PREMIER MARINE PRODUCTS PVT. LTD. ,CHENNAI vs. DCIT CORPORATE CIRCLE 5(2) , CHENNAI

Shri Shaji P. Jacob, Addl. CIT, represented on behalf of the Revenue and Shri Nitesh Joshi, Adv., & Shri Ashit R.Mehta, CA., represented on behalf of the assessee.

It was submitted by the Ld.AR that the only issue in the assessee’s appeal was against the action of the Ld.CIT(A) in sustaining the disallowance made by the AO by invoking the provisions of Sec.40A(3) of the Act. It was a submission that the assessee is in the business of buying Shrimps and Fish, processing the same by deveining, cleaning, removal of the heads, etc., and exporting the processed goods. It was a submission that the assessee’s business is a labour intensive industry. It was a submission that the assessee’s factory is situated at Pattinamaruthur Village which is located 14 kms away from the main town of Tuticorin. It was a submission that the assessee had engaged two persons namely one Shri Marthandam and another Shri Thenmozhi for supplying contract workers as required by the assessee at its factory premises. The Ld.AR drew our attention to Page Nos.39 to 41 of the Paper Book being the Labour Contract entered into by the assessee with Shri Marthandam and also Page Nos.42 to 44 of the Paper Book being the copy of the Labour Contract entered into by the assessee with Shri Thenmozhi. It was a submission that the assessee used to pay the wages directly to the labourers provided by the two contractors. However, for being extra cautious, the assessee used to deduct TDS u/s.194 in respect of the payments made to the workers supplied by the each of the Contractor in the hands of the Contractors. The Ld.AR drew our attention to Clause-5 to submit that the assessee used to pay Rs.12,000/- as Service Charges to the Contractors and as per the Clause-7, the assessee used to pay the wages in cash directly to the contract labour. In the 3 -: course of the assessment, it was noticed that the assessee had paid Rs.1,42,71,871/- as Processing Charges to Shri Marthandam and Rs.2,47,07,215/- as contract payment to Shri Thenmozhi by way of cash representing the wages paid to the workers provided by the said two contractors. The AO took the view that the cash payments violated the provisions of Sec.40A(3) and disallowed the entire payment paid to the contract workers and shown as Processing Charges paid to the two contractors. It was a submission that the issue of the disallowance u/s.40A(3) was first raised by the AO during the hearing on 30.11.2012, to which the assessee had filed a letter dated 02.12.2016. In the said letter, the assessee had submitted that the payments were made in cash to the contract workers and that there was no bank facility in the Village where the assessee’s business was operating. It was also a submission that the contractors, in fact, acted as the Agents of the assessee and as the payments were made directly to the contract workers supplied by the contractor, the provisions of Rule 6DD applied. It was a further submission that on 30.11.2016, the AO issued another show cause notice to the assessee which was served on the assessee on 05.12.2016, asking the assessee to provide Explanation and the details on or before 07.12.2016. Due to paucity of time, the assessee had requested for additional time to provide the details till 14.12.2016. The Ld.AR drew our attention to Page No.46 of the Paper Book which is a copy of the show cause notice issued by the AO dated 30.11.2016 asking the assessee to provide the details by 07.12.2016. Page No.48 was the Speed Post Consignment tracking print out showing that the said letter was served on the assessee on 05.12.2016. The Ld.AR further drew our attention to Page No.49 which is a copy of the Adjournment Application filed before the AO requesting for time till 14.12.2016. It was a submission that the Ld.AR further drew our attention to Page Nos.50 to 122 which is a copy of the reply filed by the assessee on 14.12.2016 before the AO which included the details of the wages paid directly to the contract workers. It was a submission that however, the AO had passed his Assessment Order on 08.12.2016. It was a submission that he had no objection, if the issue is restored to the file of the AO for re-adjudication and verification of the evidences.

In reply, the Ld.DR submitted that the claim of the assessee, that there was no bank facility in the Village was refuted by the AO in so far as there was an ATM facility of Lakshmi Vilas Bank and there was a branch of Pandian Gramin Bank. It was a further submission that the assessee has deducted TDS u/s.194 in the hands of the two contractors clearly showed that the assessee had not made any payment to the contract workers and that such a claim was only an afterthought. It was a further submission that the AO had granted the assessee adequate opportunity in so far as the assessee has responded to the AO’s query with a letter dated 02.12.2016 which has also been extracted by the AO in his Assessment

We have considered the rival submissions.

A perusal of the facts in the present case clearly shows that the issue of disallowance by invoking the provisions of Sec.40A(3) has been initiated by the AO only on 30.11.2016. A perusal of the letter of the assessee dated 02.12.2016 also clearly shows that the letter is in response to the discussion, the assessee’s representative had with the AO.

A perusal of the consignment tracking shows that the show cause notice issued by the AO on 30.11.2016 has been served on the assessee only on 05.12.2016. To this, the assessee has filed a letter dated 07.12.2016 seeking a short adjournment till 14.12.2016. It is noticed that the assessee has also complied with the show cause notice by filing the details on 14.12.2016. However, it is noticed that the Assessment Order has been passed on 08.12.2016. Thus, it is noticed that the AO did not have the benefit of the details submitted by the assessee in his letter filed on 14.12.2016 when he made the assessment on 08.12.2016. There are substantial issues which are raised in the reply of the assessee filed on 14.12.2016. The said evidences produced also given credence to the claim of the assessee that it was making payments directly to the contract workers supplied by the two labour contractors appointed by the assessee.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.