ITO 12(2)(1), MUMBAI vs. DOLLEX INDUSTRIES LTD., MUMBAI

आदेश / O R D E R PER R.C.SHARMA (A.M):

These are appeals filed by the Revenue against the order of CIT(A)- 20, Mumbai dated 29/04/2016 for A.Y.2007-08 to 2009-10 in the matter of order passed u/s.143(3) of the IT Act. 2. In these appeals, Revenue is aggrieved by the action of CIT(A) holding that payment on account of crushing charges, rental charges was eligible for non-deduction of TDS u/s.196 of the IT Act. 3. Rival contentions have been heard and record perused. 4. There is delay in filing the appeal by the Revenue.

2 ITA No.5218-5220/Mum/2016 M/s. Dollex Industries Ltd., 5. Learned DR has explained the reasons for delay. After considering the rival contentions, we found that there is sufficient reason for the delay, considering substantial interest of justice, we condone the delay and the appeals are heard on merit. 6. Rival contentions have been heard and record perused. 7. Facts in brief are that assessee is engaged in the business of manufacturing sugar and extra natural alcohol. During the course of scrutiny assessment for the years under consideration, AO disallowed assessee’s claim of expenditure under the head pressing charges and rental charges on the plea that assessee has not deducted TDS on such payment. 8. The CIT(A) confirmed the disallowance and assessee approached to the Tribunal wherein matter was restored back to the file of the AO. Thereafter, assessee filed miscellaneous petition against the order of the Tribunal indicating primafacie mistake and the Tribunal vide order dated 10/10/2014 disposed the miscellaneous petition after observing as under:- 7. Since the fact of expenditure duly recorded in the Rooks of Accounts is a crucial and relevant fact for deciding the issue of addition u/s 69C. It is pertinent to mention that if an expenditure is duly recorded in the Books of Accounts then the same does not fall under the expression of unexplained expenditure in terms of section 69C of the Income Tax Act. Therefore, we arc of the view that there is a mistake apparent on record so far as the finding of Tribunal in sustaining the disallowance 01" Rs. 5,86,292 is concerned, in para 6 to 9 of the impugned order. Accordingly, we modify the impugned order and set -aside the issue of addition u/s 69C to the extent of Rs. 5,86,292/- to the record of CIT(A) for considering the fact that the expenditure is duly recorded in the

3 ITA No.5218-5220/Mum/2016 M/s. Dollex Industries Ltd., Books of Accounts and the source of the payment as explained and recorded in the Books of Accounts and then decide the issue as per law. It is clarified that if the expenditure is found to be duly recorded in the Books of Accounts then it does not fall under the purview of section 69C. Needless to say, the assessee be given an opportunity of hearing before deciding the issue afresh. 8. As regards the mistake in respect of ground no. 4 and 5 of the assessee's appeal, the assessee has pointed out in the Miscellaneous Applications that out of the total disallowance of Rs. 2,39,42,030/- a sum of Rs. 88,97,590/- pertains to crushing charges stated to have been paid to Government of Maharashtra. Further another sum of Rs. 1,30,83,090/- part of the disallowance pertains to the factory lease rent paid to the Government of Maharashtra. Since these payments were to the Government of Maharashtra, the provisions of IDS are not applicable on such payments/expenditures. The Tribunal has sustained the disallowance confirmed by the C1T(A) in para 13 of the impugned order asunder :- F the CIT(A) that, a relief with respect to "13. It is clear from the finding O packing material, printing and stationary charges have been granted to the assesses because it does not involved any job work and hence the provisions of section 194C are not applicable. We do not find any error or infirmity as far as the findings of the CIT(A) on this issue is concerned. Accordingly, we uphold the order of the CIT(A) qua this issue and consequently the respective grounds of the parties are dismissed." 9. We further note that that this fact of payment made to the Government was also not considered by the authorities below while adjudicating the issue of disallowance u/s 40(a)(ia). The details of the expenditure disallowed by the Assessing Officer has been reproduced in the impugned order as under:-

Sl.No. Head of TDS u/s Gross Amount Amount on Amount on Expenses claimed in P & which TDS which no TDS L A/c. made made 1 Contracts u/s.194C Rs.1,48,52,249/- Rs.39,93,309/- Rs.1,,08,58,940/- 2 Professional u/s.194J Rs.17,33,322./- Rs.17,33,322/- Nil Fees 3 Rent u/s.194I Rs.1,32,50,000/- Rs.1,66,910/- Rs.1,30,83,090/- Rs.2,39,42,030/-

