounds of appeal are allowed. At the time of hearing when the bench asked the same question as to whether the assessee provided the raw material to those supplier for making the specific goods ld. DR did not controvert the otherwise facts placed on record by filling the same bill in the paper book so filed wherein the assessee has purchased the goods which are subjected to the indirect tax. Thus, it is clear that the assessee had not undertaken any job work and it was case of clear purchase and therefore, we do not find any infirmity in the & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. finding of the ld. CIT(A) and also do not find any single reason to deviate from the finding so recorded and therefore, the appeal of the revenue stands dismissed.
14. Now coming to the cross objection filed by the assessee where in the assessee contended that the ld. CIT(A) erred on facts & in law while confirming disallowance of deduction u/s 80P(2)(d) of Rs. 15,91,846/- being dividend received from RCDF by incorrectly holding that assessee has not submitted sufficient evidence for claim of said deduction. The bench noted that the assessee vide acknowledgment number 624064761190522 already filed the details of dividend proof, certificate of registration as society. The proof of receipt of the donation as submitted is reproduced herein below :
We note from the order of the assessment that the ld. AO has not given the benefit of deduction to the assessee merely on the ground that the assessee is a firm. That observation of the ld. AO was based on the PAN allotted to the society. The assessee has submitted all the evidence which was not disputed in the order of the assessment and even the same was submitted before the ld. & CO. No. 7/JPR/2023 ACIT vs. Alwar Zila Dugdh Utpadak Sahakari sangh Ltd. CIT(A) thus considering all these set of evidence and certificate of registration of the society placed on record the deduction cannot be denied to the assessee merely on the ground that the assessee based on the PAN is a firm and not a co-operative society. Looking to the overall facts discussed herein above ld. AO is directed to satisfy the other condition for consideration of the claim of the assessee u/s 80P(2)(d) of the Act and consider the claim of the assessee in accordance with the law. Based on this observation cross objection of the assessee is allowed for statistical purpose.
In the result, the Cross objection of the assessee is allowed for statistical purpose and the Revenue’s appeal is dismissed.
Order pronounced in the open Court on 27 /01/2025.