4 ITA No.5218-5220/Mum/2016 M/s. Dollex Industries Ltd., 11. The contract expenditure comprises various special heads of the expenditure as under: Description of Amount Rs. Allowed Not Expenditure Rs. allowed Rs. Packing 24,97,887 materials Printing & 4,71,469 Stationery Transportation 4,47,405 charges Crushing 88,97,590 charges Advertisement 3,47,357 expenses Security 21,90,541 charges Total 1,48,52,249 39,93,309 10858940 Factory lease 1,32,50,000 1,66,910 1,30,83,090 rent Grand Total 2,81,02,249 41,60,219 2,39,47,030 10. Out of the total disallowance- o- Rs. 2,39,42,030, the crushing charges of Rs. 88,97,590 and factory lease rent disallowed to the extent of Rs.1,30,83,090/- are the payments are the payments made to the Government as pointed out by the assessee in the miscellaneous applications. There is no dispute that the assessee has taken over the sugar plant in question on lease for a period of six years from the Government of Maharashtra. Therefore, there is no reason to disbelieve the fact pointed out by the assessee in the Miscellaneous Applications that these items of expenditure are the payments to the Government of Maharashtra. If this fact is found to be correct then the provisions of TDS are not applicable on such payments in view of section 196 of the Income Tax Act as under: "196. Interest or dividend or other sums payable to Government, Reserve Bank or certain corporations Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be made by any person from any sums payable to- (i). the Government, or (ii) the Reserve Bank of India, or . (iii) a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income- tax on its income, or (iv) a Mutual Fund specified under clause (23D) of section 10, where such sum is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has fall beneficial interest, or any other income accruing or arising to it.)"

5 ITA No.5218-5220/Mum/2016 M/s. Dollex Industries Ltd., 11. Since, it is a crucial relevant fart which goes to the root of the issue so far as these two expenditures are concerned, therefore, the non consideration of this fact tantamount a mistake erupt in the impugned order. This fact was also not taken into account by the authorities below while deciding the issue. Therefore, in the facts and circumstances of the case and in the interest of justice, the ground no. 4 and 5 of the assessee's appeal are set aside to the record of CIT(A) for consideration and examination of this fact and then decided the issue of disallowance u/s 4U(a)(ia). If the facts pointed out in the Miscellaneous Applications of the assessee are found to be correct then in view of the provisions of section 196 of the Income Tax Act, no disallowance can be made u/s 40(a)(ia) in respect of such expenditure to be paid to the Government. 12. In the result miscellaneous applications filed by the assessee are partly allowed.

6 ITA No.5218-5220/Mum/2016 M/s. Dollex Industries Ltd., 9. The 5th ground of appeal is regarding disallowance of Rs.2,39,42,030/-u/s.40(a)(ia) of the Income Tax Act, 1961. 9.1 During the assessment proceedings assessee was asked to furnish details of TDS made and deposited on various expenses claimed in the Profit and Loss Account. The assessee was also asked to explain as to why such expenses on which no TDS was made or TDS made but deposited to the Government Treasury within the prescribed time limit should not be disallowed within the meaning of provisions of section 40(a)(ia) of the Act. In response the assessee submitted a statement of total TDS made and deposited during the year. The assessee has however not made any efforts to reconcile the TDS made on expenses with that of the amounts debited to Profit and Loss Account. The submissions made by the assessee were not supported by any details or explanations and no reconciliation was filed. Hence, the explanations given were not acceptable and the A.O. made an addition of Rs.2,39,42,030/- is disallowed u/s.40(a)(ia). During the course of appellate proceedings, the A/R of the appellant has under :- Disallowance u/s 40(a) (ia): Expenses amounting to Rs. 2,39,42,030/- have been disallowed on account of non deduction of TDS u/s 40(a)(ia). District Central Co-operative Bank Ltd. has funded loan to a sugar unit namely Godavari Manar Sahakari Shakhar Karkhana, Shankar Nagar, Dist. Nanded, Maharashtra. The unit became sick and was unable to repay the dues of the bank. To recover the overdues, the Govt. of Maharashtra floated tenders to operate the unit on lease. As a result of bidding, the assessee had taken over the plant on lease in 2006 for a period of six years. Subsequently, the assessee overhauled the unit by undertaking necessary repairs and maintenance. In light of the overdue loans of Co-operative bank, the rentals as well as crushing charges were to be deposited with the said co-operative bank. This fact can be verified from the agreement entered into with the bank, Decisions by various authorities of income tax: I.T.O.- The assessing officer has disallowed expenses of Rs. 2,39,42,030 under various heads on account of non deduction of TDS as under: Sr. Particulars Section Amount No. 1. Rent 1941 1,30,83,09 0 2- Crushing charges 194C 88,97,590

7 ITA No.5218-5220/Mum/2016 M/s. Dollex Industries Ltd.,

r Others (Packing 194C 19,61,350 3. material, Transportation charges & Total 2,39,42,03 Advertisement expenses etc.| 0 C1T(A)- During the proceedings of appeal filed by us before CIT(A), the following expenses were allowed by the CIT(A) out of total expenses disallowed:  Packing Material - Rs. 24,97, 887/-  Printing & Stationery - Rs. 4,71,469/- For balance expenses of Rs. 2,09,72,674/- the commissioner upheld the disallowance made by I.T.O. Income Tax Appellate Tribunal - Honourable Tribunal has referred back such disallowance to C1T(A) to examine TDS applicability on the expenses. Our Contention: The revenue authorities have taken a view that the above payments were in the nature of lease rent and crushing charges. It got disallowed due to non deduction of TDS on the same. However, this viewpoint does not appear to be correct. Nobody has gone to the root of the transaction. The nomenclature of the payment is not important but its nature should be considered for determining the liability to deduct TDS. The payments were made to discharge the liability of the bank. The learned assessing officer disallowed the payment treating it as lease rent but missed considering the fact that nature of the payment was to repay the dues of the bank. We contend that TDS need not to be deducted on such payments on the following grounds: Chapter XVII of the Income tax Act, 1956, nowhere requires to deduct TDS on the payments made to any bank on account of repayment of the dues. The TDS was not required to be deducted on the sums paid to the bank. As per section 194-1 read as: "Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income bit way of rent, . shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon" - .-

8 ITA No.5218-5220/Mum/2016 M/s. Dollex Industries Ltd., Here if should be noted that the payment made to the bank is not an income for the bank. It is just realization of the principal outstanding and no income has arisen to the bank from such payments. AS per section 194-C read as: "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 income-tax thereon" Here, the company is paying crushing charges to the co-operative bank not for carrying out any work, but it is a payment for repayment of dues to the bank in the nomenclature of crushing charges based on fixed amount of Rs. 65/M.T. of sugarcane crushed. The expenditure is not on account of carrying on any work. Hence, there is no question of applicability of TDS u/s 194C. • Further we would like to add, TDS is just a 'mode of collection of tax and not the tax. The sums received by the bank were repayment of original dues. It was not taxable in the hands of the bank. Hence, the question of deducting TDS does not arise at all." 9.3 I have gone through the assessment order, CIT(A)'s order, orders of Hon'ble ITAT and submissions made in this regard. The Hon'ble ITAT vide its order dt. 10.10.2014 had noted that out of the total disallowance of Rs.2,39,42,030/- the crushing charges of Rs.88,97,590/- and factory lease rent disallowed to the extent of Rs.1,30,83,090/- are the payments made to Government. The Hon'ble ITAT noted that assessee had taken over sugar plant in question on lease for a period of six years from the Government of Maharashtra. The Tribunal had restored the matter back to this office for consideration of the facts in the light of provisions of section 196 of the I.T. Act which state that provisions of TDS are not applicable on sums payable to Government. On the basis of the submissions made by assessee it is noted that the payments were made by the assessee to The Nanded District Central Co-op. Bank Ltd. a body of Government of Maharashtra, on account of recovery of dues from Godavari Manar Sahakari Sakhar Karkhana which was unable to repay dues. The Government of Maharashtra had decided to give the unit on lease to assessee for a period of 6 years. The assessee had made payments as per these directions of Government of Maharashtra. It is noted that on the facts of the case provisions of section 196 are applicable. The Hon'ble Tribunal has already directed that if facts are found to be in

9 ITA No.5218-5220/Mum/2016 M/s. Dollex Industries Ltd., order then in view of provisions of section 196 of the I.T. Act no disallowance can be made u/s.40(a)(ia) in respect of this expenditure. In view of this discussion it is noted that provisions of section 196 are applicable in the present case since the payments were to The Nanded District Central Co-operative Bank Ltd. towards bank overdues at the instance of Government of Maharashtra and no disallowance can be made u/s. 40(a)(ia). The A.O. is directed to delete the addition made u/s.40(a)(ia). Accordingly this ground of appeal is allowed. 11. Against the above order of CIT(A), Revenue is in further appeal before us. 12. We have considered rival contentions and carefully gone through the orders of the authorities below and found that the Tribunal in assessee’s own case for the A.Y.2007-08 has recorded a categorical finding that all these payments have been made to Government of Maharashtra, accordingly no TDS is required to be deducted at source with respect to any payment made by the Government agency. While deciding the appeal as per the direction of the Tribunal, the CIT(A) has also recorded a categorical finding to the effect that both these payments were made either paid to Government of Maharashtra or at the instance of Government of Maharashtra, therefore, there is no infringement of provisions of Section 190 in so far as no TDS was deducted on such payments. Detailed finding so recorded by CIT(A) has not been controverted. Respectfully following the findings of the Tribunal in assessee’s own case, we do not find any reason to interfere in the order of CIT(A). Facts and circumstances in all the three years under

10 ITA No.5218-5220/Mum/2016 M/s. Dollex Industries Ltd., consideration are parimateria, accordingly, we dismiss all the appeals of Revenue. 13. In the result, appeals of the Revenue are dismissed.

Order pronounced in the open court on this 31/07/2018 Sd/- Sd/- (AMARJIT SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 31/07/2018 Karuna Sr.PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, 6. Guard file. सत्यापित प्रतत //True Copy// (Asstt. Registrar) ITAT, Mumbai